One of the best policies Labour ever enacted came out of a backbench rebellion against a Labour budget. In 1977, Jeff Rooker and Audrey Wise tabled the so-called Rooker-Wise Amendment, which proposed to index-link income tax thresholds to retail price inflation (RPI).
This meant that it would be levied on people’s real (rather than nominal) earnings, and prevent people being dragged into paying more tax on the same take-home pay at a time of spiralling inflation.
Successful budget rebellions are a historical rarity. But Rooker-Wise caught the attention of Nigel Lawson, then an Opposition whip, and with Conservative support it actually passed. More than that, it endured for more than 40 years – before income tax brackets were frozen by Rishi Sunak, then Chancellor, in 2022. This was originally intended to run until 2026, but Jeremy Hunt has extended it to 2028.
Whilst the Government was faced with a pressing need to find some way of paying for the exigent spending demands of the pandemic response, it was nonetheless extremely unfortunate that it chose to do so by undermining what Lord Macpherson, a crossbench peer, has rightly called “perhaps the most important principle informing our tax system”.
Rooker-Wise was not fiscally irresponsible; not some British analogue to the United States’ semi-fictitious “debt ceiling”. The chancellor du jour remains totally at liberty to set income tax levels at whatever they like. But it does require them to be honest about it when they raid people’s incomes, rather than posing as a tax-cutter whilst “fiscal drag” comfortably offsets their interventions and means taxes actually rise. As the FT noted:
“Hunt is likely only able to afford the planned cut in national insurance because the continuing effects of fiscal drag are pushing up tax receipts so much.”
Another example for the ‘politics is fake’ pile. Moreover, in the long run it seems worryingly likely that abandoning Rooker-Wise could turn out to be the Prime Minister’s real long-term legacy, especially since he abandoned most of the rest in order to call the election.
Index-linking tax thresholds is so obviously the proper thing to do that it is extremely hard to resist when one of the big parties chooses to back it. But an easy way to mislead the public about how much you’re taxing them is so obviously convenient for ministers that it’s easy to see why no government ever got round to doing it before 1977.
Perhaps Margaret Thatcher would have been persuaded of it after 1979, but it seems just as likely the Tories simply seized a rare opportunity to defeat a government on a budget; an incoming Labour government, faced with mounting pressure on public budgets and the need to avoid a George Bush Sr “read my lips” moment on tax in light of Rachel Reeves’ promises not to raise income tax or national insurance, is hardly likely to restore it.
In the short term, however, this has created a “We’re all trying to find the guy who did this” problem for Sunak. With income tax bands frozen until 2028 (at least), in the next few years the state pension is going to exceed the personal allowance, which is fixed at £12,570. One dreads to think what Janet Street Porter would have to say about that.
But she need not fear. Yesterday, the Conservatives announced the “triple lock plus”. Under the boast that “the state pension will never be taxed under the Conservatives”, the Daily Telegraph reported:
“The Prime Minister will announce plans to give retirees “peace of mind and security” by automatically raising the threshold at which they start paying income tax each year so that it stays ahead of the state pension.”
Personally, this feels a bit like having accidentally wished on a monkey’s paw. As a strong believer in the underlying principle of Rooker-Wise, and that the Tories needed a stronger offer to workers, I’ve been boring people for months about how the Government should have re-linked tax thresholds ahead of the election. They could even have rebadged it the ‘incomes single lock’, or something.
Be careful what you wish for. If there is a more obviously unjust way to bring back Rooker-Wise than doing so exclusively for pensioners, I can’t immediately think of it.
Yes, plenty of older people are not well off and will really benefit from this protection to their core income. But that doesn’t change the fact that as a group, they are the wealthiest age cohort in Britain, not just in terms of asset wealth but disposable income too.
Plenty of retired people who have no particular need of this tax cut (and whose incomes are already ‘tripled locked’ to not only keep pace with inflation but match or exceed wage growth) will receive it, whilst low-income working households will continue to have their personal allowance corroded by fiscal drag.
It always took a fair amount of brass neck for the Prime Minister to claim that “the best tax cut we can give is to cut inflation” whilst explicitly changing the law so that inflation hiked everyone’s taxes. Having now acknowledged this, albeit only in the case of pensioners, it will be interesting to see whether he still tries to emphasise the Government’s record on inflation for the rest of the campaign. ‘Inflation is falling, and so thus are my stealth taxes’ is hardly a winning message.