40p tax trap revelation takes shine off Osborne's Budget

Mar 21, 2014
The Mole

And Cameron's message to Boris via James Corden will wipe the smiles off the Osborne-for-leader gang

THE disclosure that more than 2 million additional middle-income earners will have been dragged into the upper-rate 40p tax bracket under the coalition government by the time of the May 2015 general election takes some of the shine off George Osborne’s Budget.

The Chancellor had been under intense pressure from Tory right-wingers, including former Chancellors Lawson and Lamont, to do more for those hard-pressed middle-earning voters due to get pay rises that take them above the current £41,450 threshold at which the 40p rate kicks in.

Osborne did confirm the threshold would rise - but only by one per cent a year, significantly below the inflation rate and not nearly enough to satisfy Lawson and Lamont. By the time of the 2015 election, the threshold will be £42,285 and the Institute for Fiscal Studies calculates that the number of people paying the 40p rate will have risen from 3 million in 2010-11 when the coalition came to power to almost 5 million.

As Paul Johnson, director of the IFS, tells the Daily Telegraph: “We have moved from a world where not many people pay the 40p rate to a world where a quarter of men in full-time work pay the higher rate.”

Despite the IFS revelation, which will be seized on by Labour (under whose plans the threshold in May 2015 would stand at £47,845, according to the IFS), Osborne appears to have ended Budget week with his reputation enhanced and his friends talking up his prospects of beating Boris Johnson to the leadership after David Cameron goes.

However, that was before James Corden's interview with the Prime Minister appeared in The Sun (the comic actor 'guest edited' the paper today). In it, Cameron gives his support for a return to Parliament for Boris. 

Ben Brogan of the Daily Telegraph is not alone in interpreting this as a shot across Osborne's bow. In supporting Boris's return, Cameron takes the sting out of the Osborne camp's charge that a comeback to Parliament by the London mayor would be "a deliberate act of treachery".

Whatever his personal ambitions, Osborne, who is in charge of Tory strategy for the general election, will be looking anxiously at the opinion polls this weekend. He is telling his allies that he is confident that the Tories will pick up a “feelgood factor” from the economic recovery - but with his main Budget proposals nakedly targeting middle–class “silver voters”, are enough people going to "feel good" to make a difference?

He will be encouraged by the general view among the Westminster commentariat that Ed Miliband, the Labour leader, has not had a good week.

Daily Telegraph blogger Dan Hodges says Miliband's post-Budget class-war rant showed he was not fit to be Prime Minister.Phil Collins in The Times predicts that by the time of the local council and European elections this May, Osborne will be "simmering nicely" while Miliband will find himself in his own "chilly micro-climate”.

Miliband’s problem was not his delivery – he has been attacked in the past for repeating phrases such as “same old Tories” in post-Budget speeches – but his lack of an alternative economic strategy. For that, Ed Balls, the shadow chancellor,  has to take most of the blame. 

The normally sheep-like Vince Cable, the Lib Dem Business Secretary, savaged Balls in the Commons yesterday, saying he was again doing his magician’s act of spending bankers’ bonuses in ten different ways (because every time Balls comes up with a spending commitment, it seems to be funded by a raid on the bankers’ bonuses).

However, the Mole suspects that in the world outside the Westminster bubble, Miliband is hitting the target with ordinary voters with his often-repeated charge that the "Tory toffs" who run the country don’t know what it’s like for ordinary people suffering a cost-of-living squeeze.

That line may sound hackneyed to the Westminster commentators, but it drew a warm round of applause when it was used last night on the BBC's Question Time by Andy Burnham, the Liverpudlian shadow health secretary. 

More worrying for Osborne’s strategy is that when another Question Time panelist, Danny Alexander, the Lib Dem Chief Secretary to the Treasury, protested that Labour had left the coalition with an economic mess, he was booed by the BBC audience.

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These people have had pay rises of over 1%.
Lucky to be in the 40% band.