In today’s Times, David Laws, Liberal Democrat MP for Yeovil and former Chief Secretary to the Treasury , argues that the coalition must live with increased taxes on the rich as part of its deficit-reduction programme, but that reforming Britain’s complex and unfair tax system must be undertaken in earnest. Here’s an excerpt:
Under the last Labour Government tax policy was characterised, in the words of the Institute for Fiscal Studies, by “drift, punctuated by poorly thought-out changes”. A 10p in the pound rate of income tax was introduced and abolished. National insurance changes were made for political, not economic, reasons. Capital gains tax was changed backwards and forwards. And recent, incoherent changes to income tax mean that people face marginal tax rates of 60 per cent in incomes between £100,000 and £114,950, but 40 per cent just above and below this.
This flawed system has real economic costs: disincentives to work and save, more expensive compliance and greater avoidance and evasion.
The Government has set out a long-term agenda on welfare reform, education and deficit reduction, and it makes sense to do this for taxation, too. The recent Mirrlees Review offers some useful signposts for reform. Corporate taxation, environmental taxation and the taxation of savings and income are all ripe for reform.
Of course, the Chancellor already has an important medium-term tax objective. This is to raise the tax-free personal allowance to £10,000 — helping people on low and middle incomes. The first £1,000 instalment of this policy will take effect this April. After that, further progress will be made as soon as it can be afforded. Quite sensibly, the gains from this bold — and therefore costly — policy are being focused on people on low and middle incomes, so the starting point for the 40 per cent tax band has been adjusted so those on higher incomes do not gain. In tough times, you have to take tough decisions.
Achieving the £10,000 personal allowance is the coalition’s tax priority. It is right that it should take precedence over other desirable reforms, such as getting rid of the 50 per cent rate of income tax.
You can read David’s article in full here (£).
Follow @libdemvoice.org on Bluesky
Like us on Facebook
Subscribe to our feed
Sign-up for our daily email digest
20C night
Sammy Going South and the morality of employing child actors
Lessons from 1936 and 2026 for the Liberal Democrats (LDN#211)
Recipe for a real change of direction
Day 9304: So Farewell Then, Kier Starmer
Iain Donaldson
Mohamed BENALIA
Caracatus
Caracatus
Matt Wardman
29 Comments
Yet more evidence, if it were needed, of what the Coalition has lost by Laws’ absence.
Tabman@
You mean someone who by his own admission contravened rules on claiming tax payer funded expenses ?
Poppie’s Mum. I’m not going over the ground of Laws’ removal (and in any case, he claimed less in the arrangement he had than he could have claimed quite legitimately if his relationship was open).
I am merely lamenting the absence of one of the most progressive Liberal thinkers in the party.
I agree with Tabman.
I also agree with Tabman
I agree with Tabman, too.
OMG I’m agreeing with Tabman! someone pass the whiskey quick 😉
I agree with Poppie’s mum
The fact you can do what Laws did and still get published by a national newspaper (especially on financial matters affecting other people) is a step too far for me, but utterly unsurprising.
All above – aw shucks 😉
Steve Wilson – what did Laws do? And what did plenty of Labour politicians do who seem to have no issue with being published?
Two issues here
1) Expenses – Laws should not have felt the need to resign over what he did. Apologise, sure. Leaving aside that he claimed less than he could have claimed quite within his rights, his case shows just how close the story over expenses has come to a witch hunt. Privacy does have a meaning – and I don’t even like the bloke.
2) Tax system – It is strange that Council Tax does not seem to get a mention. £10k allowances are well and good, but I have a nagging suspicion that it is not the winner some think it is, not least put next to VAT. Hope I’m wrong. Anyone know if the tories are still on about a flat tax?
@Tabman. “I’m not going over the ground of Laws’ removal” Why not? Could it be because Mr Laws’ behaviour (along with Tory and Labour politicians) fell short of total honesty? If this is the case then don’t refuse to talk about it – tell it as it is (or was).
I agree with Duncan (on point one).
Re point 2, AIUI anyone on a low enough wage for who the £10k threshold would make a significant difference is likely to be in receipt of Council Tax benefit. Which isn’t to say that Council Tax needs a radical overhall.
@Duncan
I agree that council tax needs a thorough overhaul. It’s currently one of the most regressive of taxes.
It may be, as it’s local government taxation, David Laws left that issue out of his article (I don’t know, as I don’t have a Times subscription).
Of course, as a Lib Dem MP, he stood under a policy of replacing it with a local income tax.
The £10k tax threshold is a very sensible policy that will help people on lower incomes. Sadly, I think the benefits from it may be matched or even outweighed by the VAT increase which has hit the spending of the poor and made our lives more expnsive.
To all those who want to see Laws back in the Cabinet, which LibDem would you like to see leave to make room for him?
@Nick (not Clegg)
I agree with it being Nick.
😉
What is all this love for Laws? Have the LibDem’s lost there way so much they’ll support a hard right ex-banker (JP Morgan) is now *the* progressive voice of Liberal UK?! You guys do realise this whole tax thing is a movement towards a flat tax, right? With mental prowess like this, no wonder you guys are now shafting us with the Tories.
I used to carry my LibDem card with pride, I’m so very pleased that I ripped it up & returned it. This was a very long time ago. You’re just a bunch of third-rate Conservatives.
The test for the 50p tax rate is does it bring in more revenue? If it does we should keep it. Otherwise it is not worth having, but we should consider other ways of taxing the rich. In his conference speech Vince referred to a land tax as the means for doing this and I hope he delivers on that.
We also need to look at increasing public spending because without the funding this “Big Society” idea looks dead in the water. However I think we are in for a long wait.
nx – “What is all this love for Laws? Have the LibDem’s lost there way so much they’ll support a hard right ex-banker (JP Morgan) is now *the* progressive voice of Liberal UK?! You guys do realise this whole tax thing is a movement towards a flat tax, right? With mental prowess like this, no wonder you guys are now shafting us with the Tories.”
Its precisely because His Lawsness is a former banker that we love him. Someone with experience in the heat of the financial furnace.
Banker becomes Tory – dog bites man
Banker becomes Liberal – man bites dog.
i fail to see how he could have claimed more expenses legitimately his partner had a property in London why should the tax payer have paid for that with or without disclosure of the relationship. this 2nd home rubbish is a joke its exploited and making rich people more wealth, im sure it would be cheaper to put mps up in hotels if they have buisness to attend to in London, most other buisnesses operate this way for working away from home. id even be happy to pay travel expenses for them at a typical rate most employers pay.
What did Laws do?
He claimed £40,000 of taxpayers money that he should not have claimed.
You cannot claim on ‘expenses’ to pay rent to your partner.
@Tabman: The fact that you quote Labour people doing similar things is quite correct. They should also face the music. “He did it too” is an ‘excuse’ I hear all day long at school. Of course, it is no excuse at all.
The idea that now is not the time for reducing tax rates seems right. To do otherwise would be to undermine the platfornm the govt has so strenuously constructed regarding how awful the situation is. The proposal to stremline the tax system is always sensible. I’m not sure that the argument that there is an anomaly on marginal tax rates between £100k-£120k is a totally compelling justification, given that will seem irrelevant for 99% of the population. Perhaps that is just pandering to the article’s intended readership. While I agree that the fate of the 50% tax rate should be informed by whether it generates any revenue I would be unhappy to see it go unless there was some alternative in place. Taxes have a symbolic as well as a practical purpose. Personally I’d like to switch the focus to unearned wealth and its intergenerational transfer that serves to perpetuate social inequality and impair equality of opportunity. A land tax would be a decent place to start looking.
I’ve actually got a sneaky suspicion that the Tories would love to have Laws in the Treasury still. They tried to recruit him before and he was a keen advocate of attacking the deficit immediately. And ff the threshold had been put up to £10k, then it would have made an immediate impact. As it is, the £1k increase has pretty much be cancelled out by the VAT increase and lack of credit.
I was also a bit disappointed to learn that during the Coalition negotiations, Laws didn’t back Huhne when he wanted a two question referendum on voting reform. Let’s not forget that in the Orange Book, one of Laws’ conclusions was that STV should be one of the main aims for liberals, along with decentralisation.
Let’s do the maths on the VAT increase and income tax threshold, shall we? By the end of this Parliament, the rise in income tax threshold will see earners of >10k and <~35k take home an extra £1k a year.
The VAT rise increased prices by 2% on VAT-rated items. Let's charitably assume that through knock-on effects, increases in supply costs etc. that everything got 2% more expensive. To cost £1k extra a year through VAT rise, that means you’d have to be spending £50k/yr on things affected by the VAT increase.
In other words, for the VAT rise to “swallow up” the income tax threshold rise, you have to be earning enough not to be affected by the income tax threshold rise in the first place!
increasing your tax allowance by £1000 doesnt give you an extra £1000 in your pocket it means you dont pay tax on that additional allowance which works out an extra £250 or so whatever the rate of tax is. so the ammount of extra money people will gain £5 a week roughly will more than be taken in increasing fuel and living costs.
so yes doing the maths shows its going to make not an awful lot of difference to people
Talking about taxes without a mention of inequality of wealth is par for the course for Conservatives and economic right wing Liberal Democrats like David Laws. What kind of Big Society is it where some people inherit billions and others inherit nothing?
They have dropped the Opportunity Society, because that might have meant something about greater equality of opportunity. And that might have meant something about the redistribution of inheritance to spread more widely the private ownership of wealth.
“We will redistribute wealth and empower people”, said Oliver Letwin – a liberal Conservative – in a Daily Telegraph front page headline some years ago. Now he is in charge of policy, what is he doing about that, I would like to know, with his economic right wing Liberal Democrat partners?
Nowt!
Richard, read what I said. By the end of this parliament, the threshold is going up to £10k – that’s an extra £5k that people aren’t paying tax on at 20%, which is a saving of £1k.
actually its an increase of £3525 pounds on the current tax code which will work out at a saving of about £13 a week in 5 years time. i can tell you now my costs have increased by more than that ammount over the last 6 months even before vat rises come into effect. the extra £13 a week wont even cover the increases in my car fuel never mind increases in gas electricity the cost of food. i know food is exempt but the transport costs arent and this is unfortunately added to the cost of food on shelves. the promise of an extra £13 a week in 5 years time isnt really going to help when inflation is running at current levels either. im sorry but the 10K tax band is good but its no where near going to compensate for the increases in cost of living
Once again there is an argument about Laws,he did claim £40,000, it was against the rules, yes others have done it,but it is still a claim he should not have made as it was disallowed. There is now an inquiry taking place about his actions. He did claim the money, no excuse he should resign and be prosecuted, along with all the others doing likewise. Otherwise the whole system comes into disrepute and why should we not follow suit??