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Last week, Robert Halfon argued on this site that the Government should seek to raise thresholds for National Insurance contributions rather than income tax, since employees pay National Insurance if they earn over £7,748 per year and “many of the poorest people are not affected by changes to the personal allowance because they earn under £10,000”.  The Harlow MP’s unambiguous view is that any tax cuts should be concentrated on poorer workers.

Today’s Sunday Telegraph reports that David Cameron is “ready to consider” raising tax or national insurance thresholds, but that members of the Policy Board are divided over the matter.  (How much influence the Board has over Government policy or the next Conservative manifesto is an interesting question, and one to which this site will return.)  The paper quotes two members of the board, Priti Patel and Nadhim Zahawi, as well as Dominic Raab.

Raab says rightly that any tax cuts “must be paid for by deeper cuts in public spending”, and all three back raising thresholds (in Raab’s case, the national insurance one).  Patel, whose fortnightly ConservativeHome column will appear tomorrow, also raises the fiscal drag that is hauling more and more taxpayers into the 40p band. “We should really index the income tax threshold to earnings to ensure that more workers are not dragged into [higher rate] income tax,” she said.

Last year, the Daily Mail reported that “in 1978, it caught just three per cent of taxpayers. By the late 80s, it had risen marginally to five per cent. But today it is 12.5 per cent, and will affect a staggering 15 per cent next year”. Last month, Paul Johnson of the Institute for Fiscal Studies predicted that “at least half of all basic rate taxpayers will pay 40p income tax over the next 15 years as millions more drift into the higher rate band”.

In one sense, the disagreement within the Policy Board is part of the bargaining that it taking place both between the Coalition parties and within them.  This morning’s news sees Nick Clegg preparing to launch an assault on parts of the Free Schools policy (though not on the principle of it), and continuing squabbles between the two parties over green taxes (Michael Fallon tells the paper that “We have to look at the seven green taxes and see where the burden is too high”.)

This public negotiation between the two parties started before the formation of the Coalition, has carried on ever since, and will continue until the next election – indeed, perhaps after it, too, if there’s another hung Parliament.  No wonder Tristram Hunt was quick yesterday to line up with Clegg yesterday on teacher qualifications at Free Schools. But the thinking aloud of the Tory Policy Board members about tax thresholds also highlights a choice that the Party may have to make before 2015.

In essence, it is whether any tax cuts should be concentrated on richer voters, who are more likely to vote Conservative, or poorer ones, who are less likely – and are to be found in large numbers in the northern and midlands marginal seats that the Party must hold and win to stand any chance of forming a majority.  These are constituencies where the public sector is usually larger and the higher rate taxpayers fewer than in the relatively prosperous south.

The marginal seat that Halfon won from Labour is in the south-east, but he grasps the key political point at stake (as, to be fair, do his colleagues in safer ones). Tories mulling tax cuts should ask themselves a simple question: what kind of tax cut is more likely to help win Bolton West?  The answer is the raising of thresholds for poorer voters – a policy in the Party’s best radical tradition, and one that the Liberal Democrats shouldn’t be allowed to own.

150 comments for: What kind of tax cut is most likely to help win Bolton West?

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