From the TUC

The attacks on the PBR 1

26 Nov 2008, by in Economics

The onslaught on the PBR has started.

The Conservatives clearly think that they have found their range on the PBR and have a spring in their collective step after some difficult weeks.

But it is not so clear that voters will warm to this retreat to their small state, low tax roots. It did not work for them at previous elections, and the danger is always that they confuse the media unpopularity of tax increases with the grudging acceptance from voters that they are necessary and that the alternative would be irresponsible. As Sunder from the Fabians points out on their excellent blog, the public attitude to tax is much more nuanced – and the new tax on those earning more than £150,000 will be popular.

I would not want to be the person who posted the document suggesting a higher VAT rate on the Treasury website, but it is strange to watch some of those who said that the cut in VAT would make little difference now saying that a modest rise would be an outrageous burden on people. It’s not a progressive way of raising tax and would not be my option, but the debate has brought out to me just how much VAT raises in a way that does not produce the emotions generated by income tax.

We are living in extraordinary times, and voters are likely to accept that extraordinary responses are required. Much of the PBR coverage in the papers was inevitably of the “will you be a winner or a loser?” variety complete with tables and case studies. Here’s a splendid example from the Guardian:

“The rise in the top rate of tax to 45% is a return to “old Labour at its worst”, according to investment adviser Mark Dampier, who works for Hargreaves Lansdown in Bristol and expects to be one of the people hit by the increase.

I walked into the office and said to my boss, ‘shouldn’t we all be wearing flares?’ It’s back to the 1970s and ghastly governments that think they should just tax people more and more. It’s the politics of envy.”

What a plonker! And it is well worth reading the rest as it gets better.

(I confess to always looking myself up in such tables. If I lose it pleases my politics (as I am paid enough to think that I should pay more tax), and if I find myself a winner it not only benefits my pocket but confirms some of my political prejudices.)

But while everyone will do a personal assessment, I think most people realise that this PBR had a higher purpose than shuffling the tax burden round. Of course it’s a bit of a gamble and there are questions about whether it is big enough or targetted as effectively as possible. But the alternative of no fiscal stimulus and using monetary policy alone would not make much impact on recession, and has been rejected by the G20 and EU summits.

Conservative efforts to paint those on £20,000 and above as losers is the kind of claim that simply feeds cynicism about politics. There is absolutely no reason not to include the changes in personal allowances in such calculations. Making the temporary change brought in to mitigate the 10p tax disaster permanent is a real change.

The IFS is being misrepresented by the Tories. Their judgement is much more nuanced – and indeed they tantalisingly suggest that the best way to measure winners and losers might well be to start from April 2007 (before the 10p tax rate debacle) though they do not actually show the results. It is well worth looking at their powerpoint on the distributional effects of the PBR.

Their director Robert Chote is also clear:

“on balance the risk of acting may be less than the risk of refusing to. “

which is probably about as strong as you are going to get from an independent think-tank like the IFS.