Here’s how the Telegraph reports it:

Danny Alexander, a Liberal Democrat Cabinet minister, says the better-off are receiving overly-generous tax relief when they invest money for their retirement. Mr Alexander’s proposals would see tax relief halve from 40 per cent to 20 per cent. He also wants workers on the minimum wage, who earn up to £12,500 a year, to pay no income tax at all. Mr Alexander claims that removing the higher-rate tax relief would save the Exchequer more than £7 billion and make the system fairer. Even restricted to those earning more than £100,000 the Treasury could save £3.6 billion.

“If you look at the amount of money that we spend on pensions tax relief, which is very significant, the majority of that money goes to paying tax relief at the higher rate,” Mr Alexander told The Daily Telegraph. His remarks may open up a new dispute between the Tories and Lib Dems over tax. They are already at odds over Lib Dem calls to keep the 50p top rate of tax and introduce a “mansion tax” on high-value homes. George Osborne, the Chancellor, is expected to strongly resist any calls to scrap higher-rate tax relief. …

Nick Clegg, the Deputy Prime Minister, wants to move “further and faster” with tax cuts for lower-paid workers — a move that would be funded by higher taxes on the better-off, but which had not been accepted by Conservatives.

At the Liberal Democrat spring conference next month, the party’s members are expected to pass a motion calling for cuts in tax relief for higher-rate savers, with the Chief Secretary likely to back it. “I’m willing to study that motion but I dare say I will [support it],” he says. “I wrote an election manifesto at the last election which proposed going considerably further for precisely the reasons of fairness that I’ve set out. As a Coalition government, we’ve made some decisions in this area already, which go in the right direction. When it comes to people on low and middle income, I am a tax-cutter by instinct.”

For example, restricting the tax relief on pension contributions to 20% (the standard rate for most people) rather than the current 40% for those earning over £100,000 would raise over £3.5 billion more each year. Last year, in a clear sign of the way in which senior Liberal Democrats are thinking, David Laws asked a series of Parliamentary questions fleshing out the details of what would be raised by different moves.

So it is no surprise that Danny Alexander has returned to the theme in the Daily Telegraph:

Danny Alexander, a Liberal Democrat Cabinet minister, says the better-off are receiving overly-generous tax relief when they invest money for their retirement.

Mr Alexander’s proposals would see tax relief halve from 40 per cent to 20 per cent. He also wants workers on the minimum wage, who earn up to £12,500 a year, to pay no income tax at all.

Mr Alexander claims that removing the higher-rate tax relief would save the Exchequer more than £7 billion and make the system fairer. Even restricted to those earning more than £100,000 the Treasury could save £3.6 billion.

“If you look at the amount of money that we spend on pensions tax relief, which is very significant, the majority of that money goes to paying tax relief at the higher rate,” Mr Alexander told The Daily Telegraph.

His remarks may open up a new dispute between the Tories and Lib Dems over tax. They are already at odds over Lib Dem calls to keep the 50p top rate of tax and introduce a “mansion tax” on high-value homes. George Osborne, the Chancellor, is expected to strongly resist any calls to scrap higher-rate tax relief.

Arguing for cutting pension tax breaks for the richest in order to fund income tax cuts for millions is both sensible economics and smart politics. Sensible economics – because the net effect does not undermine the struggle to cut the deficit and in fact is likely to cause an economic boost with the extra spending caused by the income tax cut greater than the reduction in spending caused by the tax rise. Sensible politics – because once again it puts the Liberal Democrats on the side of tax cuts for the millions whilst the Tories are on the side of the very richest.

* Mark Pack is Co-Editor of Liberal Democrat Voice and writes a monthly newsletter about the Liberal Democrats.

Overwhelming support for ‘further and faster’ tax-cuts for low-paid

LDV asked: The Coalition is committed to increasing the level at which income tax becomes payable, from its current £7,475 to £10,000 by 2015. The tax-free threshold was expected to rise by about £630 annually. However, in a recent speech Nick Clegg said, “I want the Coalition to go further and faster in delivering the full £10,000 allowance, because the pressure on family finances is reaching boiling point.” Do you support or oppose the income tax allowance being raised to £10,000 as an immediate priority for the Coalition?

97% – Support
2% – Oppose
1% – Don’t know / No opinion

Well, I think that result is fairly definitive: a North Korean-esque 97% of Lib Dem members in our survey back Nick Clegg’s calls for accelerated tax-cuts for the low-paid. Here are some of your comments:

It takes the working poorest out of tax altogether – should be done immediately.

There seems to be little reason to delay doing this immediately. It’s not that we can’t afford it. We choose not to be able to afford it.

However, it would be more progressive to raise the National Insurance thresholds.

Provided we take equal action to recoup the cost through increased crackdowns on tax evasion etc.

We should aim to increase the threshold to £10k as soon as possible and then press for it to be further raised to the level of the minimum wage – after that, bring back the 10p rate up to the level of the “living wage” in each region.

Support – so long as the rise can be afforded without further expansion of the deficit

I support the idea of the minimum wage level being the income tax threshold

It should be the number 1 priority and we should seek to go further.

* Stephen Tall is Co-Editor of Liberal Democrat Voice, and also writes at his own site, The Collected Stephen Tall.

Personally I think this intervention is very welcome, not only because the policy is a good and liberal thing in itself, but because its implementation couldn’t have come at a better time: it both helps those on low incomes struggling with the effects of high inflation and stimulates an economy suffering a severe demand crisis.

Here’s what I wrote back in October for the Guardian, including a quote on the issue from Clegg himself:

When it comes to inflation, while George Osborne’s options to tackle the problem itself may be limited, he can certainly take action to negate its effects on the people on whom it impacts most severely. One of the most effective things he could do is to let those on low and middle incomes keep more of the money they earn. The coalition agreement already commits the government to raising the threshold at which people begin to pay income tax to £10,000 over the course of the parliament. Given the way in which the economic outlook has deteriorated since last May, wouldn’t it make sense to do so more quickly?

When I put that very question to Nick Clegg last month, his response was this: “My simple answer is if we can do it tomorrow, I think we should do it tomorrow.” However, he also expressed practical concerns about the affordability of implementing the policy early: “It is an extraordinarily big shift in the tax system, and it costs billions – that’s basically the problem.”

It seems that a combination of the deputy prime minister seeking to be more vocal on Liberal Democrat priorities combined with the worsening economic picture means the reservations he expressed on the feasibility of such a move are now outweighed by the necessity for bold and urgent action to increase demand in the economy and help those on low incomes.

The big question that remains, though, is whether the Tories – and particularly George Osborne – will back Clegg. Certainly many in the Conservative party like the Lib Dem income tax policy and would probably agree with Clegg, but it remains to be seen whether a deficit-focussed Treasury can be convinced of the merits of this radical change.

Clegg’s speech, though, also signifies a very important and welcome change to the Lib Dem approach to the coalition, with Clegg putting public pressure on his colleagues in government either to reach a compromise on the policy or say why they don’t think it’s the right thing to do at this time. It’s far from clear whether Clegg’s call will materialise in the upcoming budget, but it should hearten Liberal Democrats that the deputy prime minister is pushing this policy and doing so in such an open way.

* Nick Thornsby is Thursday Editor of Liberal Democrat Voice and blogs here.

Here’s a sample:

In a country used to coalitions, having the leader of one of the parties in government talk about their tax priorities a few months ahead of a budget would not be remarkable. With the British media habits, it had made today’s speech from Nick Clegg to banner news – lead story on the Today program’s news headlines, front page banner headline in the Daily Telegraph, a wide range of TV interviews and more.

Nick Clegg and his team have not stinted in their media push – heavy pre-briefing of the media, that large round of interviews (trailed in advance on Twitter) and a crack of dawn email from Vince Cable.

That email even leads readers through to a web page on the party’s website which contains a personal story illustrating the party’s views on tax:

“Imagine a mum who works 3 days a week as a teaching assistant – earning £10,000 a year or just over £190 a week. Under Labour she paid more than £1,000 in income tax and national insurance. Although she wanted to work more days a week she knew it was not financially worth it. Under Labour; once tax, tax credits and housing benefit has been deducted, for every extra pound she earned she was able to keep just 10.5p.

“Under our plan she would see her income tax bill cut to zero making her £700 a year better off.”

For anyone in communications, the use of such personal stories is a standard way of simplifying complex details and giving the message more emotional impact. That has made the frequent absence of such stories a cause of complaint from party members such as political narrative expert Neil Stockley in the past. Key phrases to trigger the right emotional reaction (to Lib Dem leaning voters) are also scatted through the page, including “super rich”, “hedge fund managers” and “ordinary workers”.

You can read Mark’s post in full here.

* Nick Thornsby is Thursday Editor of Liberal Democrat Voice and blogs here.

This is of course closely linked to wealth taxes as they are a way to raise the funds to pay for the income tax cuts.

Aside from the numbers adding up – a very important consideration for tax policy – it also has the merit of fitting well with what the public wants from political parties (a commitment to fairness). Moreover, it is rather a political win-win: the idea of income tax cuts attracts Conservatives enough that it may happen, but the Tory-repelling wealth tax part means it is clearly seen as a Liberal Democrat package.

The importance being attached to this message by the party is shown by the speech not only being heavily pre-briefed to the media (resulting in, for example, the lead headline on the Daily Telegraph’s front page: Nick Clegg: speed up the tax cuts) but also a pre-speech email to party members from Vince Cable:

As families face more of a squeeze, today Liberal Democrats are arguing for greater tax cuts for hard working people.

Between now and the Budget, Nick and Danny and I will be arguing for faster tax cuts, giving you a reward for hard work. And Nick will be setting out our case in a speech today.

Given the budget constraint we have to raise money for the tax cut elsewhere and have plans to raise an equivalent amount from the wealthiest taxpayers.

At the last election the Liberal Democrats promised to raise the personal allowance for ordinary taxpayers to £10,000. I am proud that the Coalition has committed to doing so over the course of this Parliament.

For millions of ordinary hard working people, that means paying £700 less in income tax each year. Low earners, mostly women will benefit from being lifted out of tax altogether.

But times are tough and quite simply, Liberal Democrats in Government want to help families who are currently being squeezed by moving more quickly.

Whether it’s targeting an extra £7bn from tax evaders and avoiders, taking an extra £2.5bn every year from the banks in a balance sheet tax, or the announcement I made on Monday to curb the excesses of executive pay, this Coalition is taking important steps to deliver a fairer economy.

And we have already made a big difference, click here to see how.

We are building a new economy, one that benefits the whole country, not just bankers in the City of London. Making the tax system fairer is crucial to that. This is a huge task that will make Britain a fairer and more liberal country for generations to come.

 A footnote for political vocabulary fans: “alarm clock Britain” is set to make a return in today’s speech.

* Mark Pack is Co-Editor of Liberal Democrat Voice and writes a monthly newsletter about the Liberal Democrats.

What they also like to ignore is some of the changes that are being made towards making this country fairer. Here is a list of cuts WE should be talking about because they are mostly happening through Lib Dem action and pressure.

• The CUT from £250,000 to £50,000 in the maximum annual pension contribution to receive tax relief – clawing back a staggering £4,000,000,000 (£4bn) that Labour was giving to the rich.
• The CUT in bank profits with a new tax raising £2.5 bn a year.
• The CUT in regional disparity through the £2.4 bn regional growth fund.
• The CUT in tax paid by ordinary people with the basic tax threshold raised to £8,105 by next April from £6,475 in 2010/11 – and no more 10p tax rate fiascos.
• The CUT in the 40% tax threshold meaning the better off pay more.
• The CUT in money that Labour allowed people to make in Capital Gains with the tax rate rising from 18% to 28%.
• The CUT in pensioner poverty with a triple lock guarantee of rises and the biggest ever cash rise coming in April 2012. No more 75p-per-week insults.
• The CUT in the gap between rich and poor through the VAT rise. Remember those who spend most pay most and the basic costs of living don’t have standard rate VAT.
• The CUT in benefit fraud with new resources being brought in.
• The CUT in tax evasion by the rich with £900m of extra resource.
• The CUT in education disadvantage for poorer children through the Pupil Premium.
• The CUT in the amount per month students will have to pay back after graduation and a higher threshold before they start paying anything.

Remember, Labour didn’t deliver these changes in their 13 years of government and voted AGAINST them in this government. Lib Dems in parliament are pushing a fairness agenda and showing that Labour can never again be trusted with the economy. If you have Labour Councils you can probably see the same incompetence and wrong choices in your area too. It’s time to go out and tell the public.

By the way, just for good measure we also CUT Tory plans to increase the Inheritance
Tax threshold from £350,000 to £1,000,000!

Ian Swales is MP for Redcar

Hasan pointed out five areas in which the Lib Dems had (in his view) “sacrificed their distinctive beliefs and principles and received little in return.”

I responded with my own 5 points, including:

1) Ask the nearly 1 million low-paid workers who have been lifted out of paying income tax altogether thanks to a Lib Dem manifesto commitment delivered in government. With the prospect of further significant reforms to come to make our tax system fairer and more progressive, this policy makes people hundreds of pounds better off in difficult times. Consider the counterfactual too – a Tory-only government cutting inheritance tax and the 50p rate for its rich pals whilst doing nothing for the low-paid. Not with Lib Dems in government.

2) Ask the millions of children, parents and teachers who are benefiting from the pupil premium & expanded childcare provision as part of the government’s investment in crucial early-years facilities. Another Lib Dem manifesto commitment, delivered in government, making a real difference to the worst off and those in need of support.

You can read the other three here, and dive into the comments thread if you dare – be warned, it isn’t for the fain-hearted…!

In the next Parliament, I want us to go further; our aspiration should be that someone working full time on the minimum wage should pay no income tax at all. An income tax threshold of £12,500 – think what that would do to work incentives, think what it would mean for basic fairness. Let’s put that on the front page of our next manifesto.

The idea certainly seems popular within the party. But remarkably absent from these discussions is any mention of National Insurance. The very first point in our 2010 manifesto was “the first £10,000 you earn tax-free” but, while it later clarified it meant income tax (IT), it’s hard to see why the parallel income tax that is National Insurance (NI) should be treated any differently.

To mitigate the rise in NI rates, the “primary threshold” for National Insurance contributions (NICs) rose from the equivalent of £5,720 per year to £7,228 this year. For 2011/12 that’s similar to the IT personal allowance of £7,475. But, like many benefits, the primary threshold will now rise only with CPI (presumably to £7,604 next year) while the IT personal allowance will rise to £8,105 in April and then by at least RPI subsequently to reach £10,000.

All this suggests that on May 7th 2015, income will still be taxed not from £10,000 but from around £8,000-£8,500 (an inflation-adjusted £7,228): with the 12% NI rate that would be a significant £180-£240 of tax paid on the first £10,000.

Some may think that NICs are – surely! – insurance contributions and not a tax but, to quote Stuart Adam of the Institute for Fiscal Studies, the link to benefits received is now “vanishingly weak”. It will be weakened yet further if Steve Webb succeeds in introducing the laudable single tier state pension. And the primary threshold is distinct from the lower earnings limit which determines, amongst other things, qualification for statutory maternity pay and state pensions. Certainly what one gets back from NICs — if anything — isn’t worth the lost income, and raising NI rates now seems to be established as a preferred (ie, opaque and deceptive) way of increasing taxation.

For these and other reasons, National Insurance should be scrapped entirely. Others on this blog have said the same, as have the Institute for Fiscal Studies and the Office of Tax Simplification [pdf]. This is something we should commit to as a medium-term goal in our next tax policy paper and manifesto. (Incidentally, I’m steering clear of employer NICs – and their threshold – in this article but if you see them as yet another opaque tax on wages and employment then total NI is more significant than income tax for the vast majority of taxpayers.)

The issues that merging NI and income tax rates would raise are at least surmountable – as with pension income and employee benefits – or at best are excellent opportunities for those who want a local income tax, changes to dividend and other non-wage income taxation, or a shift away from taxing income.

George Osborne, however, doesn’t seem up to the challenge. In the last budget, he revealed only that there will be a consultation by the end of this year on greater merging of the operation of the two taxes. This might include aligning the NI and IT earnings periods. As well as saving tens of millions [pdf] in administrative costs, an annual NI allowance would be fairer on many, such as those who are in and out of work.

And, returning to my main point, another consideration should be merging the lower thresholds (the NI “upper earnings limit” is already aligned with the higher rate IT threshold). The consultation’s focus will surely be on making life easier both for businesses and HMRC. Aligning the thresholds would do this, and pave the way for greater simplification in future, but Liberal Democrats must also emphasise the importance of the primary threshold to the least well-off, to the economy, and to the spirit of our manifesto.

One criticism of raising the personal allowance beyond £10,000 is that it wouldn’t mean any more cash for the millions of workers earning less than that.

As long as it is lower, raising the NI threshold is the more progressive move; helping people that a personal allowance raise would not. And if we get both thresholds to £10,000 and want to go further than inflation, it will be more progressive to raise both NI and IT thresholds at the same time, say to £11,560, than to raise only IT to £12,500. It would also have been better, politics aside, to have had a target lower than £10,000 but applied to both but that’s now politically impossible. For now, therefore, our priority for tax cuts should be also raising the NI threshold to £10,000.

Bridging next April’s expected £500 gap in thresholds would (only) cost around £1.8bn for that year, if there were no corresponding tax rises for those on higher incomes (which there should be). Shifting a fraction of the thresholds’ annual rises to later in this parliament could limit further costs of the alignment, but it would still surely require considerable persuasion by Danny Alexander. However, even more than most tax cuts, he would have on his side the argument that it would be good for the economy while further improving work incentives.

Repeating our income tax success with National Insurance may not be so politically glamorous, but this additional tax cut for the least well off is the right thing to do. We must push for this alignment in the earliest possible year (look out for that consultation). And, that done, we mustn’t forget about National Insurance in future tax and personal allowance policy development. I want us to truly be able to say we’ve taken millions out of income taxation.

* Adam Corlett is a party member and vice-chair of the Liberal Democrats for Drug Policy Reform.

Political leaders in the eurozone must sort out their problems – and there is finally some hope on that front. When it comes to inflation, while George Osborne’s options to tackle the problem itself may be limited, he can certainly take action to negate its effects on the people on whom it impacts most severely. One of the most effective things he could do is to let those on low and middle incomes keep more of the money they earn. The coalition agreement already commits the government to raising the threshold at which people begin to pay income tax to £10,000 over the course of the parliament. Given the way in which the economic outlookhas deteriorated since last May, wouldn’t it make sense to do so more quickly?

When I put that very question to Nick Clegg last month, his response was this: “My simple answer is if we can do it tomorrow, I think we should do it tomorrow.” However, he also expressed practical concerns about the affordability of implementing the policy early: “It is an extraordinarily big shift in the tax system, and it costs billions – that’s basically the problem.”

But while Clegg is right that it is a multi-billion pound shift in the tax system, as Tim Leunig from the CentreForum thinktank has pointed out, the actual cost of implementing the policy early is relatively small because the policy is factored into the budget for this parliament anyway.

You can read Nick Thornsby’s piece here.

What’s really happening with the cuts? How much is fairness figuring? And can Danny present the message successfully? Not being David Laws is a burden that has hung over his early days in office and this speech was his opportunity to establish himself in party eyes as his own man.

“Not because it was easy, but because it was right” – that was his opening refrain, name-checking many party favourites who had taken tough rather than easy choices over the years, including Charles Kennedy’s opposition to the Iraq war. That too was his description of what the party has been doing since the general election.

Notable in his list of party achievements was the heavy applause received for his reference to raising the basic income tax allowance on the way to achieving the party’s goal of a £10,000 allowance. It received more applause even than many of his digs at Labour’s financial legacy, such as highlighting that “For every four pounds Labour spent, one pound had to be borrowed”. The speed with which that £10,000 target will be reached has not been much discussed, either in the party or in the media, but if the audience’s reaction is anything to go by the amount of further progress made in the next budget will be watched closely by many Liberal Democrats.

Danny Alexander went on to say, “There is nothing progressive about leaving the paying of debt to the next generation … Our plan is credible. It is already supporting economic growth … Labour allowed political convenience to trump economic necessity once too often.”

On welfare, he said the underlying principle should be, “Work for those who can. Proper support for those who cannot,” before going on to add “We must ensure that every tax bill is paid in full”, deriding tax dodging as an unacceptable lifestyle choice that takes money away from those who need it more and is “morally indefensible”.

Hence the significant new announcement in the speech: £900m extra is to be invested in cracking down on tax avoidance and evasion. I expect that we will see a lot more of this pairing up of welfare and tax issues with rhetoric about how welfare cheaters are wrong, but so too are tax cheats.

Danny Alexander then moved on to praise those working in public services, promising to listen to their views and give them more autonomy even as the government seeks to save money.

The end result of the government’s economic policies? “The country will be stronger, fairer and more prosperous”, said Danny Alexander.

The standing ovation at the end was a little slow to start, partly as it was not immediately obvious that Danny had finished speaking but also because it was a good, competent speech rather than a barnstormer.

But today’s interview in the Observer with Lib Dem chief secretary to the treasury Danny Alexander is, I think, significant for the future of the Lib/Con partnership.

… Alexander makes clear that total tax revenue will have to remain at least at current levels throughout the parliament to put the nation’s finances back in order.

“I think the tax burden is necessary as a significant contribution to getting the country’s finances in order,” he says. “So it will have to stay at that level for quite some time.”

Asked if a reduction in the overall tax burden would be possible once the nation’s books were back in order, Alexander adds: “You are asking me to take decisions for five years down the line now and I am not going to do that. What I want to see is a rebalanced and fairer tax system. That is what I think is most important.”

With plans already in place to reduce tax on lower earners, his comments appear to dash hopes of tax cuts for the better-off and middle classes until 2015 at the earliest.

Alexander argues that the twin goals of deficit reduction and fairness, as well as plans for a greener economy, are part of the coalition agreement and will drive decisions on tax. “The plan we set out is a plan to rebalance the tax system. We need the tax revenues from the taxes we are putting up in order to help us reduce the deficit.

“But we also want to rebalance the tax system so that particularly people on lower incomes keep more of what they earn of their own money when they go out to work so that they are encouraged to go out to work. In due course [we will be] looking at other ways to rebalance, looking at green taxes. It is about rebalancing.”

The next couple of years will, doubtless, be difficult ones for the Coalition: making cuts is never popular, and with the prospect of these being “deeper and tougher” than under Margaret Thatcher (© Alistair Darling) that has rarely been truer.

Yet reducing the deficit is such a no-brainer that – while there will be arguments at the edges – the fundamental purpose of the Coalition has a fiercesome internal logic, one which is understood by a majority of the public. Labour’s current opportunistic tribalism (let’s see if it survives a new leader) serves only to bind the Coalition closer together.

However, spool forward a three years to an economy which is (fingers crossed) growing healthily, a deficit that is being speedily reined in, and two governing parties preparing to face the electorate, and looking to ensure there is clear yellow/blue water between them… what then?

It’s clear from Danny’s interview what he believes the Lib Dem priority will be: not lower taxes, but fairer taxes – for example, shifting the burden from low-paid workers towards taxes on wealth and energy consumption. Hard to see the Tory right-wing – who have resentfully swallowed much in the past three months – embracing such a prospect.

This is the Coalition battle that will matter. It’s some time off being fought: but fought it will be.

• cost £6bn over the course of the next Parliament;
• is aimed at the wealthiest 0.8% of estates in the UK; and
• would benefit 3,000 of the wealthiest estates in the country every year by almost £250,000

As Vince Cable points out:

At a time when the gap between the richest and poorest is so great, it beggars belief that David Cameron wants to give the wealthiest estates a £6bn give away. The Tories are showing where their priorities really lie.

“This tax pledge is grossly unfair, only helps the wealthiest households and costs £6bn at a time when the public finances are in a perilous state. A vote for David Cameron is not one for fairness and change. It’s a vote for more of the same.

“Only the Liberal Democrats are fully committed to creating a fair tax system. We are the only party that stands for fairness and not division.”

Not only will the Tories’ tax policies benefit only the richest, but – as the Institite for Fiscal Studies made clear last week – they are unaffordable. The IFS stated the Tories would have to reverse half their £6bn tax cuts because they their figures don’t add up.

In stark contrast to the Tories’ tax-cuts for millionaires, the Lib Dems propose a tax-cut which will benefit ordinary voters by lifting the income tax threshold to £10,000. The IFS confirmed last week that the Lib Dems’ tax plans, alone among the three major parties, added up.