Adding Fuel to the Fire

Don’t panic.

The events of this week have demonstrated that those are two words that, when uttered by a government minister, are guaranteed to spark chaos and confusion.

Francis Maude’s inexplicable intervention (jerry cans and all) in the tanker drivers’ dispute transformed the distant prospect of a strike into an urgent crisis – at least in the perceptions of the media and (therefore) the public. Now the news bulletins and front pages are full of the imagery of the panic-buying of fuel – long queues outside many petrol stations, and makeshift closure signs outside others.

The immediate hope must surely be that today’s guarantee of no strike action until after Easter will reassure even the most irrational motorists; next week, journalists’ attention will no doubt shift to the conciliation talks that might yet avert any industrial action at all.

Just about everyone has an interest in seeing those talks succeed. The drivers want to reach a deal they can be satisfied with, their employers are keen to avoid disruption; with the economy still fragile, the last thing the government needs is for much of the country to be brought to a halt, and Labour will be desperate to avoid being torn between the interests of voters and unions.

The evidence of the last few days would make anyone think the two main parties were battling to exceed each others’ self-inflicted embarrassment. David Cameron hardly set the record straight when asked about his own minister’s ill-judged comments, while Ed Miliband was too busy tucking into sausage rolls to comment.

As Conservative faces got redder with every dried-out petrol pump, Labour threw them a lifeline by handing a comprehensive victory in the once rock-steady Bradford West constituency to none other than ex-Labour MP George Galloway.

All of this has been seen as taking the sting out of revelations at the weekend about so-called ‘cash for access’ – just as last week’s rare Friday policy announcement on minimum alcohol pricing did for the Budget. Although the Tory party dealt swiftly and decisively with the man responsible, the suspicion that Mr Cruddas was a mere whistle-blowing rogue remained.

Today, though, Miliband followed Cameron’s lead by publishing details of meetings he has had with major donors since becoming leader, only to find that his most regular guest has been Len McCluskey – the boss of Unite, the very union at the heart of the fuel strike saga.

Then, of course, there’s the case of the woman who suffered severe burns when decanting stockpiled fuel whilst cooking her dinner. It could have happened (and probably does happen) any time – but in this week of weeks, the cruel irony was too good for journalists to resist.

Political parties mired in funding scandals; threats of petrol shortages; Galloway back in Parliament… it’s been a worrying week.

But don’t panic.

Osborne - Economist or Politician?

Ahead of the Budget statement next week, speculation is growing that George Osborne is set to announce a lowering or even the scrapping of the 50p tax rate. The government is bracing itself.

It’s no secret that the Conservatives are opposed in principle to the so-called “additional rate”, applied to an individual’s taxable earnings above £150,000, which was introduced by Labour shortly before the last election, to compensate for declining revenues from lower earners during the economic downturn (the Sage will resist the temptation to suggest other motives).

The argument goes that the income-generating effect of the higher tax rate is weakened by its deterrence effect – the prospect of paying half of almost all of one’s income in a single tax is potentially driving successful entrepreneurs overseas. It might be unsurprising that the business community is united in opposition to the policy, but that makes for a very powerful lobby.

Analysis of the additional income raised compared to initial estimates has been undertaken, and the Chancellor says any decision taken will be made on the basis of this evidence. What we do already know is that paying the additional rate increases the average overall personal tax rate, from the 23% faced by higher-rate taxpayers, to a whopping 40%.

However, as with any fiscal policy, the politics are as important as the economics, and to deliver what will inevitably be described as ‘tax cuts for the rich’ would surely be near-suicidal – not only for the Tories, but arguably even more so for the Lib Dems.

Desperate to avoid becoming the co-plotters of such a bombshell, Nick Clegg, Vince Cable and Danny Alexander are pushing for any easing of the tax burden at the top to be mirrored by one at the bottom, for example through a further increase to the personal allowance for basic-rate taxpayers – which the coalition is committed to raising to £10,000 by the end of the Parliament.

Ultimately, the effects of the 50% rate are as much psychological as economic. It can encourage high-earners to fiddle their figures, for example by turning personal income into capital gains – a tactic employed by so-called ‘one-man’ firms in both the public and private sectors. It can also serve to reassure those on lower incomes that the rich are (mostly) paying their fair share.

With the Tories apparently determined to scrap the 50p tax rate at some point, the Lib Dems’ ideal scenario – and Osborne’s easy option – is for it to be left to another Budget in another year. But the Chancellor is also under growing pressure from business – and is known to favour bold decisions and the political confrontation that they generate. What will he do? The jury is out.

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Meanwhile Ed Miliband made a rare announcement today – an actual Labour policy. He pledged to “guarantee” a 6-month minimum-wage job for every long-term unemployed young person. If only he’d shared the detail with Harriet Harman before she went in front of the TV cameras...

The irony is that a similar scheme (the Youth Contract) is already in place under the coalition government, and has already been criticised by Labour for failing to give young workers real, sustainable job prospects – once the state support disappears, the argument goes, so does the job.

In any case, isn’t it funny how many policies would be paid for by Labour’s tax on bonuses?