Tories’ curious message on work

Sterling cash on payslip Image copyright PA

I am a bit puzzled by some of the economic messages sent out by David Cameron and the Tory manifesto.

Take his eye-catching initiative that those working on the minimum wage will be permanently taken out of paying tax by legislation guaranteeing that the tax-free allowance will rise in line with the national minimum wage.

This is supposed to show, according to the prime minister, that the Conservatives are the party of "working people, offering security".

And if you pay no tax, that presumably demonstrates that "work pays", to use the great cliche.

But Tories have also traditionally been the party that has attacked the "something-for-nothing society".

And what's odd about guaranteeing that huge numbers of employed people will never pay tax is that David Cameron appears to be comfortable about the notion that these people can enjoy all the expensive services and benefits provided by the state without making even a gesture of a contribution towards them.

In fact, the way the policy is framed explicitly underwrites the idea of something for nothing, since the promised tax free allowance is equivalent to 30 hours of work per week on the minimum wage - and a 30-hour week happens to be the level at which households can claim full tax credits or benefits on top of a salary now guaranteed to be tax free.

Contract with state

Now to be clear, this is not remotely to suggest that people on minimum wage don't need or deserve help from the state. This is not a point about whether the state is too generous to them.

It is about the contract we all make with the state.

And there is an argument that says all workers should make some kind of tax contribution, even if it is a fraction of the value of the benefits they receive, simply to foster the idea that - in the words of Mr Cameron's close colleague, George Osborne - "we are all in this together", and if we should all pay our subscription for the help we receive from the government.

And there is another point.

There is a bit of a risk that if too many people and employers get used to the idea that they never need to go to the administrative and financial bother of paying tax, they'll keep their declared earnings at the tax free level - which will either keep them poor or will encourage the expansion of black-market, off-the-books remuneration.

So it could be a further depressant to income tax revenues, which have been flat-lining anyway during the economic recovery, and it could stimulate all sorts of unhealthy personal work incentives.

Discount

And another thing, about the extension of right-to-buy from council houses to housing association homes.

The point is that the collapse in the provision of social housing over the past 20 years means that housing association properties tend to be occupied by the poorest and most vulnerable, frequently those on housing benefit.

So as my colleague Chris Cook points out, just 23% of households in rented accommodation from a housing association contain someone in full time work, with a further 11% containing a part-time worker.

Maybe some of these will be able to afford to buy their homes if they qualify for the biggest discount, of up to 70% of the value of the property - but if they've been in the property a shorter time, the discount is 35% for a house and 50% for a flat.

Interestingly a leading Tory pointed me towards the 31% of housing association properties occupied by a retired person. And if they're retired they will almost certainly qualify for the full 70% discount.

In other words, this policy could be seen as a bribe to older people to vote Tory and gain a guaranteed windfall of many tens of thousands of pounds by buying their homes at a fraction of its true value.

Which could, I suppose, secure a few useful votes in marginal constituencies.

It would be interesting to know how many of these housing association homes occupied by older people are in marginal constituencies.

Distinction

Two other points.

First, it is slightly odd perhaps that the Tories want to raise a further £1.4bn from slashing the tax relief available to high earners from saving for a pension - partly because it makes the pensions system even more complicated than it is today, and partly because of the negative message it will be seen as sending about the importance of saving for retirement.

That said, Labour's recent press notice on its slightly different raid on pension tax relief for the highest paid described its initiative as a crackdown on tax avoidance - which most savers would regard as little short of insulting.

But more striking is the distinction David Cameron and George Osborne make between the election goodies they need to finance through tax rises or spending cuts, and those they don't.

The distinction, I am told by a senior Tory, is between pledges that continue what the government has done year after year in this parliament and those that are new.

That is why, he said, David Cameron has announced a raid on the pension relief received by high earners to pay for the rise to £1m in the threshold for inheritance tax for a married couple.

But he said there's no need to fund the promised £8bn of NHS spending increases or £6bn of increases to tax thresholds because these are in tune with what they've done to NHS funding and tax thresholds in the current parliament - and therefore we should trust them to find the money in due course to continue with these giveaways.

Except that in the case of the 40% tax threshold, the reverse is true. As every newspaper in Britain has been banging on about for year after year, there has been no substantial real increase in the 40% threshold in this parliament - so all sorts of people who don't think of themselves as rich pay this higher rate of tax.

Which means that not coming up with a credible way for lifting the threshold to £50,000 - which Mr Cameron has promised - seems odd and contrary to the Tories' unusual (ahem) fiscal principles.

UPDATE:

Just for clarification, the threshold for the 40% rate of tax was raised above the rate of inflation for the first time in this parliament in the last Budget. But this was a first and wasn't a theme of the parliament.

That said, I should point out - which I think is obvious, but is not to an irate member of Tory high command - that if you are on low pay you are likely to be pleased to receive a guarantee that you won't pay income tax.

Similarly, if you are someone (young or old) living in a housing association property with no wealth to your name, it is better than a kick in the teeth to be told that you are in line for a hefty windfall from your new right to buy your property at a discount of up to 70%.

In that sense, and to state the bloomin' obvious, David Cameron and George Osborne are challenging directly the charge that they are only interested in helping the well off.

These policies can be seen as addressing directly the idea that there is too much financial inequality in Britain. They represent Cameron and Osborne taking on the guise of One Nation Tories.

And the important philosophical distinction is that they believe a fairer society will be built by cutting taxes and privatising institutionally held assets, in contrast to Labour's approach of forcing companies to increase low pay, of breaking up the banks and capping energy prices.