Sound and fury over 10p tax

25 Apr 08
PETER WILBY | Gordon Brown, in the end, did enough to buy off the backbench revolt over the abolition of the 10p tax band, which had threatened a Commons defeat and even an early exit from Number 10.

Gordon Brown, in the end, did enough to buy off the backbench revolt over the abolition of the 10p tax band, which had threatened a Commons defeat and even an early exit from Number 10.

But how did the prime minister get himself into such a pickle in the first place? If there was one thing we thought we knew about Brown, it was that he was on the side of the poor. How could he have come so close to letting himself and his supporters down so badly?

The answer reveals Brown’s deepest flaw as a politician, which is that he has the political equivalent of a tin ear. He is like the conductor of an orchestra who thinks music consists solely of getting the requisite number of trombones and violins to play the right notes in the right order.

He is essentially a numbers man, who lacks any conception of how, even when he has added up the figures correctly, the result is still — in political terms — horribly discordant.

Take the notorious 75p rise that he gave pensioners in 2000, when he was chancellor. It followed a policy the Tories had introduced in 1988: that the basic old-age pension would rise in line with prices, not earnings. And prices that year happened to rise by only 1.1%.

The arithmetic was impeccable. Pensions are a universal benefit and increases go mostly to people who are already comfortably off. Keeping down such increases allowed Brown to spend more on the poor, whether young or old.

What he didn’t understand was that, in the popular mind, and particularly the Labour mind, almost all pensioners are still poor, shivering in front of one-bar electric fires and looking forward to tinned salmon on Sunday as their only treat of the week.

In relation to the cost of living, 75p was no less than they had received for the previous 12 years. But a rise of less than £1 carried an unforeseen (by Brown, that is) emotional charge.

The 10p tax band is a more complex story, but the error is similar. Norman Lamont introduced an income tax band lower than the basic rate when he was chancellor in 1992. He made it 20p when the basic rate was 25p.

In the 1999 Budget, with the basic rate coming down to 22p, Brown cut the starter rate to 10p. He and his Treasury team were warned by the Institute for Fiscal Studies that it wasn’t an efficient way of helping the poor, since around a quarter of individuals live in households where nobody pays income tax. To which, I am told, Ed Balls, then Brown’s adviser, produced a piece of logic that would surely have earned him a Fail in A-level philosophy: ‘This will help us. We help the poor. Therefore, this will help the poor.’

New Labour was then anxious to assert its credentials as a tax-cutting party. Brown was trying to burnish these in his final Budget last April. He wanted to cut the basic rate by 2p to 20p but the public finances were not as healthy as they were in 2000. He needed £7bn and got it by abolishing (from this April) the starter rate.

Again, the arithmetic was fine. Most poor people gain, because Brown used £2.3bn to improve tax credits. But poor people who are also childless lose. This is wholly consistent with Brown’s policies since 1997: to help, first, families with children and, second, poorer pensioners.

Over the past decade, poverty among children and pensioners has fallen. Among childless working-age adults, it has increased, because their after-tax incomes have risen more slowly than the national median.

Nobody on the Labour benches has raised more than a squeak of protest. Brown’s argument — that giving children a fair start must be a priority, and that childless poverty is usually a transitory stage before people become parents and/or higher earners — was widely accepted.

What Brown didn’t understand was that it is one thing to give a poor section of the population less than others — or nothing at all — but quite another to take money away from them. It’s that emotional charge again.

The puzzle as to why Labour MPs waited so long to make a fuss isn’t really a puzzle at all.

First, last April more than 60 of them demanded a compensation package for the losers (which needn’t cost anything like £7bn). They didn’t get much political traction because the Tories abstained.

Second, to any normal human being, a financial loss appears more threatening the closer it gets, and those paid weekly have already seen reduced wage packets.

But Brown isn’t a normal human being and nobody pretends he is. This time, he narrowly averted disaster, as he did over the 75p pensions rise.

But eventually, I fear, that tin ear for the popular mood music will lead to a catastrophe from which there is no escape.

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