Danny Alexander MP writes… This is the Liberal Democrats’ policy and everybody knows it

The Conservatives may claim to be the party of hardworking people. But the same cannot be said for their policy wonks. According to today’s Financial Times, the Conservatives are apparently considering a proposal for their manifesto to increase the personal allowance to £12,500. An almost identical idea to our own policy of raising the personal allowance to the minimum wage that we first passed in our spring conference of 2012 and reaffirmed just one month ago at our Autumn conference in Glasgow. Once again, it is the Liberal Democrats who are shaping the future of the British tax system.

In April 2009, Nick Clegg unveiled plans to increase the personal allowance to £10,000,which were then formally adopted at our September conference in the same year. At the general election in 2010, it was the first policy on the front page of our manifesto. This April, five years on from that announcement, the personal allowance will go up to £10,000. Over 24 million people will benefit from £700 tax cut and almost 3 million people will be taken out of income tax altogether. From the front page of our manifesto into the pockets of millions of families. Sounds simple? Well, I can tell you from first-hand experience that it wasn’t.

During the general election TV debates, David Cameron turned to Nick Clegg and said, “I would love to take everyone out of their first £10,000 of income tax Nick…we cannot afford it”.

At every Budget and Autumn Statement since, Nick Clegg and I have made increasing the personal allowance our number one priority. The same cannot be said of the Tories. Before the election it was Inheritance Tax cuts for the very wealthy. Then it was reducing the top rate of income tax. And at their conference last month it was a tax break for married couples which doesn’t even benefit a third of married couples, and will cost the equivalent of £28 for every income taxpayer. But it is our policy of increasing the personal allowance that has already delivered the biggest set of tax cuts for people on low and middle incomes in a generation and which will deliver another tax cut this April.

Lo and behold, the Conservatives are now claiming that increasing the personal allowance to £10,000 was their idea all along. Just last month, John Redwood opportunistically wrote that “many have benefited from the large increase in the tax threshold, introduced by a Conservative Chancellor with the vocal support of the Lib Dems”. You only have to look back to 2012 to see why they are suddenly now trying to steal the credit. When Nick Clegg said in early 2012 that the Coalition should go “further and faster” in reaching our goal of increasing the personal allowance to £10,000, ConservativeHome wrote “George Osborne seems content to let the Lib Dems make the running on higher personal allowances. Fast forward to now and Conservative ministers speak of their support of our increases to the income tax personal allowance – a position the Tories are obliged to take under the terms of the coalition agreement. But let’s be clear: this is the Government’s income tax priority only because the Lib Dems fought for it.

Labour’s only policy has been to propose the reintroduction of a 10p tax rate. Our policy of increasing the personal allowance in line with the minimum wage is literally twice as good as theirs. And thanks to the Liberal Democrats increasing the allowance to £10,000, someone who paid only the 10p tax rate until Labour doubled it has now been lifted out of paying tax altogether.

When it comes to the General Election, there will only be one party with a track record of promising tax cuts on the front page of their manifesto and delivering them to the pockets of low and middle income families up and down the country. That is the Liberal Democrats.

The other parties may try to imitate our policy. But if you’re after the real thing, you need the Liberal Democrats in Government. Imitation may be the sincerest form of flattery. But on this occasion, it won’t work. My message to the Tories is simple – don’t waste your breath. This is the Liberal Democrats’ policy and everybody knows it.

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38 Comments

  • Why is this good policy, anyway? People on low wages should pay tax; because paying tax is part of what being a member of society means. What should be done instead is to raise the minimum wage so companies – and thus CEOs and share holders – are baring the cost of employing people at a decent wage instead of the tax system.

  • patrickjwalsh 14th Oct '13 - 5:59pm

    Hi, I’m earning around £11,000 a year, and paying council tax so that people in the council can fund their pensions – when I can’t afford to put any money aside for my own.

    If the LibDems can do what they said they would do and convert council tax into local income tax – I would find myself below the income tax threshold both for the existing income tax and for the portion of income tax that replaced council tax. Also if you could get rid of the Class 2 nonsense NI payments for nothing, it would help low paid self-employed too. Ideally, people earning less than the minimum wage should pay no income tax, council tax or national insurance.

  • Tony Greaves 14th Oct '13 - 6:25pm

    It’s a good policy but increasingly it needs to be part of a wider package.

    (1) We need ways to provide a similar increase in income to people who are in work and earn less than £10,000 or £12500 or whatever the threshold is. These are the poorest working people and they do not benefit at all from this policy unless they are just above the threshold before it is raised.

    (2) Moving to the living wage instead of the minimum wage (say over the course of a parliament) would help – and making it statutory.

    (3) Reducing tax credits would make things worse for the poorest people. Indeed increasing the working tax credit and the child tax credit would be one way of helping the lowest paid. But fundamentally tax credits are a nonsense (just a state subsidy for employers who pay low wages) but the answer is paying living wages (in the wider sanese of the term).

    (4) Most of the people who benefit from raising the tax thresholds are actually better off people. The money to pay for raising the threshold should come from adjusting income tax for better off people (even a rise in the basic rate so that for people above £12500 the effect is neutral, or a 50p higher rate, or…)

    Tony

  • I enjoy paying taxes.

  • Janus Greene 14th Oct '13 - 7:12pm

    Good to see Danny back on a Liberal track. I look forward to a “race to the top” on jobs-tax thresholds. We might soon see a party pledge raising thresholds to average earnings – the slack taken up by a Location Value Tax of course. Here’s hoping!

  • Alisdair McGregor 14th Oct '13 - 7:23pm

    Jack – “People on low wages should pay tax; because paying tax is part of what being a member of society means.”

    What a load of rot.

    Paying taxes means nothing more than meeting an obligation enforced upon you by the state. That can (and, if the government is doing its job correctly, does) have a positive outcome. But let’s not pretend that forcing the poorest earners in society to pay tax does anything more than cause them to need to be given benefits to replace the earnings they lost to the taxman.

    Let’s ask a simple question: What is the point of setting a national minimum wage level, and then taxing it?

  • Alisdair McGregor 14th Oct '13 - 7:27pm

    Oh, and while we are on the subject, by Jack’s logic people who don’t pay taxes aren’t members of society.

    I find that to be horrible & discriminatory in many ways, as it’s tantamount to saying that pensioners, the disabled, the unemployed, students and single mothers (among many others) aren’t fully “paid up” members of society.

  • Indeed, Alisdair.

    Also, this sort of narrative is poisonous in another way: those who are too poor to pay income taxes for whatever reason still pay council tax, VAT, etc. etc. Saying that because one is too poor to hit the threshold for income tax means that one doesn’t pay tax is a bit disengenuous. People in the lowest income brackets often pay a higher proportion of their income in taxes; just not PAYE.

  • Alisdair McGregor 14th Oct '13 - 7:35pm

    Quite so, Jennie. I notice though that you don’t mention National Insurance, which is still levied at the source of income, but kicks in at a much lower level than Income Tax.

    The next project after taking NMW out of Income Tax should be to do the same with NI

  • Dean Crofts 14th Oct '13 - 7:41pm

    You all seem to miss the point. Individuals will still be paying national insurance contributions, even though we have taken some of them out of paying income tax. Paying NI makes them “part of society” and should help towards any future eventuality of redundancy, sickness and help based on contributions paid.

    The welfare reform that needs to be discussed within the party is making a fair welfare system based on contributions to avoid idleness, helps the most vulnerable and acts as an agent for assistance when one of the event s above occurs. Let us return to the liberal principles of Beveridges’ proposed welfare system. If everyone contributes then the system will be seen as fairer.

    Also I agree that people who work should be paid a wage that is not then topped up by the state and people should earn enough from work to pay rent, council tax and the cost of living, reducing the welfare bill. This will take time and global competitiveness in prices and wages may make this goal along way off.

  • Surely, Alisdair and Jennie, you are defeating your own logic in taking this approach – it is by removing people completely like this that enables others to say, but they themselves also, that they are separate from the rest of society, as just beneficiaries. It also sort of justifies an increasing use of indirect taxes such as VAT, which as we know are retrogressive, but at the rate of 20%, everyone ends up paying quite a bit. Personally, I may be old-fashioned, and I know there are issues with collection, but I think good old income tax should be used as a mainstay again, emphasising the plugging of loopholes.

    In the 90s we had a policy based on a sliding scale integrated tax-benefit system, which with better software than then would be easier to implement now. That would show clearly that you paid according to your income and everyone would be on the same system, avoiding the deleterious effects of taking increasingly large numbers of people out of income tax.

  • Tim; my entire point was that just because one doesn’t pay income tax does not mean that one is removed from the tax system. I’d LOVE to get rid of VAT but it’s not going to happen.

    I fail to see why taxing people who can’t afford to feed/clothe/house themselves makes them feel anything other than resentment?

  • Dean This will not take “competitiveness” – this needs brute industrial power to force employers to pay more, they will not do it willingly. (Sorry, I’ll bring Joe Otten in here in a minute, deploring the “iron law of wages”!) As for the contributory principle, my understanding is that Steve Webb has worked for many years to introduce a system which went against the then contributory principle, in terms of giving women who hadn’t worked, or for as long as men, in order to ensure they weren’t left penniless. By all means some form of contribution, but it mustn’t leave people outside. That is one reason why the Tory / Labour approach to benefits is so damaging and corrosive.

  • And, Jennie, of course you are right in that sense, they are still paying tax. The trouble is that “tax” when talked of generally, tends to mean income tax, and it is that that the thatcherites have pressured downwards over the years. So people, informed bythe tory press will soon see who pays “tax” and who doesn’t, and will draw their conclusions. I suppose it would be too provocative of me to say, I wonder if Nick Clegg and Danny Alexander micht vaguely have considered the PR and media effect of reducing income tax at the expense of leaving VAT high, and increasing charges for services / cuts affecting the less well off the most?

  • judging by recent media I suspect the PR implications of that are wholly positive, sadly

  • That’s what I meant, Jennie! A bit tongue in cheek.

  • @ Tim – Its a nice philosophical argument you’re putting up here but ask someone earning £10,000 a year and bringing up a family if they feel disenfranchised by not paying tax and see what answer you get 😉

    This is a fantastic policy and raising it to £12,500 should be at the very top of our manifesto in 2015. We should also be doing away with National Insurance contributions at this level as well and equalising the tax rate for captial gains to income tax to finally close the ‘paid in shares’ tax dodge.

    I’d love us to be pushing for a significant increase to the minimum wage in 2015 as well. I just don’t believe the right wing press/academics that this would cause more unemployment. In most industries paying the least well paid in their organisation a few more pounds a month would make no difference to their bottom line. and in wage sensitive industries would encourage investment to improve productivity.

  • Simon McGrath 14th Oct '13 - 10:49pm

    @gareth – if labour costs don’t affect employment why do you think supermarkets are introducing automatic checkouts ?

  • So Gareth, if you believe, effectively, in reducing the share of income tax of total government revenue, do you believe in replacing it with less progressive taxation? Or do you believe, like this Government, apparently, in reducing the services provided by Govt and Councils (as well, of course, as benefits, pensions etc? I mean, it’s a given, as you say, that people will welcome it if you put more money in their pocket directly. Only a few months or years later will they notice the effect of a service cut (or not, maybe if it is a service they do not currently use). It all seems shortsighted to me, in our increasingly interdependent world to reduce overall taxation levels. And if taxation is shifted to less progressive taxes, surely you are then increasing the already over-large wealth gap in a society? I know you have said you want to bring in other equalisation measures, such as harmonising CGT with income tax, and raising minimum wage with which I agree.

  • Little Jackie Paper 14th Oct '13 - 11:49pm

    Gareth Wilson – How is this a philosophical argument. Everyone in society has a skin in the game (for want of a better term). Everyone gets some value from the institutional framework of society, particularly the rule of law, and it is right that everyone contributes. This, incidentally, is why a minimum wage should be taxed – that wage, however minimal, is in part the product of the social framework. There is nothing philosophical about it at all and I do worry about the long-term effects of placing people outside taking any responsibility for that framework.

    However you do kind of skirt the bigger issue here. ‘In most industries paying the least well paid in their organisation a few more pounds a month would make no difference to their bottom line.’ In other words, it wouldn’t have a huge effect. The problem in this picture, as someone else has said, it that for a great many people being IN work is still not enough to support a living, still less cover things like future pensions. What we have seen is a massive devaluation of labour. Indeed, it is worth noting here that a very large % of the overall income tax take comes from those with high incomes. Whilst, as the wise man said, those with the broadest shoulders should take the strain, it speaks to a wider problem with wage inequality. OK, those on low incomes might resent being taxed, but there is a similar argument at the top end. Land Value Taxes are the alternative, but there is more chance of me driving for McLaren than that happening.

    But the question then has to be how can we work with the present devaluation of labour and a housing market that no longer hands out free money to those in the generational sweet-spot. If the idea of tax as a membership of society is something that we don’t like and see as philosophical nicety then the obvious solution would be to move to some sort of insurance scheme of social security and (presumably) cut some people off. The Conservatives seem to be heading that way with the under 25s. Raising the minimum wage, changing tax bounds – this is tinkering at the edges for as long as labour is devalued and inequality runs apace. Cameron said he feared that profit had become a dirty word. He made a decent point, but what he did not recognise was that in a balance sheet recession that profit doesn’t necessarily work down. If wages are stagnant, and labour devalued despite an improving economy and the welfare fund is empty or flowing to property rich pensioners, what’s the alternative?

    Perhaps the time has come to ask why we seem so afraid of insurance-based welfare. But I’m rather glad I’m not the one that has to mention it to the public.

  • Blimey, plenty of things to reply to! I’ll try to be concise 🙂

    @ Simon Mcgrath – Absolutely agree, automated checkouts are a perfect example of capital investment raising productivity (one person can look after 4 tills). They still need people to stack shelves but overall their workers are more productive. I’d expect a big minimum wage rise to further increase productivity. ‘But they’ll hire less people’ – yes they will – BUT don’t forget MILLIONS of people will have a few more pounds in their pocket. And they’ll buy things with them. Demand will increase , companies will grow in confidence and begin to hire more people, all of them on a living wage. We need to get out of this death spiral of low wage / low demand we’ve been stuck in for the last 5 years. There were scare stories about mass unemployment when the minimum wage was first brought in, mainly from free market economists and employers. Didn’t happen.

    @ Tim13 – What is brilliant about raising the threshold is EVERYONE feels they get this benefit, when in fact if you’re paying higher rate tax the benefit is virtually 0, But the people on the very lowest incomes proportionally feel it the most. Its something the whole country can get behind and is very easyto get across to people and it simplifies the system pulling many people out of it completely. It also helps with the benefit trap as work pays much more . For me its the most progressive thing you can do, combined with sorting capital gains out and introducing taxes on wealth.

    @Little Jackie Paper – Agree 100% the decline of the value of labour is the travesty of the 21st century. Its so hard to understand why this is happening in the UK, certainly wasn’t taught on my economics degree. I guess its down to the increasing globalisation of the labour market. There’s plenty of people across the world willing to work for less. I do see the minimum wage being raised as a way to combat this (and a big raise, £1 or £2 an hour or more) as it would at the very least create a floor for labour value in the UK.

    You’re right though, increasing taxation on wealth has to be the way forward, the huge gap between the rich and the poor is another travesty of the last 20 years, we need to be looking at taxing the huge profits being made from house sales and using the money to build new social housing, bringing in the mansion tax (as a route to LVT) and reducing tax breaks from pension contributions. Not many vote winners in that list though. I do think we can do a lot with current taxation systems and wealth taxes without having to introduce an insurance based welfare system, its a slippery slope to a two tier system which we’d go further down every time a right wing party got a majority government (I’d *hope* any Lib Dems in coalition would block this).

  • When a coalition government does something it is because the parties have agreed on a joint position.

    That is why you are a member of the quad Dann – along with Nick, David and George- to come up with those joint positions. As a member of the quad you know this only too well so why the deceit Danny?

    You know that the are no Lib Dem policies that the government carries out, just as the are no Conservative policies that the government carries out (hence the Lib Dems being able to say no to a governments EU referendum bill – something the Conservatives would like). Everything the government does (the good and the bad and everything in between) is the join and agreed position of the two parties and you shouldn’t pretend otherwise.

  • How about hard working people who earn between 100K and 118K who are now paying 60% tax while those above that pay 45%?
    Where’s the fairness? Where’s the logic?

  • Matthew Huntbach 16th Oct '13 - 10:30am

    Liberal Democrat policy as in the 2010 manifesto was not JUST to raise the tax allowance. This was part of an integral plan for “fairer taxation”. If one bit – the tax-cutting on middle-earning people bit – is kept, but the rest thrown out, well it isn’t really Liberal Democrat policy any more. It’s kept the bit the Tories will like, but thrown away the bits they don’t like. Raising the tax allowance does nothing to help people who don’t earn enough to pay tax under the lower allowance, but it harms the if it’s paid for by cuts in services and benefits which hit them.

    Of course, as Gareth Wilson says, there aren’t many votes in the sort of balancing measures that we would have put with the income tax allowance increased if we didn’t have the Tories in place stopping us doing anything we want except those aspects of our policy that can be manipulated into fitting in with the Tory ideal – at the HEART of which is the idea that money gained by owning things is somehow more noble than money earned by working, and therefore should be taxed less or not at all. However, one of the reasons for that is that those who would lose out by such things as taxing unearned wealth tend to shout loud and have their views echoed in the press and are most likely to be people who vote, whereas those who would gain tend to be those who know little about economics and have been encouraged by the anti-politics rhetoric pumped out by the political right not to vote at all. So maybe we could be brave and do something about that? Maybe we could be honest and say that if people want a decent NHS, state pensions that keep up with inflation, state subsidised university tuition, etc, it does need to be paid for, and therefore people will need to consider our suggestions, or come up with something they think better that would pay for it, or accept they can’t have it.

    At the last general election, more people voted Tory than voted for us, and as I said at the very core of what the Tories stand for is opposition to all those balancing measures about taxing wealth and income from ownership that would have brought in extra state income to balance our plans for cuts in income tax allowance. Very well, the result is a Tory-dominated government, meaning a lot of what we would have wanted has to go because the Tories would be breaking their principles to raise taxes as we would want. What went first was direct subsidy for higher education tuition (in fact we put in place a cunning plan which amounts to MORE subsidy in the long run than would have been the case had the previous subsidy been kept in place, with what is in reality a disguised graduate tax – so cunning that few people have even realised it).

  • Bill le Breton 16th Oct '13 - 11:01am

    Little Jackie Paper, it would be good to develop your thinking. Are you articulating at least two further cases for Negative Income Tax/Basic income/Citizens Income (the reverse membership subscription for society)?

    Growing inequality is the coming crisis. Here is one plank towards the campaign against it.

    An idea developed by Robert Shiller (and Mark Kamstra) http://cowles.econ.yale.edu/P/cd/d17a/d1717.pdf is for the government to issue a new security with the coupon tied to (a trillionth) of the nominal (money) GDP.

    There are many uses for such a financial security – and one of these would be that UK Trills could be given to those paying in to a social security or social insurance scheme.

    Could a trill ALSO provide a unit for the living wage? A UK trill might be worth just under £2 in today’s economic situation. So a living wage might be ???? see here for JSF’s calculations: http://www.jrf.org.uk/topic/mis?gclid=CIiPgIaIm7oCFRMftAod8QkALQ

    We could use this as the basis for the calculation of the basic income – say £200 a week in 2013 (100 Trill over time ) Attach this to a workFAIR scheme where those who JOINED the scheme would be guaranteed £200 a week for a 40 hour working day from a Government coordinated scheme that allowed participant (small or not for profit) employers to bid for workers – minimum bid (£50 a week – yes £50 a week) with the scheme making up the £150.

    And a sliding scale where workers were able, if they wished, to ‘sell’ their labour for more ; would receive a reducing figure from the Government top-up but at a better rate (for them) than 1:1 – encouraging the accumulation of skills and experience, and the communication of these attributes through a virtual jobs market (WorkBay).

    Anyone interested in working it up with me?

    B

  • Bill le Breton 17th Oct '13 - 8:43am

    Geoff, I was hoping you would reply. I’ll try to get in touch. I think the ‘trill’ concept does provide the link to monetary policy and the citizens income as the most democratic form of transmission mechanism.

  • George Morley 17th Oct '13 - 4:40pm

    As usual , no comment about the pensioners that are short changed by the government and have their pensions frozen which means no increases ever when a Lib/Dem by the name of Webb was adamant that this issue would be resolved if he had his way. He is on a par with the rest of you who see no evil in robbing the pensioner who has paid his contributions in the same way as all of the 96% worldwide who do get the annual increases because they are indexed. Shame on the Lib/Dems who cannot be trusted to do what they know to be right but have’nt the balls to do it. Unless you know differently, If so, do it and prove yourself.

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