Liz Truss dares to defuse Gordon Brown's tax time bomb - but it could yet blow up in her face




  • In Business
  • 2022-10-02 20:30:00Z
  • By The Telegraph
Liz Truss is trying to reduce the top rate of income tax, but faces a rebellion from inside the Tory party - Jeff J Mitchell/Getty Images
Liz Truss is trying to reduce the top rate of income tax, but faces a rebellion from inside the Tory party - Jeff J Mitchell/Getty Images  

When Gordon Brown was turfed out of office in 2010, he left a time bomb in Downing Street that is still ticking 12 years on and could yet blow up in Liz Truss's face.

By daring to try to defuse the remnants of Brown's 50p income tax rate, the Prime Minister has triggered a row with her own party that has become an existential threat to her fledgling administration.

A growing band of Tory rebels is preparing to collaborate with Labour to force a climbdown on the decision to scrap the 45p top rate of tax, even if it means voting with the opposition to inflict a Parliamentary defeat on Ms Truss.

Downing Street has now decided to delay the vote on scrapping the 45p rate until after Kwasi Kwarteng's spending review, due on Nov 23, in an apparent concession to the rebels. Another way of viewing it would be as a sign of panic.

The Government hopes it can use the next two months to make the argument for cutting the 45p rate to 40p, and that there will be good news in the Office for Budget Responsibility (OBR) forecasts that will accompany the November statement.

The danger is that the rebels will be able to use the extra time to organise themselves and to embolden more recruits. With just 36 Tory MPs now needed to overturn Ms Truss's working majority, the rebels are increasingly confident they will have the numbers to force an about-turn.

One rebel MP said: "I have spoken to more than 20 other Conservative MPs who are against this, and I've spoken to Cabinet ministers who are angry they weren't consulted and are very very unhappy about the whole thing.

"There are also a couple of parliamentary private secretaries who say they will resign if she goes ahead with the 45p cut, even though they have just been appointed.

"Bullying us isn't going to make any difference because we all think we're going to lose our seats anyway under this Government."

The rebels' current expectation is that Sir Keir Starmer, the Labour leader, will introduce an opposition day motion or an emergency debate on the tax cut, giving Tory rebels a chance to register their protest by voting with Labour. "Hopefully they will get the message then," said the Tory rebel.

How Mr Brown must be chuckling to himself in his Scottish retreat. For 13 years under New Labour, a 40p top rate of tax was seen as the fair and sensible option, only for Mr Brown to increase it to 50p weeks before his general election defeat.

It was a remarkably successful gambit. The Tories have been trying - and failing - to reverse Mr Brown's cynical tax rise ever since.

In March 2012, George Osborne cut the top rate from 50p to 45p. He was held back from restoring the 40p rate by the handbrake of Liberal Democrat coalition partners. He argued that the 50p tax band had only raised £1 billion of the £3 billion it was forecast to raise, and said it was damaging the country's competitiveness.

The OBR predicted that the move would cost £100 million and that restoring the 40p top rate would cost £500 million. In fact, tax receipts from top-rate payers went up the next year by £8 billion - partly because they had delayed declaring income, but also because it made Britain a more attractive place for wealthy people to earn their living.

No Conservative prime minister has dared to restore the top rate of tax to New Labour's 40p, leaving the UK with a top rate that is higher than the Organisation for Economic Co-operation and Development average.

Only three G20 countries have a higher top rate. In the US, the top rate is 37p, while Singapore has a 22p top rate. Both countries are direct rivals for jobs in banking and services, which are vital to the UK economy.

Truss supporters argue that cutting the top rate of tax would increase tax receipts by encouraging growth. They have an impressive ally in the form of Arthur Laffer, inventor of the famous Laffer curve, which describes the way revenue increases as taxes are lowered, before decreasing if they are lowered too much.

He told The Sunday Times newspaper: "In six months to a year, you'll see the economy come roaring back. What your Prime Minister and Chancellor are doing is the right thing, right away."

Mr Laffer said Ms Truss and Mr Kwarteng had done a "better job" than Ronald Reagan did when he implemented Reaganomics, as the former US president delayed tax cuts. Mr Laffer regards that as a mistake.

Mr Laffer added: "The Truss plan would be much better if accompanied by spending cuts, but it will work without them.

"If these policies are allowed to stick, you're going to see a new era of incredible growth, incredible prosperity and great finances. Good medicine cures sick people, not healthy people. I would argue that Britain today has not been healthy for the last several years."

Few, if any, Tories disagree with the principle of cutting the top rate of income tax - but they are incensed at the idea that the tax cut could be funded by increased borrowing, and by what they see as a tin-eared decision to choose a cost of living crisis as the moment to announce tax cuts that indisputably benefit the richest the most.

"It's just mad politics," said one Tory rebel.

Michael Gove, hardly a rookie when it comes to plotting, has made it clear that he will be in the vanguard when the rebellion joins battle - telling Chopper's Politics Live that abolishing the 45p rate was "wrong" and that the decision should be reversed. He said the Prime Minister was "betting too much on tax cuts".

Ms Truss has insisted the 45p cut will go ahead, yet she was reluctant to take ownership of the policy when she appeared on the BBC's Sunday with Laura Kuenssberg. She said the Cabinet had not been consulted on the move, adding: "It was a decision the Chancellor made."

It was the first time she had tried to distance herself from the policy that is now threatening to split the party. By delaying the Parliamentary vote on the move, she will only increase speculation that she might decide to put Mr Brown's time bomb back where she found it.

COMMENTS

More Related News

Youngkin warns of recession but vows to pursue tax cuts - cautiously
Youngkin warns of recession but vows to pursue tax cuts - cautiously

RICHMOND - Gov. Glenn Youngkin (R) said he plans to seek tax cuts in his budget proposal for next year despite acknowledging that a possible economic...

Connecticut legislature to extend gasoline tax cut, free public buses beyond December 1
Connecticut legislature to extend gasoline tax cut, free public buses beyond December 1

The state legislature is expected to vote Monday on extending the gasoline tax cut and free public buses - pushing the relief into 2023 to combat the highest...

Nigel Farage teases return to political front lines as Rishi Sunak denies
Nigel Farage teases return to political front lines as Rishi Sunak denies 'Swiss-style' Brexit deal change
  • World
  • 2022-11-23 11:00:58Z

Nigel Farage threatened a possible comeback if British Prime Minister Rishi Sunak seeks to reform Brexit in any way.

Leave a Comment

Your email address will not be published. Required fields are marked with *

Cancel reply

Comments

Top News: Business