Inside Westminster: Labour’s 50p tax announcement was a needless own goal

‘We did it with too much glee. That sent the wrong message,’ said a Labour MP

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In the run-up to the 1997 general election, New Labour sent a powerful signal to the public by announcing that it would not raise the top rate of income tax from 40p. Gordon Brown’s instinct as shadow Chancellor was to raise it to 50p but Tony Blair overruled him.

As we gear up for next year’s election, Ed Miliband’s One Nation Labour has deliberately sent the opposite signal, promising to raise the current 45p top rate on incomes over £150,000 to 50p. It is just as symbolic as the 1997 decision.

Of course, times have changed. The financial crisis prompted Mr Brown to raise the 40p rate to 50p, a month before the 2010 election. The Coalition’s controversial decision to reduce the level to 45p has undermined its “all in it together” mantra. Having made so much hay with this “£3bn tax cut for millionaires”, Mr Miliband could hardly refuse to bring back the 50p rate if he wins power next year.

Yet the way Labour revealed its hand this week was messy and flawed. Ed Balls, the shadow Chancellor, had two big announcements in a speech to the Fabian Society: a tougher stance on fiscal policy, in which he promised to eliminate the annual deficit as soon as possible in the 2015-20 parliament, and restoring the 50p rate. He and Mr Miliband saw them as two sides of the same 50p coin: a higher top rate would be a “fair” way to cut the deficit as it would raise some revenue.

What Labour insiders call the “tough stuff” on spending cuts to balance the nation’s books was trailed in the newspapers on the morning of the Balls speech. But the 50p announcement was made in the speech, guaranteeing it would immediately eclipse the party’s harder line on spending. The joke among Westminster journalists was: “The ‘tough on the deficit’ story ran on the news bulletins for 11 hours. Unfortunately, most people were asleep for nine of them.”

But the presentational cock-up was no laughing matter among Labour MPs. One, a Miliband loyalist, told me: “We managed to trump our own story on the deficit. A golden opportunity to regain trust on the economy was missed. All the voters noticed is that we will put up the top tax rate.”

Labour MPs are puzzled why Mr Balls had to give us two announcements for the price of one. Most accept the 50p decision but many think it should have been held back until the media had covered the “tough stuff” for some days, to ensure the public got the message. The media was bound to focus on the sexier tax story rather than the drier subject of Labour’s fiscal stance. The proposed tax hike also reunited the Tory tribe: as Conservative-supporting newspapers condemned Labour’s move, they urged Tory MPs to stop destabilising David Cameron, allaying his fears they would punish him for his stance on press regulation and the Leveson report.

Labour’s other problem is that its plan to portray the 50p policy as a meaningful contribution to clearing the deficit proved short-lived. The independent Institute for Fiscal Studies (IFS) judged that the proposal might raise only £100m rather than the £1bn to £2bn Labour hoped – a droplet in the bucket when the annual deficit is £111bn. Some shadow ministers supported the hike on the basis that it would raise serious money and are now unsure it is worth the candle. The Labour leadership is quite happy to have a row with the Tories about the possible revenue but the IFS verdict relegates the 50p rate pledge to symbolic value. “We did it with too much glee; that sent the wrong message,” said one MP.

Labour’s timing was also strange because the tax move was bound to attract flak from business leaders, who are already anxious about what they regard as Mr Miliband’s “anti-big business agenda” after his attacks on the energy firms and the banks.

As individuals, not many company bosses are likely to vote Labour but the public statements they make do matter. They send a signal to the middle class voters wooed successfully by Mr Blair and Mr Miliband will need some of them if he is to win a majority next year. He denies pursuing a “35 per cent strategy” in which Labour mobilises its core vote to sneak past the winning post, or relies on a post-election deal with the Liberal Democrats after becoming the largest party. But I do not meet many Labour MPs who think they can win an overall majority. Privately, many are building bridges with the Lib Dems. They welcomed this week’s under-reported speech by Vince Cable, the Lib Dem Business Secretary, making clear his personal approach to cutting the deficit was remarkably similar to Labour’s new line. Labour insiders privately described it as “a love letter to us on yellow paper” and “a job application to be Chancellor in a Lib-Lab government”.

The other weakness in Labour’s position is that the party is unable to tell us whether the 50p rate would be temporary or permanent. This is because Mr Balls wants it to be temporary while Mr Miliband sees it as a permanent fixture. In their see-saw relationship, I suspect, Mr Miliband is now the one riding high and calling the shots.

The 50p rate will doubtless be popular with the vast majority of voters, who would not have to pay it. But that doesn’t guarantee that they will vote Labour. However much people like the message, if they don’t trust the messenger, they will not vote for him.

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