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How lower tax drew trade unionists to the Tories

Updated Thursday 30th April 2015

Alan Shipman explains how a substantial number of manual and professional workers also switched to support Thatcher in the 1979 general election.

Teachers were not the only unionised, previously Labour-loyal employees who were switching towards the Conservatives in 1979. Their eventual majority showed that a substantial number of manual as well as professional workers had defied their union leaders and supported Mrs Thatcher.

Historically, it wasn’t unusual for working people to sympathise with the Tories, who had been the enemies of the Whigs – the pro-business, free-trade party – for much of the 19th Century. Though socially distanced, landed aristocrats and workers often found a shared distaste for the excesses of Victorian factory bosses, and the odd alliance endured when most working males got the vote in 1884. But Labour (founded in 1900) had rallied working people’s votes for the first three-quarters of the century. And Thatcher’s Conservatism was much closer to the 19th Century Liberals’ agenda of deregulated industry and finance than to more gentlemanly Tories of the time, who sought to rein it in. So Labour campaigners were genuinely shocked by, and unprepared for, their slippage of grass-roots support.

The Conservatives’ pledge to cut basic-rate income tax (to 30% from 33%) was a well-calculated vote winner. Because income tax had only applied to higher earners when it started out, Labour attacked the pledge as a giveaway to the better-off. They underestimated the extent to which 1970s inflation had pushed more households – many not regarding themselves as well-off – above the income tax threshold, and into a position of immediately gaining from the Tory cut. Labour backbencher Jeff Rooker had sponsored a cross-party amendment in 1977 to inflation-link the tax threshold, so that rising wages and prices didn’t act as a silent tax increase. But Labour soon retreated from this, as did the Conservatives from the mid-1980s. Many voters encountered a ‘poverty trap’ under which a pay rise brought them new tax liability and lower benefit eligibility, even if a matching price rise meant their wage had not gone up in real terms.

The electoral success of Conservative income tax cuts in 1979 made all parties keen to keep making them. That initial reduction was counterbalanced by a sharp rise in VAT (to 15% from 8%). But Mrs Thatcher could conveniently blame this on the European Community (which wanted convergence towards its generally much higher VAT rates). And further income tax cuts in the 1980s and 1990s were effectively ‘paid for’ by rising revenue from North Sea Oil. The basic rate is now down to 20%, even though incomes have more than doubled in real terms since 1979.

With the oil surplus and the early-2000s City of London tax windfalls now gone, and a wide fiscal deficit after the City’s implosion in 2008, it’s become much harder for any party to promise more tax cuts without an offsetting reduction in public spending. Restored to power in 2010, the Conservatives concentrated on reducing corporate income tax to the same rate as that on personal incomes. But they also seized on Liberal Democrat coalition partners’ idea of taking lower-paid people out of income tax, by raising the threshold at which the basic rate cuts in. As a result of this, and most people’s difficulty getting any pay rise since 2008, less than half the adult population now pays any income tax. The Conservatives are promising to enshrine in law their latest promise not to raise tax rates in future. Labour, learning its lesson from 1979, has pledged to protect tax credits against inflation, and is considering restoring the 10% starting rate it introduced briefly in 2007-8.

But in a revenue-hungry age, politicians will always be tempted to increase their tax catch by letting more people drift into the net. Neither big party has ruled-out the prospect of more people drifting into the higher (40%) tax bracket as their nominal incomes rise. Winning working people’s votes with the credible promise of lower taxes is a whole lot harder than it was in 1979.

 

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