Is Labour to reintroduce 10p starting rate of income tax?

16 March 2015

Moneywise was recently offered the chance to sit down for a quick chat with Labour's Chris Leslie, Shadow Chief Secretary to the Treasury. With the current poll on the UK's political parties pointing to a poor showing for Labour in the forthcoming General Election, there was plenty to talk about.

Leslie, who became the youngest Member of Parliament when he was elected at the age of 25 in 1997, said that Labour was keenly interested in making energy-switching faster, would help small businesses pay a living wage to staff - and said his party would look at re-introducing a 10p starting rate of income tax.

Moneywise (MW): Our current poll on which of the main political parties will be best for consumer's household finances has the Conservatives at 51% of the vote, with Labour coming in a distant second at 19%. What would you say to Moneywise readers wondering what Labour could do for them if you win power in May?

Chris Leslie (CL): You can't talk about these things in isolation without acknowledging the issues people are already facing. The Institute for Fiscal Studies has looked at the tax winners and losers of the past five years and found that £16 billion has been raised in taxes from ordinary people, principally through VAT, over just a few years.

That has more than offset any of the gains people might feel they have had through an increased personal tax allowance or some of those other short-term gimmicks they've tended to get from George Osborne's Budgets. So he might give you a little bit with one hand, with a penny off a pint of beer, or whatever it is, but actually – and now this is proved by the IFS – he takes away a lot more with the other one.

There are no quick-fix solutions to the cost of living crisis. The problem historically of wages not keeping up with rising prices and a short-term oil price collapse isn't necessarily a long-term fix for the future.

So what we've got to do is focus on the economic fundamentals, get our productivity right and boost wages so that everybody has a share in a more prosperous future. We don't just want to see tax cuts for the very wealthy at the top and hope that trickles down. What we've got to do is to make sure that all the way through, particularly those on lower and middle incomes, are given support. For example a starting rate of 10p income tax above the personal allowance would be a good incentive back into work.

I also think we've got to tackle some of the abuses of the larger gas and electricity suppliers. I think we've got to re-order some of that energy market and make sure we do better and get them regulated so that savings in wholesale gas prices can be passed on more directly to the consumer. Those are the more practical ways we can help people with their personal finances.

But we also have to make sure they're getting good products and services. Right now people may well feel that this ultra-low interest rate climate is going to continue forever. That's not the case and when interest rates do start to normalise, we've got to make sure that some of the mark-ups we see on products are properly competitive, that we do get proper choice in the banking sector in particular so that customers genuinely can shop around.

As for the current account switching service that we've had, I think the jury's still out on whether people still feel that it's too much hassle to change bank accounts and if they are getting better value.

So on a number of different areas, whether it's personal finance, consumer products, or even on the tax issues, I think we've got a big story to tell about making everybody have a stake in the future.

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MW: The process of switching energy supplier takes weeks. Would the Labour party work to improve the switching process?

CL: Absolutely. You've got to do it. Don't forget that a lot of these companies bank on the inertia of consumers who have got jobs to go to and families to look after, and they know that if you have to spend an hour or two faffing about with forms or chasing up switching, then you won't do it. They know that you won't go anywhere so we've got to completely re-order and re-build competitive energy markets. If that also means thinking of coming up with faster and more efficient ways of switching, so be it.

One of the switching issues in a different sector, in banking for example, is whether to have portable account numbers. I think that is something we properly need to explore because with mobile phones you can take your mobile phone number with you – but even that can
take quite a long time because you've need to get a PAC number and so on and so forth – but in energy and particularly in banking they make it more difficult to do that.

The problem with energy is often just getting basic information to be on a level playing information about what you are paying and clarity about some of these tariffs.

MW: So would it be a priority for you to support a quicker energy switch?

CL: Yes. Absolutely. We'd put the energy companies on notice that we won't tolerate a market that is dominated by a few large companies. We've also told of the greater regulatory powers we want to give to Ofgem [Stitch link to Rob's piece about Labour freezing bills
from Friday] to pass on the wholesale price falls.

I think we also now have to say that we can't tolerate deliberately complex and bureaucratic tricks for keeping people in contracts that are no longer good for them. Don't forget that there is a question about obligation on companies to tell their customers where better deals are available. That, I think, needs to have rocket boosters put underneath it.

MW: Labour has announced its intention to fix prices until 2017. Isn't there a danger that if you were to do that, prices would spike significantly after that time?

CL: If you don't do anything else then that is the accusation that will come but that's not the plan. The point for the cap for that period until 2017 is while that's going through all the changes to the legislation and energy markets will be going on simultaneously so that when we come out of that period in 2017 we'll have a new framework – that will be much more competitive – so that the energy companies aren't in a position to get consumers into these fixed deals they can't get out of.

MW: If you were in the Chancellor's shoes on Wednesday when he delivers his Budget but you could only introduce one policy that could help people's household finances what would that be?

CL: "The most important one of all, I think, probably has to be help for businesses to pay a living wage so you could give them a proper tax incentive to get some benefit back when they pay their staff properly in terms of wages. That also means the business rates support that we want to give to small firms in particular because, I think, ultimately if we focus on productivity of small firms in particular that's the best way to help people get better wages and living standards, so I would probably pick that one."

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