Monday, 24 November 2008

Raising the top rate of income tax, a second very good step - by Ken Livingstone

Further good news about today's economic package comes in briefings to the BBC, Financial Times, Guardian and other media that the top rate of income tax is to be raised to 45p in the pound for those earning over £150,000 a year.
Yesterday, in strongly welcoming the decision to cut VAT, I argued: 'this should be the beginning of a reshaping of the taxation system. It is being briefed that this reduction in VAT will be temporary, and it will then be restored to its previous level to reduce the budget deficit during an economic upturn. This is not what should occur - any increase in VAT would be deeply regressive for the reasons already outlined. Instead, when taxation increases again to reduce the budget deficit during an economic upturn, an increase in direct taxation on the highest incomes should take place. That is, any reduction in VAT should be used to begin a reshaping of the tax system in a more equitable direction.'
Clearly a rise in the top rate of income tax to 45p is therefore a step in the right direction. At present the fiscal arithmetic shows that it does not go far enough. This increase in income tax on the higher paid by itself will raise £2 billion, which would not by itself be sufficient to avoid the need to increase VAT as it becomes necessary to reduce the overall budget deficit during an economic upturn. An increase to 50p would have been better and the left must continue to argue that VAT must not be re-increased at a later date after the present cut.
But nevertheless the fact that for the first time direct taxation on the very highly paid is to be raised is a hugely symbolic, and important practical, step. It would be wrong at this stage to quibble and this measure increases the attractiveness of the economic package still further.
Reduction in VAT, and this increase in direct taxation on the high paid, are measures that are good for economic recovery and social justice and should be strongly supported by the left.
Note also how Labour's popularity has been transformed since it has been campaigning centrally on the economy, with measures that combine economic rationality with social justice, rather than making its central thrust being on attempting to appear right wing on crime and immigration. That must be a key lesson up to the general election. There is now a total dividing line with the Tories and their economically damaging and socially unjust policies. The party that sets the agenda has a key advantage in an election. Focusing on this economic divide is the agenda that can win Labour the election.


Robert said...

Yes in 2012, lets see is that after the next election and of course another budget and if Brown gets in lets see , the rise in the tax for those stinking rich will be dropped the tax for the poor will rise well they have to vote Labour do they not.

Look I will not be going down town to spend guess why well I've nothing to spend mate I'm actually broke.

Benjamin said...

You don't mention the rise in National Insurance. If that's anything to go by, it doesn't indicate that Labour is really committed to creating a fairer tax system.

We shall see.

Benjamin said...

I think Darling has altered allowances to lift some poor folk out of taxation though; if this is the case then that is a step in the right direction. If the drop in VAT can be made permanent, and then reduced further still, yes, we have the beginnings of progress.

Robert said...

Wouldn't raising the personal allowance on those with low incomes have been a better idea than tax credits which are bureaucratic and expensive to administer and often go unclaimed?

For those in work on low incomes raise the personal allowance.

For those out of work improve benefits.

Both these measures would do a lot more to boost spending than tinkering with VAT.

If the Labour left stands for anything it should put a stop to Purnell's Blairite boot into the most vulnerable people in society. This nasty welfare "reform" is exactly the kind of thing that will lose Labour votes among its traditional supporters.

Also protect people from losing their homes.

As it is there is too much fear out there for people to start spending. If they get a VAT cut or a tax credit they will save it.