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DERMOT MURNAGHAN: Now the budget is just a month away or so but already politicians and policy makers are piling in to offer advice to the Chancellor, George Osborne, so what could or should be in it? I’m joined now by the Conservative MP Robert Halfon who has been campaigning for the return of the 10p tax rate and Paul Johnson, the Director of the Institute for Fiscal Studies, a very good morning to you gentlemen. I want to start with you Mr Halfon and this 10p tax rate, you must have been heartened to hear Mr Miliband going for it.

ROBERT HALFON: Well I welcome that they’ve sort of done a half Road to Damascus conversion but it is only 67p a week, about £1000, it won’t benefit people more than about £35 a year according to Policy Exchange and the truth is that Labour have actually been an enemy of working people on lower earnings because every time we’ve tried to raise the threshold, taking two million people out of tax, cutting tax for over 25 million lower earners, their party voted against it. They voted against the council tax as well.

DM: Well tell me about how your 10p tax proposal would differ from that coming from Labour.

RH: What I’ve proposed is that you limit the raising of the threshold to just under £10,000 and you go from £10,000 to £12,500 which is the level of the minimum wage and that, according to the House of Commons library would cost about £6.2 billion a year although the Treasury say roughly seven and you pay for it partly by using the extra revenues raised from the new 45p rate.

DM: So it’s interesting that you would raise extra revenue by cutting tax which means we’ll go to the IFS for their analysis of that kind of thing. Firstly, Paul, the different 10p rates, the Labour proposal is limiting it to just £1000 of income above that threshold, is that the best way of giving money back to the low paid?

PAUL JOHNSON: Well of course 10p rate over £1000 is a very small change and actually adds quite a big complication to the system. What this government has done is raise the personal allowance at a cost of £9 billion, so a really big tax change which has benefited most people who are basic rate tax payers and taken quite a few of them out of tax altogether. That’s probably a preferable and simpler type of policy. One thing that this government hasn’t done and which the Labour party hasn’t talked about and which politicians never talk about is actually the National Insurance system, just another direct tax, so actually no worker has been taken out of direct tax by this government, they have only been taken out of income tax and as ever we talk about income tax, we never talk about other taxes.

DM: Okay, so you’re saying that if you really wanted to help the low paid , look at the National Insurance rate?

PJ: Yes, that comes in at a much lower point than the income tax rate now, helping the low paid in work you’re more progressive, simpler and more effective if you’re looking at that.

DM: Okay, I just want to throw that idea from Rob Halfon at you, so bring in the 10p rate, a broader band there and pay for it by increased revenues from cutting the very highest rate of tax. Are there going to be increased revenues, I suppose that is a how long is a piece of string question?

PJ: Well the government evaluation signed off by the Office of Budget Responsibility suggests that it won’t actually make very much difference at all moving from 50p to 45p so their suggestion is you won’t lose very much or very much at all but whether you’ll gain anything from it in the long run I don't think we know. I know the best bet is that it won’t make much difference to the amount of money that comes in.

DM: Okay, well we’re talking about what might or might not be in the budget, I think it is a pretty sure bet that Mansion Tax won’t be in there but that is the Labour proposal, Robert Halfon, why not go for that?

RH: I’m very wary of cutting taxes and then increasing another one and bringing in a brand new tax on property which will actually mean revaluation of millions of houses around the country and be very costly in itself. The Labour party even admit that their proposal doesn’t even raise the money they need to bring in their modest 10p rate so I’m very wary of this and I think we need to look at other revenues. I think we need to look at the long term of benefits that go to richer pensioners for example because if it was limited to pensioners on lower incomes you could save up to £2 billion a year on the winter fuel allowance or TV licence or things like that. So I think we need to look at things long term but I don’t think we should start increasing taxes elsewhere in order to cut taxes for the lower paid.

DM: Okay, well let me put the Mansion Tax back to Paul Johnson, if it is brought in – probably not under this Chancellor anyway but would it be expensive to administer? Does it involve a revaluation of properties and collecting it would be difficult wouldn’t it?

PJ: The idea put forward both by the Labour party and by the Liberal Democrats is a higher tax on only properties worth more than £2 million. That’s a pretty small number of properties. There is actually something rather more fundamental wrong with the way that we tax property through the council tax. It is extraordinary isn’t it that they are taxed on the basis of their value back in 1991, are we still going to be doing that in 2021, 2031, taxing people on the basis of what their property was worth now 20 years ago, then 30, 40, 50 years ago.

DM: So what, bring in three or more council tax bands?

PJ: Well you just actually get the value right first and secondly the council tax I think is the only tax which is deliberately designed to be regressive in the sense that it is smaller as a proportion of the value of the property, the more expensive the property is. So what a Mansion Tax is doing is kind of undoing that a bit right at the top, well actually more than a bit because to raise a billion or two off 70,000 households, do the maths, that’s an awful lot of additional money from a small number of people.

DM: Okay, I just lastly want to throw in another idea here and perhaps get the IFS to respond to it, Robert Halfon what about something that really does affect most people’s pockets, fuel duty, and might kick-start the economy?

RH: Yes, well as you know I’ve been campaigning very hard for the government to free and cut fuel duty and to be fair to them they cut fuel duty in 2011, they froze fuel duty last year and they’ve stopped the January rise and postponed the April rise. We need to carry on with this and I’m urging the government to stop the September rise that is planned but fuel is now 10p cheaper than it would have been had we gone on with the previous plans of the last government.

DM: We are running out of time, so Paul Johnson is there any sense in which this may stimulate economic activity, if you really took an axe to fuel duty?

RH: Well the amount that you would have to do to have a really big impact on activity would of course be more than I think we’re talking about here. The thing about fuel duty is that this government and the last government have actually been very similar, they have both continued to announce increases and then delay them and then not introduce them. I think what we really need more than anything else, irrespective of what the level is, is actually some sense and clarity around the way that we go forward, rather than as Robert just described, announcing it, delaying it, abolishing it, announcing it again and delaying it.

RH: And the problem has been course is that when the government have frozen fuel duties the oil companies then put the price up at the pumps so the public don’t know the difference.

DM: Okay, Robert Halfon, Paul Johnson, all will be revealed on March 20^th, thank you both very much indeed.