Fairer taxes

When Gordon Brown delivered his last budget just over a year ago, he couldn't have expected that its long term legacy would have been to unite the Tories and Lib Dems, along with an increasing number of members of his own party, in opposition to tax rises for low paid workers without children.

The situation facing people who are living on low incomes, but who don't have kids, didn't feature as a major issue in the 2005 election, or the one before. No powerful lobby group speaks for them, and they aren't considered part of 'Middle England' (though thousands of them live in marginal constituencies around the UK - there are a lot more people earning less than £18,000 in Gillingham than earning £60,000+).

The changes in income tax, cutting the basic rate by 2% while abolishing the 10% starting rate, means that anyone earning between roughly £18,500 and £35,000 is better off, while workers earning enough to pay income tax but less than £18,500 are worse off, up to a maximum of £223 per year per person. In terms of the political Conventional Wisdom of the time, this was redistribution from those who don't vote to those who do, planned just in time for an election in 2008. As we know, it hasn't turned out that way.

Over in America, David Frum has written a book which in part aims to explain the decline in popularity of the Republican Party. Frum notes that “after almost three decades of tax-cutting, most Americans no longer pay very much income tax … By contrast, the top 1 percent of taxpayers pay well over one-third of all U.S. income taxes.” As a result, the appeal of tax cuts as opposed to greater public spending on, for example, healthcare has been radically diminished. On CentreRight, the reviewer of Frum's book concluded that "Tax cuts targeted at low earners is an idea that has resurfaced on many conservative blogs recently, but it is one that if implemented would make all future tax cuts much more difficult."

There are a number of lessons from all of this. One is that any attempts at tax simplification are always fraught with the danger that the people who lose out will be more vocal than those who gain. A second is that policies which take from less well off people to give to the middle classes aren't the vote-winners which some have argued. And a third is that when the Conservatives complain about tax rises for low paid people, the longer term aim is to cut them for the rich.

But above all, there is a golden opportunity here for Labour to rescue the situation. Put simply, it is now a matter of political consensus that people on low incomes pay more than their fair share of tax, and people who have a lot of money pay less than their fair share. So the fair and popular thing to do is to cut taxes for those on low incomes, and pay for it by raising them on the rich. And if, in future years, this helps to undermine support for the Conservative case for more and bigger tax cuts a la George Bush, then so much the better.