A solution to Brown's tax muddle

It's widely though that the government's efforts to compensate the low paid for the abolition of the 10p tax rate would be either complicated or expensive. But it needn't be so. There's one possible solution that's simple, revenue neutral, a benefit to the median voter, which would lift thousands out of the tax system, unite Labour MPs behind Gordon Brown, and probably cause Polly Toynbee to die of ecstasy.
Step one would be to raise the personal income tax allowance by £1200. This would save all 20p tax-payers £240 a year (20% of £1200) - the amount lost by the biggest losers from the abolition of the 10p rate. This would cost £6.6bn, according to the Treasury's own estimates (pdf).
This £6.6bn could be recouped by a 7p rise in the top tax rate.
On top of its aforementioned benefits, this would cause the Tory party a problem. Brown could ask: "Are you serious about standing up for the poor or are you what you've always been - the party of the rich?"  And he could justify the rise in top taxes more easily now than ever before. Something like this'll please Labour backbenchers:

This government is supporting the financial sector to an unprecedented degree, with a £50bn bail-out. It's only right that those who work in that sector should pay in some way for this state aid.  What's more, the financial crisis that triggered this hand-out has shown that - in many cases - the justification for big salaries was only ever self-serving hogwash. Big earners in the City were not skillful judges of risk, helping to improve economic efficiency by cutting the cost of capital, but just ignorant punters who whine like five-year-olds who have pissed their pants the moment things go slightly against them. Higher taxes on these won't much damage the wider economy.

Of course, it's possible that a 7p rise in top taxes wouldn't raise as much as the Treasury thinks, if some top earners migrate (though not to New York) or downshift. But Brown could mitigate this danger by raising the top rate by less and  raising the capital gains tax rate*.
Whatever, the fact is that Brown has every chance to get out of his own mess in a way that'd delight Labour backbenchers and benefit most voters.
So, what's stopping him? Is it the fear that top tax-payers are so footloose that they would migrate en masse? Or is he just more scared of the right-wing press than of his own MPs?
* Corrected from earlier version in light of comment one.

Comments

[Jim]

Taper relief has been abolished.

[Morgan Murray]

With the government's obsession with consultants and financiers, what on earth makes anyone think that they want to relieve the pressure on the poor? If the last few years have taught us anything, it surely is that nuLab prioritises those around the city and across the Atlantic over the feckless plebs that vote for them...

[Bruce]

He should be scared of the right wing press. The median tax payer is not the same as the media voter; the middle classes are more likely to vote. The poor, if they vote at all, are likely to vote Labour anyway. He doesn't need to pander to them. In the marginal constutencies it's the middle classes Labour has to appeal to. A good proportion of these will either already be higher rate taxpayers or will have aspirations of being so.

[dearieme]

Not focused enough. A retrospective extra income tax of 35% of annual income over £200k (or £100k or whatever) on anyone who works for Northern Rock, or any of the banks who use the new bail-out mechanism, or the FSA. Thereafter make up what's missing by an emergency refusal to pay our whack to such enemies of the state as the EU and the BBC. Also save some money by bringing the troops back, sacking 20% of the civil service and scrapping all expense allowances for MPs. Tax benefits-in-kind such as No 10 Downing St., Chequers and so on. Tax subscriptions to Trade Unions, Sky TV and the New Statesman. Legalise drugs and tax them.

[Don]

There isn't a better time for Brown to hit the super-rich with the 7p tax rise with bankers screwing up. The rise of £1200 would also attract back voters to Labour, and would cause Cameron some real problems criticizing it without losing some of his touchy-feely cred. Of course whether Brown has balls to grasp the nettle is less certain. And I suppose the poor and needy don't tend to pay as much as stinking rich businessmen into party funds.

[Sam]

FYI. The tax ready reckoner explicitly excludes behavioural changes. I understand that the behavioral changes from the increasing the top rate are quite significant above a few pence.

[Tom Freeman]

There is the small matter of the manifesto promise not to raise the top rate...

[Will Davies]

There is a rather wonderful irony in the idea of the poor becoming a political football, but one which image-obsessed politicians desparately queue up to be the best friend of. You could have a bizarre combination of Blunkett-esque race-for-the-bottom on crime (politicians refusing to leave any space to the right), with Toynbee-esque race-for-the-top on poverty (politicians refusing to leave any space to the left).

The poor (who naturally remain mute throughout all of this, having no actual political representation other than via statistics) are then split into two camps. One is herded around and locked up for longer and longer. The other is lavished with gifts. Maybe this is what 'tough on crime, tough on the causes of crime' meant all along...

[Tom Freeman]

Don't be such a cynic, Will. Given how expensive property is these days, locking poor people up is an excellent way of giving them housing benefits in kind.

[john b]

That's true - it's only if they're subsequently found to be innocent that they have to pay for their accommodation...

[FlipC]

I'll assume you're talking about keeping the current band settings, adding £1,200 to the current allowance, moving 40% to 47%, and that you're altering the NI allowance to match without changing the top boundary.

If so then by my calculations the 'no-change' point between 08/09 and the theoretical 09/10 tax years is a little over £51k a year. Everyone below that that gains, everyone above loses.

From £6k to £200k maximum gain is ~6%@~£7k, loss ~8.5%@£200k. In actual money highest gain is ~£600 at ~$42,600 and lowest is ~£10,500 at £200k.

Over the entire working percentiles the state gains ~£3,500.

[John F. Braggiotti]

Why the TAX system worldwide has been a failure?
For the same reason that MARXISM has been one of the biggest hoaxes of all time. When you look at the economies of the highest TAX nations in the world....they are either in shambles or headed that way....
Don't get me wrong...I believe in providing for all...but I don't believe in the FEW sustaining the majority....Free Will is the way...cruel at times...but life is cruel...since the beginning of times...instead we should encourage less TAXATION and more individualism to help others..encourage privatization of social help....why is the Catholic church the largest provider of HELP to the poor and under-priviledge...simple because of its private status..."you join if you want to...not have to!"
www.jbraggiotti.com

[Alex]

Tax subscriptions to Trade Unions, Sky TV and the New Statesman

Conservative Party subscriptions, school fees, membership in criminal conspiracies like the CBI..

[David Crookes]

I wonder if Gorgon/Darling have been reading this...