Thursday, 14 February 2013

I don’t think Ed has quite got it

Ed Miliband has been left clueless again, this time over the 10p tax rate. Ed in 2008 said scraping the 10p tax rate would ‘make the tax system fairer’ and now he wants to bring it back for a more equal society. Ed also got his MPs less than a month ago to vote against the Great Gordon Brown Repeal Bill which abolished the 10p tax rate. But ignoring this obvious hypocrisy let’s examine what he proposes.

Today Ed promised to cut the 10p tax rate which is a good thing. However he wants to pay for it with a Mansion Tax which is not so good. Without getting into the details of a Mansion Tax, which is essentially a wealth levy, it’s fairly silly to cut a tax and then introduce another tax to pay for it. This is not just because the government has to spend some of the tax on the wages of people to administer it, but it means that there is no net gain to the economy. Sure poorer people have more money which they can spend on more things but it’s taken from richer people who will spend it on things for themselves. As a result, because money has the same value whoever buys stuff with it, there is no extra growth to the economy and no new jobs (which is the best way to improve standards in living). Also because of the particular choice of a wealth tax, the move means the poorest, although able to buy more things, are less likely to invest their money as if they are successful they will be hit by the Mansion Tax.

If you want to introduce the 10p tax rate, which will cost around £7 billion, you have really got to do it by cutting Whitehall, cutting the welfare budget (I’d personally look into a downgrade on the cap for how much you can claim on benefits) or red tape around business. But just maybe Ed Miliband is doing this. Maybe Ed isn't as stupid as he looks because the Mansion Tax actually will only raise £2 billion, so there is a £5 billion hole to fill. Perhaps Ed has decided to take our economic problems seriously and cut benefits or Whitehall? there is a potential gap in the political market to do so because the Coalition hasn't taken this seriously yet.

It seems this is not the case. If you watched PMQs you would have heard that Ed was due to make an economic speech today ‘with no new policies in it’. It’s unlikely he could just have the speech with nothing in it, considering as it was broadcast to the nation, so he just quickly came up with cutting the 10p tax rate without any thought. Also Ed realises he’s not too popular atm, the polls have him at just over half as popular as his own party (n.b. this is terrible). I bet he realises at the next general election he may need to form a coalition with the Liberals. So he’s taken the policy that they are mostly talking about and claimed it as his own. So Ed Miliband, short on the figures and relying on the Lib Dems for power.

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