Taking on the Tories on NICs

The National Insurance contributions row is running on and on - the Tories appear to have a steady stream of extremely highly paid business people on hand to argue that closing £6bn of the public spending deficit by raising NICs in 2011 is a bad idea.

This should be an easy slam-dunk for Labour to respond to. All it needs to say is that the Tories would be deliberately opening up an extra £6bn hole in the deficit at a time when the financial markets would expect them to have a clear plan to close that deficit (and indeed until 2 weeks ago they had a plan, of sorts).

The Tory counter-argument will be that they can find £6bn extra "efficiency savings" in public spending that Labour can't. Now, to be sure, this efficiency savings stuff is largely BS. You can - at least in theory - get modest efficiency savings out of the public (and private) sector every year through productivity growth - technological improvements which allow you to do more with less. What you can't do is invent several tens of billions of EXTRA efficiency savings - on top of that gradual drip-drip improvement. There is a problem here, because both Labour and the Tories have conjured ridiculously large efficiency savings estimates out of thin air - have a look at some of the suggested savings in various departments in the 2010 Budget and you'll see what I mean. The cuts which are already scheduled will DEFINITELY hit front-line services. In other words, both Labour and the Tories are already engaged in a con-trick with the electorate.

However, daft as this situation is, it doesn't harm Labour's case on this particular issue, because Labour can point out that, given that the announced cuts are ALREADY going to bite into front-line services, an additional £6 billion will hurt that much more. In other words, this opens the door towards portraying the Tories as the "slasher" party in the way that Labour did quite successfully in 2001 and 2005.

All of which may explain why Gordon Brown seems relatively pleased about the NICs row so far: it enables an opportunity to put "clear red water" between Labour and the Tories. To be clear, this won't be about Labour defending public services vs Tory cuts (even though as it should be if Labour had the guts); instead it will be about Labour's savage cuts vs the Tories' complete destruction of a huge proportion of the public sector. It's the wrong place to put up a battle ground - but it's still a battle ground, and played the right way, having this fight could actually help Labour as the campaign goes on.

A funny sort of 'class war'

The favourite expression of right-wing commentators to describe the Budget this year was 'class war' - apparently because Alistair Darling introduced a 50% tax rate on incomes over £150,000. I know that people like Simon Heffer and the even more ludicrous Jeff Randall have a vested interest in knocking the Labour government (although to be fair to Heffer, he hates Cameron as well - I don't know if anyone in the current crop of Tory MPs is right-wing enough for him to actually support them. Maybe Frank Field on the Labour side might be... Enoch Powell is sadly deceased, although my wife's great-aunt believed he was still alive, but that was before she was dead too), but if we're drawing the dividing line between 'the great unwashed' and 'Middle England' at £150,000 then we ain't got many people in middle England.

Data from HMRC (the Survey of Personal Incomes statistics) shows that only about 1% of income tax payers earn more than £150,000 per year. And only about 70% of adults in the UK are income tax payers. So the class war is 99.3% of the adult population of Britain in the working class vs 0.7% in the middle class. With such a small middle class it's no wonder the economy is going down the tubes. 

Even the number of higher rate (40%) taxpayers is pretty small as a proportion of the population (although a lot bigger than it used to be, as average earnings have grown faster than the higher rate threshold.) I think it's about 15 to 20% of taxpayers in that bracket. So even a rise in the higher rate to 50% would be a pretty unbalanced 'class war'. 

Of course it's in the Daily Telegraph's interest to paint a picture of oppressed hordes of City workers - but there are actually a small handful of high earners at best. During the boom years their salaries grew far faster than anyone else and they cultivated a reputation as the saviours of the UK economy. In the wake of the credit crunch this reputation has largely collapsed - although in many cases their earnings remain high. In some cases we have found in retrospect that not only were they not worth these inflated salaries, their worth to the economy was actually severely negative (step forward, Fred Goodwin).

The government's strategy is - or should be - based on targeting a small number of people who have done very well - far too well - out of the complete imbalance of the global economy in the last three decades. The 50p top rate is only the start of that strategy; Capital Gains Tax needs to be reformed and a lot more needs to be done to reduce tax avoidance. But it's absolutely f*** all to do with class war, whatever Simon Heffer or Jeff Randall might tell you.