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It would be scandalous to have an tax system in which half of all those liable for income tax pay it at what was the top rate until only recently – at least, if they are only earning £40,000 or so. But that is the direction in which Britain is heading.  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”. In September, 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”.

If this were all there were to the matter, David Cameron would have been wrong to said on Marr this morning that “my priority, if you like, and the priority of this Government and the Conservative party…is to target tax reductions on the poorest in our country”.  However, it isn’t.  The Government borrowed £111 billion last year.  Not until 2018-19 will the books balance – according to the Office of Budget Responsibility’s forecasts, which may well turn out to be on the bright side (not for the first time).  The deficit may be reduced, but is still with us – and even the most reductionist of supply-siders might hesitate to claim that slashing income tax rates would produce revenues so swiftly as to render borrowing even more in the short-term unnecessary.

That’s not to say that some taxes paid by people rather than businesses can’t come down, and some have.  At the top end, George Osborne has cut the highest rate of income tax to 45p – a move that some on the centre-right have opposed since he made it, but rather fewer did before – and, near the bottom, raised the personal allowance to £10,000.  Many of the Chancellor’s most significant personal tax moves have been aimed at voters who may not be poor but are certainly hard-pressed – such as the fuel duty and council tax freezes, and the initiative to roll back the green taxes and levies that push up energy bills announced in the autumn statement.

A question that thus arises from the scale of the deficit and the Government’s record on taxes is: if further cuts in non-business taxes can come before the next election, on which voters should they be concentrated?  Social justice, electoral requirements and the Conservatives’ reputational problem all make it sensible for Osborne to carry on what he has been trying to do – target squeezed voters whose household budgeting is constantly challenged by the cost of filling up a car or paying a gas bill.  Nigel Lawson’s top rate was 40p and, in the medium term, any Conservative-led Government should return to it and, more importantly, raise the threshold at which it is paid.  But Cameron was right to say that in the short-term – that’s to say, before 2015 – any income tax cuts should be targeted at poorer workers.

35 comments for: Why Osborne should cut income taxes for poorer workers first

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