Interview with Andrew Neil on the Sunday Politics

Andrew Neil: Ed Balls you’ve been trooping round the TV studios since the Budget saying that the cut in the 50p rate will cost the Treasury £3bn, you know as well as I do that is not true.

Ed Balls: It is completely true and it is actually there in table A2 on page 51 of the HMRC report and what they say is that the £300,000 legitimate top rate tax payers will be given £3bn, that is an average £10,000 tax cut. For millionaires, 14,000 of them they get £40,000. The HMRC then say they believe if you cut taxes by £3bn for those taxpayers other people currently avoiding tax will pay up £2.9bn, people from the Cayman Islands or whatever, that is your net £100m figure, now that latter is really uncertain, highly uncertain, but it is a fact a legitimate top rate tax-payer will get an average tax cut of £10,000, how is that fair.

AN: The cost to the Treasury might not be £3bn it is well accepted indeed the last Labour accepted that when you change up and down the top rates of tax it changes people’s behaviour. There is an argument over how much and the government and the Labour government had different estimates. For your £3bn figure to be right you assume zero behaviour

EB: No. What I said was in the days after that legitimate taxpayers who are currently paying tax are given according to the HMRC report a tax cut of £3bn. The government then hopes, and I think these are government ministerial assumptions, that is offset by this big behavioural effect. The behavioural effect is uncertain, as you just said to Mr Fallon, the money might not come in …

AN: But there is one…

EB: It may or may not be…but that doesn’t…

AN: But there is one so therefore your £3bn figure is nonsense. It maybe £2.5bn it maybe £2bn, probably isn’t the government’s £100m but it aint £3bn.

EB: Andrew, it is not my figure, the £3bn figure next year is the HMRC figure of the static costs and the tax cut they hand over…

AN: The static cost…

EB: Yes and then they say maybe other people who aren’t paying tax may cough up. But that doesn’t take away from the fact the actually a top rate taxpayer is getting £10,000. Why is that happening?

AN: Well let me ask you this Mr Balls, if it is such a good idea and if you think the behavioural implications are zero, which is what you are saying…

EB: I didn’t say that…

AN: or close to… What stopped you from introducing a top rate tax on income on the super rich who did incredibly well when you were in power?

EB: Well look, the thing which happened was the global financial crisis which opened up the deficit, taxes had to go up and they were done in a fair way, including the top rate which the government admitted on Wednesday…

AN: Why didn’t you do it before…

EB: Look, the view I have taken on this and this was in our manifesto after ‘97, it is my view today, I would rather every tax rate was lower if we could afford it but that depends upon your priorities and at a time when you have got to get the deficit down and the government is raising taxes on pensioners and on families the middle class pay more tax, why is David Cameron and George Osborne gambling that a £3bn tax cut to existing rich taxpayers will somehow reap in some other revenues?

AN: People got filthy rich under Labour, filthy rich, why didn’t you introduce a tax on those earning over £150,000?

EB: Look the reality was that people on the highest incomes were paying more and more tax because incomes were going up, we also raised other taxes like stamp duty, we could have decided to put the top rate of tax up at an earlier stage, we did it in the global financial crisis…

AN: You did it in the last 37 days of Labour government; you were in power for 13 years?

EB: I think that is too cynical…

AN: But it is accurate…

EB: No it was the global financial crisis which meant taxes had to go up for everybody, it needs to be done in a fair way. There is no doubt we could have decided to move early on the top rate of tax, the judgement was that it wasn’t the right thing to do at the time. The world then changed.

AN: Well actually you identified the problem yourself when you were a minister, just have a look at this, this is what you said, lets put it up on the screen, you said: ‘having been a city minister for a year and seen the reality of that world, I can tell you that high achievers are very, very mobile people.’ That’s why you didn’t do it. You thought if you put the tax up they would leave the country, that is what you said.

EB: It’s why it is very, very important to make sure on all the things you do on financial regulation, on taxation, on the wider economy you do things in a way which doesn’t undermine Britain’s reputation in the world and I have to say to you Andrew, the decision, the way in which David Cameron announced to the Daily Mail the stripping of Fred Goodwin’s knighthood, the right decision by the way, that sent a terrible signal around the world, that is the kind of thing I was talking about there…

AN: Actually you weren’t, you were talking about you could put salaries up too much you said: ‘They are very, very mobile people,’ and now you deny there is any behavioural impact at all when you put up or down high taxes…

EB: I didn’t … Look, let me say it again, there is fact: a £3bn tax cut to the richest 300,000, £10,000 each on average. Question mark: how much behavioural affect will there be. If it is zero, the net cost is £3bn. If the government is right and it is £2.9bn, well OK, but that is highly uncertain. The danger is this is going to cost billions of pounds, even £1bn if the affect is only £1.9bn, £1bn which could have been used if they hadn’t have done this not to have that tax rise which as you said hits middle and lower income pensioners. This is a debate about priorities, do you really think a big tax cut at the top is the priority now when pensioners are being hit in this budget in such an unfair way, families too?

AN: It partly depends how much it costs…

EB: It does…

AN: It might not be your £3bn but let’s move on… Due to this Budget the number of people of tax payers paying 40p in the pound, I raised this with Mr Fallon, will reach 5m by 2014, up from 3.7m now. It incorporates quite a lot of the squeezed middle now, you don’t have to be rich to be paying 40% anymore, how much should somebody earn before they start the 40p.

EB: Well I don’t think Mr Fallon really quite explained to you exactly what was going on…

AN: No I’m asking you, how much, what should the 40p band be?

EB: Well the 40p band that Labour will set in government we will set out in our manifesto when we set out all our tax rates and I’m not going to pick on one particular tax rate here or tax rate there three years out when I don’t know the economic circumstances…

AN: So you have no idea where the squeezed middle should start to move into the higher tax band?

EB: Look, I’m worried about people who are in the higher tax band on £50,000 who are about to lose all of their child benefit. I think the squeezed middle is people on below £40,000 and above £40,000 as well. Families who will lose potentially 15% of their disposable income because George Osborne has told them that they are rich. I’m not sure that is right.

AN: Lets move onto pensions, you’ve put great stock on the wisdom of the IFS, let’s just, the Institute of Fiscal Studies, and here is what they had to say about the pensioners change, lets just get that up onto the screen, they said: ‘That from this budget we calculate that pensioners will lose on average about ¼ of 1% of their income in 2014.’ You’ve been scare mongering haven’t you. You’ve frightened a lot of pensioners thinking they’re going to be hurt by a lot.

EB: What that quote doesn’t reveal is it is actually the person who is currently in their late 50s, 60, 61, 62 who is about to be a pensioner who lose 5 times more, they lose over £300 a year because their allowances were removed entirely, and I think people looked at that Budget and said to George Osborne, why do you think pensioners should be hit in this way now?

AN: But it is the average isn’t it. If you’re poor it doesn’t affect you right, if you are a poor pensioner you are not affected?

EB: Yeah because most pensioners don’t pay taxes.

AN: If you are a well off pensioner it doesn’t affect you either because you don’t get the higher threshold above £28,000 and even if you are an existing pensioner it is only about £83 a year. You can agree or disagree about doing it but you have been scaring people and it is not threatening to ordinary pensioners at the moment.

EB: New pensioners about to be new… I said to the House of Commons on Wednesday afternoon, existing pensioners hit by an average I think of £83 a year, but actually it is a signal…

AN: You’re the man that put pensions up by 75p, credibility is lacking on this. You were part of the team that did it.

EB: Andrew, I will admit my mistakes. Will George Osborne? The 75p rate was a colossal mistake, but we actually had much bigger real terms increases in pensions, the government is dissembling to pensioners. The reason the pension has gone up is inflation is so high…

AN: I made that point to Mr Fallon.

EB: You did. They are cutting pensioners’ incomes and people say when the top rate tax is being cut for the richest why are families and pensioners paying the price?

AN: Let’s move on to broader fiscal policy in our final few minutes. The government’s case is that long term interest rates are the best measure of monetary and fiscal policy credibility, do you agree?

EB: No

AN: You don’t?

EB: No

AN: Well let me show you what you said then, why did you say this in 2004: ‘Long term interest rates are the simplest measure of monetary and fiscal policy credibility.’

EB: Yep, that is right in normal times. I made that speech in I think 2003 or 2004. In a normal economy when the economy is functioning in stable times that is true, however as you know when you get into a liquidity trap, when you have the kind of Japan or 1930s like problems we have at the moment where governments are resorting to QE because interest rates are so low, in those circumstances the interest rate becomes sticky, it becomes stuck. It can’t go any lower but it is actually reflecting the weak state of the economy.

AN: I understand that but I read the whole of your speech in 2004. You put no caveats on that at all…

EB: Well that is because I don’t think we saw… look if I had known in 2004…

AN: You said this was right for all economic circumstances, you boasted about how our long-term rates were lower than Germany’s for a period…

EB: And what rate were they at the time?

AN: I mean wouldn’t it be alright to say you have just changed you mind.

EB: No, because that is not true. At the time long rates were about 4.5%, 5%. Look if I had known we were likely to be facing in Britain a Japanese-style lost decade because of the global financial crisis I would have made a different speech, but actually governments around the world might have taken different decisions, so you are right to say in hindsight we didn’t foresee this particular 30s style catastrophe. My argument with George Osborne is he doesn’t even understand it now. That is why he is not seeing these low interest rates are a product of an economy not growing, stagnating, borrowing £150bn more.

AN: But I just wonder, people just wonder if you have learnt any lessons about spending because you spent more in the boom years and you want to spend more now as we are teetering on stagnation. Is there any time when you wouldn’t want to spend more?

EB: Part of the problem at the moment is that George Osborne is spending more on unemployment, and I say wouldn’t it be better to spend money to getting young people back to work. It is about how you spend, what your priorities are. Look the global financial crisis, Lehman Brothers going bankrupt in New York…

AN: But is there anytime when you wouldn’t spend more, because you seem to want to spend more in a boom and in a recession?

EB: When I was the Secretary of State of Education after the global financial crisis I set out £1bn of spending cuts in education which I thought we should do which Michael Gove attacked me for.

AN: If we were back in the good times again and Labour was in power would you still increase spending by more than the growth rate of the economy as you did in power?

EB: I think that that depends upon the priorities facing the country, I think people will look at our university system, our education system our transport system…

AN: So you would…

EB: In some areas you would, in other areas you would spend less. I’m not making a general statement.

AN: But what do you say to some Labour people who have said to me. ‘Look, Ed Balls is a great shadow minister, he should definitely be in the Shadow Cabinet but he is tainted by being at the centre of the ancien regime, we will never regain our credibility till we have a new Shadow Chancellor with new policies’

EB: Well I say that the opinion poll today in the Mail on Sunday puts me ahead of George Osborne in public confidence at this stage of the economic cycle…

AN: You don’t want me point out all the other polls that contradict that, you’ve found one in our favour…

EB: There was one in the Standard three days ago as well. I would say in the end it is not about polls, it is about whether you make the right arguments and whether people think you have got the toughness to make the right decisions and for pensioners and for families and for jobs I think Labour has got better arguments than George Osborne. We’ve got to show though we’ve got the toughness to make difficult decisions. That is why I went out, controversially, in January and said in a fair way, stick to the public sector pay restraint at 1%. It was tough, the right thing to do and we will carry on making tough decisions, but with different priorities than George Osborne.

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Posted March 25th, 2012 by Ed's team