“Under a Liberal Democrat government, you will not have to pay any income tax on the first £10,000 you earn.”
So said the manifesto on which we fought last year’s election. And while we didn’t get a Liberal Democrat government, we did get the policy.
The coalition agreement commits the government to making real terms steps each year towards the target of £10,000, kicked off by an initial increase of £1000, benefiting the low paid by £200 this year.
But should we be moving faster?
Recent economic growth has, of course, been weaker than expected – no surprise given the circumstances. The events of 2007-8 are not called a financial ‘collapse’ for nothing, and when a building falls down, you don’t just wake up the next day, or the next year, with a nice, shiny new one. Rebuilding takes time.
Add to that the high inflation rate, caused primarily by the spike in oil prices, affecting as they do the price of day-to-day essentials (food, transport, energy), and it’s clear for anyone who’s willing to look why consumer confidence is low and growth sluggish.
The amount policymakers can do to affect this situation is inevitably limited, and the government is already doing much of it: getting the banks lending, cutting unnecessary red tape and launching initiatives like the green deal and the green investment bank.
But there is another thing the government could do, as the IMF mooted last week: they could let the people that are being affected by the squeeze on household budgets keep more of the money they earn.
Inflation is not so much a problem for those whose budgetary decisions don’t involve choosing between essentials and everything else. The wealthy can absorb price increases; the worst off can’t.
So why not do what the coalition agreement says, but instead of doing it gradually, do it now? Why not raise the income tax threshold to £10,000 today, and give the parents who work 40-hour weeks for the minimum wage a break?
If this government wants to be defined by its boldness, it couldn’t get much bolder than that.
Helping out the low-paid, stimulating the economy and implementing a key coalition pledge all at once, just by jiggling the plans around a little.
And what’s more, given how little the government is being charged to borrow money thanks to its deficit reduction plans, why not make it even more of a stimulus by borrowing the cost of the tax cut for a year? Our manifesto put that cost at close to £17 billion, though it will now be less given the progress already made.
Then, when he delivers his budget next year, the Chancellor can make the policy revenue-neutral by increasing taxes on expensive property, unearned wealth and pollution.
So, how about it – time to implement that Lib Dem tax cut now?