Author Archives: Adam Corlett

Raising tax for health and social care: National insurance or income tax?

Last month, the independent panel of health experts set up by Norman Lamb published its interim report on “a new deal for Britain’s Health and Social Care Services”. The panel were “unanimously of the opinion that it is necessary to raise additional revenue for health and care through taxation” and Spring Conference seemed to agree. Similar views may partly explain why the Conservatives have so far (sensibly) refused to rule out any headline tax rises in the next Parliament.

The interim report, which may influence the Lib Dem manifesto, concludes with three options: 1) raise Income Tax (e.g. raising all rates by 1p); 2) raise National Insurance (NI); or 3) introduce a dedicated health and care tax. All have their pros and cons, and in the grand scheme of things Income Tax and NI rate increases raise similar revenue and are both very progressive. But in this post I want to highlight a few reasons why the current NI system might not be the fairest vehicle for boosting health and social care – points that are also important for considering what a ‘dedicated’ tax should involve.

Don’t raise employer National Insurance

First up, there’s a question about what forms of NI would be increased under that option. In short, you would want to raise the personal forms of NI that individuals – employees and the self-employed – pay, but not employer NI. That might sound backward – hitting individuals but not companies (though in the long run both just reduce take-home pay). But the existing employer NI system already creates damaging and expensive distortions. Foremost, it creates a large incentive for companies (and you and me) to use self-employed labour rather than employees. No-one seems to be suggesting this but for the avoidance of doubt: unless/until that major problem is solved, don’t raise employer NI further.

Posted in Op-eds | Tagged and | 16 Comments

Reversing Conservative cuts remains the big social security challenge

The conference policy paper on “Mending the Safety Net” contains lots of good stuff on a wide range of welfare policy, even if I say so as a member of its working group. But, at Conference and beyond, I think it’s important not to get distracted from the big issue of the £13bn of cuts planned by the Conservatives. Reversing these – and indeed going further – is what will make the biggest difference to people’s lives, to UK inequality and even to the economy (and hopefully win a few votes in the process). Within this, here are three goals that the party should be fighting for.

Increasing working-age benefits in line with inflation – and ultimately earnings

George Osborne announced that most non-pensioner benefits would be frozen at their 2015 levels for 4 more years. Even before the Brexit vote, this was expected to be a massive drag on living standards. But inflation over the next few years is now expected to be higher than previously predicted – driven by rising import prices due to the weaker pound – and unemployment is predicted to rise too. This means the freeze will be even harsher than Osborne intended. And if the economy at any point needs a boost through fiscal policy, cutting the incomes of poorer households would be just about the worst policy you can think of, as The Economist recently noted.

So the party should be pressuring the new Chancellor to scrap the freeze and increase working-age benefits in line with inflation. But the policy paper goes further and argues that benefits should ultimately rise in line with average earnings – alongside a return to some form of housing cost link for Housing Benefit (soon to be part of UC). This would help ensure that when the economy and tax receipts are growing, everyone shares in that and inequality doesn’t widen. It may sound boring, but choices about benefit uprating in the long-term can compound to be more important than almost any other welfare or tax choice for poverty and inequality.

Posted in News | Tagged , and | 12 Comments

What they don’t tell you about TTIP

Countless articles, emails and campaigns have expressed anger about TTIP. This is the Transatlantic Trade and Investment Partnership, which would cover over 800 million people in the EU and US, as well as helping determine the shape of future agreements the world over. There are numerous concerns – some entirely misguided, some merely exaggerated – and from reading the literature of campaign groups like 38 Degrees it might be hard to know whether there are any benefits at all from this trade deal. So supporters of free trade need to straightforwardly spell out some of TTIP’s advantages.

In particular, lost among the scaremongering and obscure debates has been the very foundation of TTIP: an abolition of almost all the remaining import and export tariffs between the US and EU. It’s true, as both supporters and opponents of TTIP say, that tariffs are only a part of the deal: harmonising regulations (without lowering standards) is now often more important. But when the entire process is under attack, the scrapping of tariffs should not be glossed over. I hope it’s not too insulting to suggest that many of those attacking TTIP or signing petitions (not to mention those who haven’t heard of TTIP) may have no idea that it includes the scrapping of import and export tariffs.

Posted in Europe / International and Op-eds | Tagged , , and | 69 Comments

Conference Countdown 2015: Cutting VAT for tourism would be a costly mistake

In the run-up to Autumn Conference in Bournemouth, we’ll be looking ahead to examine the highlights in the debating hall, the fringe and training rooms. You can find the papers here. You can find all the posts in the series here.

One of the motions at conference is for reducing VAT on tourism as far as possible. Here’s why that’s a bad idea.

The idea is to reduce VAT on hotels and selected attractions from the standard rate of 20% to 5% – the minimum allowed by the EU. This is something the British Hospitality Association has been lobbying the Treasury on for years. The motion refers to the importance of tourism more generally, with figures that include all restaurants, pubs and outbound flights, amongst other things, but I assume its VAT proposal is (mercifully) more limited.

The government’s response to this lobbying (under both Labour and the Coalition of which we were a part) has been to point to the substantial price tag. The cost of cutting VAT for accommodation alone would be £2 billion a year, with amusement parks and similar adding another £200 million. This is serious money. A comparable total would be the cost of the Pupil Premium that Lib Dems fought so hard to introduce.

Posted in Conference, Events and News | Tagged , , and | 22 Comments

Opinion: Do UKIP’s sums add up? Absolutely not!

ukip manifestoLike the Lib Dems and Greens (and unlike the biggest two parties), UKIP have released a manifesto that includes a list of what each policy costs (see pages 74-75). They have even had an independent body check that those costs sound reasonable, and put a lot of emphasis on their manifesto being “fully costed”. Kudos to them, you might say, but unfortunately their sums don’t add up.

For 2019-20 they have identified £32 billion of savings – largely from slashing overseas aid, ending EU contributions, cancelling HS2 and reducing Scottish spending. And £32 billion is then used for tax cuts (such as scrapping inheritance tax) and some spending increases. In this sense – and assuming all of these costs are indeed correct – the sums do balance. But…

Posted in News | 17 Comments

Opinion: Should Britain copy Obama’s capital gains proposals?

President Obama has announced proposals to increase taxes on the wealthy and help those on lower incomes (such as by boosting tax credits). The plans include reforms to capital gains tax (CGT): increasing its rate and ending a loophole. Should we do the same in the UK, and how do the Lib Dems’ proposals compare?

Posted in News and Op-eds | Tagged and | 14 Comments

Opinion: No taxation without explanation – tax summaries are welcome but flawed

budget breakdownStarting yesterday, and over the next month or so, ‘tax summaries’ will be delivered to 24 million taxpayers, detailing how much income tax and National Insurance they paid in 2013-14, and where that money went. You can see examples here.

As Nick Clegg said in 2012, this will deliver “greater transparency accountability in government … empowering citizens” with information on what they pay in, and how their taxes are spent. It sounds rather like the ‘Annual Tax Contract’ policy from the party’s manifesto in 1997 and 2001:

No taxation without explanation: Central Government should inform taxpayers of the ways in which their money is raised and spent, just as local councils now do.

You can draw your own conclusions from the pie chart on the right, but it looks like these annual tax summaries will be important.

Posted in Op-eds | Tagged | 25 Comments
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