o have offered a clear typology of wealth in his emergency budget on November 24th.
You are very rich, the chancellor implied, if you earn more than? 150,000 ($ 230,000) a year. You are still rich if you earn more than? 100,000. He told the very rich-around 400,000 taxpayers, roughly 1% of earners-that from +2011 they will pay a new top rate of income tax of 45% (the current top rate is 40%), on earnings above? 150,000. Both groups-around 800,000 people altogether-will pay more tax from 2010, through the erosion of their tax-free allowances. Meanwhile, anyone earning over? 40,000 is, in the government s view, comfortable enough to cough up a few pounds extra in national-insurance contributions (though according to a rival arithmetic,? 20,000 marks the real cut-off between winners and losers under the new arrangements).
Two questions arise from Mr Darling s delineation of this hierarchy-and the jettisoning of New Labour s iconic pledge not to raise income tax, a promise that has helped to win it three general elections. First, does it make sense for the exchequer? Government s case, though Mr Darling didn t put it quite like this, runs as follows. Britain is broke; in the medium term, taxes have to rise. In a country where median full-time earnings are? 24,900, people making four times that much or more ought to help fill the fiscal abyss. And although this is the first lift in the top rate of income tax for more tha n 30 years, it is scarcely a confiscatory levy like the legendary rates of the 1970s, when Old Labour dinosaurs roamed the Treasury. trouble with this argument is that the hikes will raise barely any money. The 45% rate will yield little according to the Treasury, and practically nothing according to some analysts, because of dodges and disincentives. Rather than budgetary pragmatism, the changes seem to be the fiscal equivalent of a firework set off during an earthquake-the earthquake being Mr Darling s staggering debt projections, his Panglossian growth forecasts and a public-spending squeeze of a kind Labour once excoriated. It is fair to conclude that the real motive is diversionary and political. , The second question: is pinching the rich quite as politically clever as the government evidently believes? Pinch yourselfpolitical calculation seems to be that, after 11 years in office, Labour is no longer dogged by memories of the vengeful taxes and fiscal incontinence of its previous stint in power, historical anxieties that constrained its tax policy until now. That hunch may be justified: many young voters are more likely to associate Labour with persistent inequality than with IMF bail-outs. But another part of the gamble is that the country has changed too: that the incipient recession has fostered a new mood of social solidarity, a yearning to share the pain of the downturn-particularly if the pain is aimed at bankers and other much-loathed spivs and speculators. Satisfying this mood with token raids on the rich, Labour reckons, will win more votes than will be lost by severing its already frayed bond with the City. The hikes may cost it a few marginal seats in the stockbroker belt of the south-east, but they will firm up ratings farther north.Darling, and his boss, Gordon Brown, are not alone in sniffing a new political atmosphere. Even before this week s emergency budget, some in the Conservative Party, no less, muttered about proposing a new supertax and using the proceeds to cut rates for the middle classes. The Tories now say that should they win the next election (more likely than not), and have scope for tax-cutting (rather less likely), the first beneficiaries would be businesses and those on low and middle incomes; reversing Mr Darling s higher-rate changes would not be a priority. The poor rich are suddenly friendless. are they? The rich may be a tiny minority, but they are not altogether alone. Indeed that was, or appeared to be, one of the basic intuitions that took New Labour to power. Labour s original tax pledge was a totem of its revamped economic approach: of its acknowledgment that free markets and deregulation were, after all, the best way to maximise national prosperity and finance progressive goals. But it also implied an even greater admission: that Britain was more individualistic, more aspirational and less collectivist than Labour had previously believed. The pledge seemed to concede that Margaret Thatcher had been right about not only economic policy but also the national personality; that Britons might resent inherited privilege but were increasingly relaxed about wealth itself. New Labour realised that whereas the rich are few, the would-be rich-likewise alarmed by punitive taxes-are numerous. now appears that for Mr Brown and Mr Darling, at least, New Labour s old posture on tax may not have represented the fundamental reappraisal of Britain s psychology that it did for To...
