Work should pay – for both high and low earners

In a tense standoff with Labour MP Wes Streeting last night, chancellor Philip Hammond defended his decision to reduce the burden of income tax in the autumn Budget.

The argument, played out in front of the Treasury Select Committee, was classic Tory v Labour fare. Streeting demanded to know why Hammond was cutting taxes instead of putting more money into schools and the police.

Hammond responded that voters had delivered the Conservatives into government – albeit very narrowly – on the back of a manifesto that pledged to increase the personal allowance and the 40p threshold (a threshold that, for years, acted as a stealthy tax hike).

"I think it's right that we… deliver on those commitments," Hammond fired back.

The chancellor was quite right to defend his decisions, which were accompanied by substantial increases in government spending, primarily on the NHS.

However, as this newspaper reported last week, the tax cuts come with a sting in their tail. Higher rate taxpayers are finding themselves paying a heftier National Insurance bill, thus eroding around half of the benefit from Hammond's threshold shift.

So much for tax-slashing Tories.

Indeed, the sneaky use of NI to prop up tax rates is attacked this morning by traditionally-Conservative think tank the Centre for Policy Studies. The CPS, dismissing NI as "simply income tax by another name", makes two bold suggestions: lifting the NI threshold so that workers pay no tax on the first £12,000 they earn each year, and ironing out perverse parts of the tax system that result in marginal rates in excess of 50 per cent.

Both proposals are to be welcomed.

The former has been endorsed by some left-of-centre commentators in recent years as it would help low earners more than further increases in the income tax threshold. It also serves the conservative principle of "making work pay".

Meanwhile, the latter policy would simplify the tax system and incentivise work for both low and high earners – and the CPS even suggests lowering the 45p threshold to £100,000 to facilitate the reform.

Despite last night's typical Labour-Tory clash between Streeting and Hammond, it must be possible to find consensus around the principle of simplifying the tax system, removing absurd marginal rates, and helping low-earners. The CPS should be applauded for its attempt to find such common ground.