Peter Kellner presents polling for Progress on the politics of tax and spending
Imagine you are crafting a manifesto for next year’s general election. What should you say about higher-rate tax? The answer is easy if you are rich, selfish and do not mind losing – or if you want to soak the rich and reject concerns about aspiring voters and wealth creators fleeing abroad.
If you are somewhere between these extremes, the calculation is trickier. Remember 1992, when John Smith launched Labour’s shadow budget. He said Labour would increase national insurance for the higher paid. Overall, 90 per cent would benefit from Labour’s plans, while just 10 per cent would be worse off. Yet Labour lost votes. Many people who would not be caught immediately by the national insurance rise nevertheless aspired to earn more in the future. Others feared that Labour would just pocket the extra national insurance revenue and not give it back in other ways.
Today, the higher rate of 40p is paid by around four million people. If you add in those who do not pay it themselves, but have a partner or other immediate family member who does, the number rises to 10 million or so. Widen the circle to close friends and, YouGov finds in a special survey for Progress, 39 per cent either pay higher-rate tax or are close to someone who does – that is getting on for 20 million people.
That still leaves a clear majority of people who do not pay, and do not have close friends who pay, higher-rate tax. But the days are long gone when parties could simply ignore the possible backlash of forcing the rate up, or abandon any hope of winning votes by either reducing the higher rate, or increasing the threshold and so reducing the number who pay it.
In order to delve into the politics of higher-rate tax more deeply, YouGov conducted a special survey for Progress. Not surprisingly, people in higher-tax families prefer the Conservatives, while those who have neither family nor close friends who pay higher-rate tax, prefer Labour. But it is not overwhelming: a 14-point Tory lead in the first group (41-27 per cent) and a 10-point Labour lead in the second (39-29 per cent). Both main parties – and, indeed the United Kingdom Independence party and the Liberal Democrats – have significant proportions of voters in both tax camps. This makes the task of devising a vote-winning policy no easier.
What, then, are voters’ priorities? Suppose the chancellor had £8-10bn to give away in tax cuts. We offered respondents three options, all costing broadly the same amount: lifting the higher-rate threshold from just under £42,000 to £50,000 a year; cutting the standard rate of income tax by two pence in the pound, from 20 per cent to 18 per cent; and raising the personal allowance – the point at which people start paying income tax – by £1,500 to £11,500 a year.
Increasing the personal allowance is by far the most popular choice, backed by 52 per cent of the public, twice as many as the 25 per cent who would prefer two pence off the standard rate. Only nine per cent say the priority should be raising the higher-rate threshold.
Perhaps the more important finding is that even voters in higher-rate families prefer an increase in the personal allowance. To be sure, more of them would like to see the higher-rate threshold raised – but the proportion is still only 22 per cent. As many as 46 per cent of this group prefer £1,500 more on the personal allowance.
As far as party allegiance is concerned, views reflect the spread of incomes among the supporters of all four parties. Increasing the personal allowance wins hands down, whether you ask Tories, Labour voters, Liberal Democrats or Ukip supporters.
Those results assume that the choice has already been made to hand money out rather than spend it on public services. For our final set of questions, we tested four areas of government spending and asked people whether, all else being equal, they would prefer income tax to go up so that more money could be spent on them, income tax to go down and less spent, or the present balance maintained.
The status quo was the most popular option, for three of the four: welfare benefits for poor families; state schools; and (more narrowly) state pensions and social care for the elderly. Only with the National Health Service does a plurality opt for higher tax – and then by a tiny three-point margin (‘higher tax/more spending’: 42 per cent; ‘keep the present balance’: 39 per cent). However, on only welfare benefits do supporters of lower tax/less spending (25 per cent) outnumber higher tax/more spending (19 per cent).
What about higher-tax families: are they more relaxed about higher taxes because they are better off and can more easily afford it – or greedier and meaner than those who earn less? The short answer is neither – or, perhaps, that both impulses are at work and cancel each other out. On every option on each of these four areas of government spending, the differences, in percentage terms, between the higher-rate community and the rest are in single digits.
What does make a difference is which party you support. Labour supporters are far more likely than Tory voters to back the higher tax/higher spending option, especially on the NHS (Labour: 60 per cent, Conservatives 29 per cent). Ukip supporters tend to have a similar spread of views to Conservatives, while Liberal Democrats are more like Tories on the NHS and state pensions, and more like Labour voters on education. On welfare benefits, the greatest passion of Liberal Democrats seems to be for the status quo, with few wishing either to reverse the welfare cuts of the coalition, or to take them further.
What, then, are the conclusions that our manifesto writer should draw? The most glaring is the opposition to cutting spending on the NHS, schools and pensions. Any party that made them the price of promised tax cuts would be taking a huge risk. However, if it were possible to fund tax cuts without cutting spending in these areas, then a further increase in the personal allowance is what voters say they want. This will please Nick Clegg – and he might well be wondering why his party has been unable to get any credit from voters for the large increases in the allowance that he has forced his coalition partners to accept over the past four years.
However, the private advice I would give (so please do not tell anyone I said this) is to say as little as possible ahead of the election. In 1979, the Conservatives denied that they had any plans to double VAT. As soon as they were elected they did so – and four years and one deep recession later, were re-elected by a landslide. In 1988, Nigel Lawson cut the top rate of income tax from 60 per cent to 40 per cent – less than a year after a general election in which the Tory manifesto made no mention of this radical change. At the following election, in 1992, his party was re-elected with more than 14 million votes – a record that stands to this day.
Harking back to those days, I would advise any party to do what they think is in the best interests of the economy and the people, and make any radical changes in the first year of a new parliament. If you genuinely think that, say, raising the higher-rate threshold is the right thing to do, do it. But try to avoid manifesto pledges that give hostages to fortune, and trust that at the following election voters will judge you on your overall performance, not on any one specific tax policy.
———————————
Peter Kellner is president of YouGov
———————————
The problem with raising the personal allowance is we have seen a number of times now that the 40% rate threshold is adjusted so that those paying in that group do not benefit from the threshold increase. It is sleight of hand. Same as promiosing not to raise income tax, but then changing the allowance to increase the take anyway.
The problem is London where you need to be on the 40% rate just to live at a level that £30,000 can provide outside London. Labour needs to capture the support of the middle classes because so many of their natural supporters in the working classes do not vote.
If it takes a revision of tax rates to encourage the middle classes to vote Labour then Ed Balls needs to do his sums as most people accept that tax rates need to be revised regularly just to keep up with inflation. I would also suggest that tax allowances are revised to reflect the differences in life chances of most people. Osborne’s proposal to allow pensioners to pass on pension benefits tax free to their descendents allows those people to pass on 40% tax allowances as part of the inheritance. That cannot be fair.
I pay the higher rate ,just . I have often paid the low rate , sometimes non , sometimes a lot ,as you might expect of a boy born in a Workhouse ..We are the Labour party and are supposed to care ? In many ways we have become the party of the wealthier and greedier . Increase tax for all to abolish the extra strain put on to the lower paid and the disabled by a selfish Tory Party . Add an extra 1p in the pound to keep the NHS improving .You might then get those who havent voted for years voting again . Please learn the lessons from Scotland , even if as usual Labour will not heed voices like mine .Ed Milaband needs the courage to follow his heart .I am a Councillor in a poor ward with many problems . You have no idea of the disgust that ordinary people have for the average two faced selfish politician ,at any level ,from any party . Labour has bled its self of its supporters and activists , by doing anything for power and listening just to focus groups . SHAME !!
We have been brainwash by this Government and the media we cannot expect any other but the reality is the rich is getting richer and most of them are paying less tax. Its very unfair has a pensioner I am still paying taxes. The irony is if this Government win’s the next election God helps us because we will be back to the Victorian times.