Economy//

Osborne misreads politics of top tax

Written by: James Morris on 19 March, 2012
Filed under Economy

‘Are you better off than you were 4 years ago?’ That’s the question Ronald Regan asked voters as he closed the final Presidential debate in 1980 before winning forty-four of the fifty states. It’s a question George Osborne needs to be wary of as he plans this Wednesday’s budget.

For the last three years, British people have been content with an economic debate dominated by the macro-economics of deficit reduction, public debt and fiscal stimulus. But now, as the income squeeze continues to tighten, the mood is changing. Concern about unemployment is at its highest level since 1998. Just one in ten believe that their personal financial situation will improve over the next 12 months. Economic optimism is higher in Spain and Italy than it is here.

The result: two years into office, voters are less willing to accept that deficit reduction is an excuse for doing nothing about living standards. They think the government can, and should, address both issues.

If last week’s headlines are to be believed, George Osborne thinks the best way to provide that help is to cut tax for people earning more than £150,000 a year. That’s not exactly the way most voters see it. Nationally, sixty-eight per cent of people oppose abolishing the 50p rate (to 19% in favour).

While most voters oppose the move, the rate of a tax that 99% of people don’t pay is not the kind of thing regular families get too caught up about. But what most people care about and what the Westminster village cares about are rarely closely correlated. Osborne’s decision here has taken on a political importance far beyond its economic significance. The one thing advocates and opponents of the 50p rate agree on is that it has turned into a ‘symbol’.

The problem for Osborne is that this piece of symbolism is the last thing the Tories need. Lord Ashcroft’s post-election polling interviewed 2000 Tory ‘Considerers’ – people who considered voting Tory before thinking better of it. In Ashcroft’s words, ‘the idea that the Conservatives still favoured the rich rather than ordinary people was by far the most common barrier’ stopping these voters going Tory. Osborne needs these considerers to reach a different conclusion in 2015. After five years of incumbency which is unlikely to yield significant economic improvement for the typical family, he needs these voters to think that his party no longer favours the rich over them.

Cutting taxes for people on £150 000 a year while hitting people on more ordinary incomes through tax credit and child benefit changes is not going to help.

This is all the more important because of Labour’s recent successes in wooing disaffected Lib Dems. At its low point in 2010 Labour scored 30% of the vote. Add six points just from the fragmented Lib Dems (current polls put that number higher) and Labour is in the mid-thirties before winning back any voters from the Tories. That is clearly not enough to win next time – and Labour is aiming higher – but it does make the maths much harder for the Tories. Labour won a 60+ seat majority in 2005 with 36% of the vote in 2005. The Tories are going to need to be in the 40s to have a similar result. That’s a lot of extra voters to find for a party that hasnt been in the 40s for twenty years.

The bigger danger for Osborne is that this sort of move won’t just block progress, it could set his party backwards. While the Labour vote is fairly well consolidated, the Tory vote contains a significant block of Tory/Labour swing voters. These people bought into the deficit reduction project in 2010 and have been happy to give the Tories time. But if they come to feel that Osborne is taking them for granted to provide tax cuts for his mates, their goodwill will ebb fast.

If voters do start feeling better off, then Osborne might find the political space he needs to cut tax for the wealthiest. But at the moment, voters want a Chancellor who combines sound fiscal policy with a real plan to tackle their long-term decline in living standards. They don’t want a Chancellor who is happy to see revenues fall in order to help those who need help least.

George Osborne should think about the voter who told Lord Ashcroft’s researchers that he considered voting Tory in 2010 but didn’t because ‘the things that are of interest to that group of people are not going to be of interest to others. The private education, the detached house, the four-by-four’. Then he should concentrate on improving the economy for this voter rather than for those earning many times his salary.

James Morris is Director of the European Office at Greenberg Quinlan Rosner.