Andrew Grice: Cunning Osborne sets a tax trap

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When Ed Miliband taunted a silent and rather shame-faced line of Cabinet ministers on Budget day over whether they would personally benefit from George Osborne's cut in the 50p top rate of tax, it was one of his greatest hits since becoming Labour leader. Labour has since urged the Chancellor to state unequivocally whether he will pay less tax as a result.

Now the tables are turned. David Cameron and Mr Osborne talk up the prospect that Cabinet ministers will publish their tax returns. True, they have encouraged transparency, notably by forcing Whitehall departments to publish a detailed breakdown of all their spending. But their sudden passion for openness about ministers' financial affairs has nothing to do with Mr Miliband's Budget day coup and everything to do with an important election for London Mayor on May 3, which could set the political mood for the rest of the year.

Labour's Ken Livingstone has got himself into a tangle over his decision to channel some earnings into a company in order to limit his tax bills. He has looked grudging about coming clean about his tax arrangements, harming his chances of ousting Boris Johnson from City Hall. The Prime Minister and Chancellor manage to mention Mr Livingstone's taxing problem every time they talk about disclosing ministers' tax details. Strange, that.

Transparency is a good thing, but it doesn't always have a cleansing effect. Take MPs' expenses. Yes, there were abuses and the rules were too lax. But we have gone from one extreme to the other. I know MPs afraid to claim the reduced allowances now available to them because of how it would look to the public. We will not attract the best and brightest into politics by paying MPs £65,738 a year; they can earn more elsewhere without the hassle of having their expenses published and the spotlight on their personal life. Similarly, issuing the tax records of ministers could deter people from switching from business to politics.

I am not sure the MPs' expenses reforms did much to clean up politics. Overall, I suspect the expenses saga contributed to the dangerous anti-politics mood in the country. So might a list of Cabinet top rate taxpayers, seen through the prism of a largely cynical press.

To whom would the Cameron-Osborne plan apply? It might be hard to draw the line at "senior Cabinet ministers", as Downing Street aides have suggested. All Cabinet ministers? Even that is problematic: there are 23 members of the Cabinet but another six Tory ministers attend Cabinet meetings, including important players like Oliver Letwin and Francis Maude.

Would disclosure rules cover the assets, property and shares of ministers? How could that apply to those with business interests in a blind trust so they do not face a conflict of interest? Should their wives or husbands be covered? There are more questions than answers. I sense that a thin list will be published, provoking a media-driven row in which the Government is accused of not going far enough before we all move on.

Of much more long-term significance will be the tax policies of the three main parties at the 2015 election. Mr Osborne inherited a tax trap from Labour, whose 50p top rate on incomes over £150,000 a year took effect a month before be became Chancellor. Labour said the move was temporary but knew that ending it would risk unpopularity. Now Mr Osborne is cleverly laying an even bigger trap for Labour.

He plans to bring forward the next government-wide spending review to next year. He will map out details of the two further years of cuts he has already pencilled in for 2015-17 and then challenge Labour to say whether it supports them.

Labour can see it coming. Some Shadow Cabinet members want an early pledge to stick within the Coalition Government's spending totals until 2017, while retaining the right to "switch spending" to reflect Labour's different values and priorities. Strangely, the Liberal Democrats find themselves in the same boat. Nick Clegg will want to show fiscal credibility but also that his party has different priorities to the Tories. He will face strong opposition in his party if he signs up to Mr Osborne's spending limits for each department.

In a speech on Thursday promising to change Labour, Mr Miliband said: "The next election will be about us as much as them [the Tories]. People aren't going to judge us at the next election by the size of our promises [but] by the credibility of our promises." The Labour leader's instincts are to play it long and not tie his party down now. But sooner or later, Mr Miliband will have to bite the bullet and sign up to Mr Osborne's spending limits if Labour is to have any chance of regaining its lost economic credibility, a prerequisite for regaining power.

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