Of course as Lib Dems it’s great to welcome the final push towards lifting all those paid less than £10,000 out of income tax. As my Co-Editor Caron Lindsay notes here, this is a policy direct from the front page of our 2010 manifesto to the Coalition’s budget. That’s no mean achievement — we know that because the Tories keep trying to claim it as their own policy, even though it didn’t feature in their last manifesto at all.
Lib Dem ministers and members will quite rightly talk it up (if we don’t, who will?) as part of the ‘stronger economy, fairer society’ mantra. This, after all, is a policy designed to achieve both: a fiscal stimulus to the economy which benefits most the low-paid and middle-income earners. But let’s recognise the reality for most taxpayers: livings standards have fallen on the Coalition’s watch, as this graph from the Spectator makes clear:
After four years of decline, real wages may be about to bottom out. (Though who puts much store by the economic forecasts right now?) The Coalition is banking on the promised return to anaemic growth, and a possible up-tick in real wages, being acknowledged, however grudgingly, by the voters in 2015.
If that happens, it won’t be the result of George Osborne’s genius. It will be the result of two factors. First, George Osborne long since abandoned Plan A’s dependence on cutting the deficit. As Vince Cable notes in his New Statesman essay:
… the data does not support the conclusion that deficit reduction has had dramatic effects on the economy. There has been only modest reduction in the budget deficit, partly because the government has been allowing counter-cyclical stabilisers to operate, and partly because we have taken the conscious decision not to introduce further cuts at a time when the weaker economy has damaged tax revenues. … [The Coalition was] sufficiently pragmatic to allow the fiscal consolidation to drift from four years to seven.
Secondly, Labour, even after three years of trying, has failed to persuade voters they have a viable alternative. Labour’s Catch-22 dilemma is simple enough: the failure of the economy to recover exacerbates the UK’s debt problem, and few voters think Labour is the party best able to tackle it.
Two other points worth noting…
First, the Coalition has clearly been stung by the NIESR “chart of doom” showing how the current economic downturn is the worst in a century. Here’s the Treasury’s partial response, highlighting how “employment performance in the UK compares favourably with post-war experience”:
Secondly, though the employment figures are welcome respite from all the other dire economic statistics that abound, Lib Dems need to think hard about this graph, showing how generally regressive has been the cumulative impact of the Coalition’s tax-and-benefit changes:
That suggests that lifting the income tax threshold still further — a change which will benefit only those earning above £10,000 — is not the way to deliver social justice.
* Stephen Tall is Co-Editor of Liberal Democrat Voice, and editor of the 2013 publication, The Coalition and Beyond: Liberal Reforms for the Decade Ahead. He is also a Research Associate for the liberal think-tank CentreForum and writes at his own site, The Collected Stephen Tall.