The welfare overhaul has wended its way through parliament, and at no point were the poor offered a choice
The great welfare overhaul has finally wended its way through parliament, and at no point during the tortuous debates were the poor offered a choice. There was no menu of pain that allowed for any preference between housing benefit caps, cuts to disability payments and the shredding of the social fund. All of these things, it was claimed, were indispensable to repairing Britain's battered balance sheet. But this week fiscal attention has turned to the other end of the social scale, and suddenly retrenchment has gone a la carte. Even as the eurozone's slide into slump is confirmed, the pre-budget debate on stinging the rich has taken an either/or turn, and top-rate taxpayers are being invited to pour their fears about lost child benefit into ministerial ears.
It was no Conservative, but Vince Cable who yesterday sparked speculation about scrapping the new 50p tax rate, which exclusively bites on incomes over £150,000. A few hours before his blunt letter about the failings of the coalition's industrial policy leaked to the BBC, Dr Cable let slip to the same broadcaster that there were backroom discussions about ditching this levy in return for new ones on wealth, particularly palatial southern homes. He can claim consistency in a narrow sense here: in opposition he spent long years proposing to tax wealth more and income less. But that was in the good times. In an era where the coalition is asking poor parents to – in the calculations of one eminent Lib Dem economist – raise children on 62p a day, decency surely requires that both top pay and outsize assets take a hit.
Only a nakedly self-serving plutocrat would openly deny this; the argument of the respectable right will be that high marginal rates lead to such a distortionary depression of taxable income that no revenue is raked in. That is very doubtful, and it has certainly not been proved – the evidence will only start to emerge after meticulous crunching of tax returns filed this January. While they wait for robust analysis, ministers should concentrate on reducing the extent of any distortion, by closing loopholes which allow top incomes to be converted into something less taxable. Jumping the gun and scrapping 50p now would be an outrage.
After all, child benefit shows the danger of rushing out policies without thinking them through. There is a principled case for a universal payment which recognises the cost of raising a child, but faced with an exceptionally challenging fiscal repair job, there was also a case for targeting scarce public funds away from the better-off that could not be dismissed out of hand. This, however, was an argument to be developed in a careful, not an impetuous spirit. In the event, George Osborne was warned on the very day that he first said he would snatch child benefit from higher earners that his plan would lead to the harsh punishment of stay-at-home mothers and parents on the cusp of tax brackets. These fears were brushed aside. There was, as is explained on our Society pages today, a perfectly straightforward way to sort the anomalies through the tax credits, but the chancellor showed a bone-headed reluctance to deploy these inventions of Gordon Brown. Thus it is that the coalition is now flapping about to resolve these perversities at the eleventh hour.
What is most damning, however, is that while all this attention is lavished on middle-class worries, there is casual disregard for the many perversities affecting the poor. To take one example, the government this week admitted that after a tax credit is snatched from 212,000 part-time workers in April many of them will be worse off than they would be if they quit and claimed the dole. Ministers protest this is a transitional glitch which will soon be ironed out, but does anyone seriously believe they would ask families in middle England to do a year's toil for negative pay?
David Cameron's language continues to promote an inclusive Conservatism, which harks back to the pre-Thatcher one nation tradition. The priorities of his government, however, are steadily revealing a narrowing concern with "our people", worthy of the lady herself.