It may still be early February but the March Budget has already kicked off. This morning’s Telegraph splashes with Danny Alexander’s first attacking move, with the Chief Secretary saying he strongly supports a reduction in higher rate pension tax relief to fund further increases in the personal allowance. For all the Lib Dem’s previous talk of mansion taxes and crackdowns on tax evasion, this is serious stuff. Alexander claims the government could save £7 billion by reducing the 40p tax relief currently given to higher rate tax payers to 20p, the first cash on the table that would come close to funding his party’s ambition on the £10k allowance.
If there’s one thing Alexander’s intervention confirms it’s this: the key question for the 2012 Budget is no longer whether the Lib Dems will get anything on personal allowances but how the next increase will be paid for. This marks a big change of tactics for Clegg’s team from previous budgets. They’ve come hard out of the blocks in a very public way and not just to argue for the allowance move itself — easy words, after all — but putting a big money, progressive, revenue-raising measure front and centre.
It’s a shift of strategy that was marked first by Nick Clegg’s speech to the Resolution Foundation in late January when the message was more coded but the intention no less clear: “I want to help the hard-pressed and the hardworking. If that means asking more from those at the top – so be it.”
And, make no mistake, for those on low or modest pay, it’s a change in emphasis — if it pays off — that could be hugely important. As Gavin Kelly has argued before in the New Statesman, the coalition has shown a deeply worrying instinct in recent months to make deep raids into tax credits as their default way of funding their wider ambitions. It is now clear that Clegg’s team realise their previous strategy — in which they win the offensive for a higher allowance but fail to defend areas of spend that are absolutely essential for low to middle income households — has become utterly unsustainable. These earlier failures will sadly still bite low to middle income households hard when substantial tax credit cuts bite this April. But at least if the Lib Dem’s new approach works, things might not get worse.
So all in all, 20 minutes in to Budget 2012, it’s probably fair to scratch up 1-0 to Team Clegg. They’ve come out early and marked their territory well. And in higher rate pension tax relief they’ve identified an area of public spend that there’s long been a good case for reviewing. Ultimately, of course, if a week’s a long time in politics, six weeks is an aeon in budget negotiations. Staking your claim early is bold but it’s also risky. The key question now is whether the Lib Dems can hold on for the win. One thing’s for sure: with their funding ambitions now out in the open for all to see, any further cuts to tax credits in March would be a stinging humiliation.
James Plunkett leads the Resolution Foundation’s Commission on Living standards.
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