Danny Alexander MP has argued in an interview in this week’s New Statesman magazine that he would like to “push further” eventually on raising the income tax threshold higher than the planned £10,000.
Here’s an excerpt from the interview, published in the Staggers:
From the Treasury perspective, the main Lib Dem contribution to government has been the plan to raise the income-tax threshold to £10,000 by the end of the parliament. Alexander is very attached to this policy as a way of compensating people on low incomes for the cuts. “I think it’s a direction that we will want to push further,” he says. How much further? “I don’t see why, in the next parliament, we shouldn’t be trying to get to a situation where people in a full-time job on the minimum wage are paying no income tax at all. That, to me, is a higher priority than reducing the overall tax burden on the wealthy.” I take this to mean that he rejects the aim, supported by many Conservatives and endorsed by a group of 20 economists in a public letter to the Financial Times, of abandoning the 50p top rate of income tax. “At a time when the whole country is facing serious financial challenges, the priority needs to be people on low and middle incomes.
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26 Comments
in fairness to danny, it is bonkers that we say that there’s a minimum wage needed to live but that you should be taxed on that wage. aside form this inconsistency, poorer people are more likely to spend extra income, whereas rich ones are more likely to save it. and the econmy needs demand, so spending money is better for us all than saving it at the moment.
A good aim should be that anyone working Mon-Fri, 9-5 (or equivilant) on the minimum wage pays no income tax. For this to happen it’ll have to be higher than £12,500 by the time it happens.
If he’s thinking aloud as something to aim for in a Coalition Mrk 2 post 2015, personally I’d rather see something done about Council Tax, but I fear that’s a long way off yet
I agree with @LondonLiberal, but I wish this was a package to help everyone on low incomes. People who currently do not pay tax, for example benefits claimants, are also suffering from the cuts. They need help even more.
The principle that someone working full time on the current minimum wage should pay income tax seems wrong – the minimum wage is paltry and there seems to be no desire to raise it. As more or less everyone seems to agree that there should be an attractive carrot dangled to attract people of the bru and into work, then this seems entirely consistent with that philosophy.
The 50% rate was introduced as a temporary measure whilst the economy was in difficulties. There is a definite sense that taking more than half of someone’s earned income (over a threshold) is wrong, but the view that the wealthiest should pay proportionately more must take priority, as the poorest are suffering badly and middle earners are feeling quite miserable and worrying about their jobs. Whilst the poor man in his mean house must make do without jam on his bread, then the rich man in his castle must make do without his caviar and oysters. The 50% rate should go in the long term, but definitely not during this parliament.
That reckless gambling in parts of the financial sector played a major part in causing this present misery should be a sign post to where the Treasury should look for any further extra sources of revenue. Happily so far, George Osborne and Danny Alexander both seem to understand this.
I like Vince Cable’s idea of a mansion tax. Anyone with a house worth two million or so can afford to cough up a little. The Mail will write about poor pensioners being forced out of their hard earned retirement homes, but it’s nonsense. Just to heat such properties requires something significant on a current account, never mind paying regularly for someone to clear the guttering, clean the windows and weed the garden. The argument that its harder to avoid paying tax on a property than it is on income makes a lot of sense. If the 50% tax rate goes, then a mansion tax seems a good substitute.
The new minimum wage at 37 hours per week is around £11,700 pa. It seems a fairly sensible thing to suggest a tax threshold at this level.
Speaking as a benefit claimant, I have yet to notice any impact of “the cuts.” Dole payments are the same, council tax benefit is the same, if I had a child, my child benefit and child tax credits would have been protected. Housing benefit is the same and even the proposed cap is four times my Inner London rent, though I appreciate there are issues for families in large properties.
What IS causing me serious problems is the general state of the economy, not just in terms of a lack of job vacancies, but the fact that the downturn caused many companies to slash their training budgets, meaning they are unwilling to take someone on if they don’t already know how to do the exact job on offer.
I don’t often say this, but good on Danny Alexander! The minimum wage is not enough to live on in any dignified way – certainly not without the security of social housing, which is in chronically short supply – the idea that one can earn less than is needed to live on and still pay tax on it is ludicrous.
We should be pushing to increase the threshold, first to the promised £10,000 – then to £12,500 or whatever a year’s full-time NMW amounts to by that point – and when we get there, I would suggest that at the very least we reintroduce a reduced rate (say 10%) for income between NMW and a formally-calculated living wage, regionalised if necessary.
How we pay for it is always going to be the question, but taking the working poor out of tax has so many benefits to the economy, society and the individuals concerned that we would be mad not to try.
Danny Alexander is talking sense with this
Paul – the Mansion tax as proposed by Vince before the election (I don’t know how it might be structured if brought in now) had a mechanism in it for deferring the tax until the property was sold, meaning that the “forcing pensioners out of their homes” argument is spurious at best.
The best option, and the option which should be pushed is to link increases in the income tax threshold with the yearly increases in minimum wage. That way no one who is earning minimum wage full time would ever be taxed on their income.
At a time when public services are being cut it seems slightly odd to call for a policy resulting in even lower government revenue (unless there is a concomitant tax raise for everybody else). It is all very well giving a few more pennies a week to the demographic on the lowest earnings, but when this demographic is also the biggest user of the services you are cutting, or privatising, then it is not helpful. Unless the vision is of less public services and more private providers? If it is, then these people will be worse off as the private sector is motivated by profit not quality. Prices will rise and people will no longer be able to afford what was once provided for by the state, even with tax cuts. Look at America if you want a vision of what happens when taxes are driven down and the public sector driven out.
Please Liberal Democrats, stop ruining Britain for your Tory masters.
Good to see that my LDV opinion piece (https://www.libdemvoice.org/opinion-a-brave-tax-proposal-25002.html) contained at least some wisdom… I put forward the idea of a £12,000 income tax-free allowance, so that ppl could earn £1,000 per month before paying any income tax.
The only problem with keeping pace with the full-time pay of someone on the National Minimum Wage is that it is incredibly expensive to increase the allowance, and the NMW jumps up every year.
I agree with Danny 🙂
@ G – that’s the bizarrest comment. So, reducing tax for the lowest paid is A BAD THING, is it? I can understand now how you managed back your Labour masters’ efforts to double taxation on the lowest paid, and think it was a good thing.
Danny is talking sense here – if we have a “minimum wage” then you shouldn’t be paying tax on it – this is when we get into the craziness of tax credits and the expense and complexity of a system to pay money back to people who paid it in the first place.
I was interested to read @ Benjamin’s comments. My mum is now on DLA (amongst other things) and thinks universal credit is a great idea. Growing up, she was a single partent and the hours we’ve spent over the years filling in numerous over-complicated forms for various benefits. . . only to find that she was financially worse off if she ever took a job (which she did).
What about NI though? Is the threshold for NI being raised at a similar rate?
@Grammar Police,
First of all I believe that everyone in paid employment should pay tax as a matter of principle, that way they have a direct state in the services the state provides as a result of taxation. I fear the issue would be used as a wedge for yet another right wing assault son hard working taxpayers paying for services which benefit the unemployed or low paid. The kind of Toryism the coalition indulges in.
Secondly, the coalition are cutting public services or privatising them. Instead of increasing the tax base to preserve a decent standard for those most likely to use them they would prefer further tax cuts. This would mean the low paid getting a few more pennies a month but reduced access to public services and facing the prospect of paying more for private providers.
Thirdly, not everyone who disagrees with you is in thrall to Labour. I have voted Lib Dem in the past. Never again though. You should be worried about people like me. We were the floating centre-left. You’ve all but ensured that the only party we ever vote for again is Labour.
Great idea. Now lets get on and make it party policy…..
I’m not generally a fan of Danny Alexander, but I’m 100% with him on this one.
@ LL – “in fairness to danny, it is bonkers that we say that there’s a minimum wage needed to live but that you should be taxed on that wage.”
Very much agreed, and quite happy to take Colin Green’s figure of £11,700/year as a sensible benchmark.
As a Tory I’d quite happily go with the idea that no one on the NMW should be paying Income Tax and I’ve been very happy that the LDs managed to get the rise to £10k into this parliament (economy permitting).
Ideally I would like to see the threshold go even higher with the tax deficit made up by introducing a general property tax with no lower threshold. Anyone owning a house is doing very well already.
This is a bad idea as will disconnect people from the State. Better to substantially lower the tax rate (tithes work for me) and tax all income (if you are going to tax income that is – and I am not at all sure you should).
The minimum wage link is specious. Minimum wage is a price control. Price controls always fail, in the case of minimum wages by making it uneconomic to employ someone.
And I cannot see why someone on high earnings should pay proportionally more more than someone on low earnings. The ‘consumption’ of state services is roughly the same whether you are rich or poor. And in any event 20% of £100,000 is ten time 20% of 10,000 so the rich already pay more.
Iola said ‘And I cannot see why someone on high earnings should pay proportionally more more than someone on low earnings.’
Indeed. Although I cannot see why a family household with 2, 3 or more earners should not pay proprtionally more than a single person household.
@johnm
Land Value Tax?
This all smacks of panic by the Lib Dems. Manufacturing contracting, Construction shedding jobs, Retail being read the last rites.
I’m glad Danny Alexander has suggested this as he has seemed to me to be too overwhelmed by the mess this country is in to concern himself with fair taxation. However, it has to be part of an overall redistributive tax system to make much sense as a policy rather than a soundbite. I would like to see the 50p tax rate maintained and the rate of effective tax on those on benefits when they try to work become the same as that on Income Tax. I would also like to see Inheritance Tax increased for those who are inheriting large amounts – this might be easier than just a mansion tax. At the moment we seem to be hitting the weakest people hardest (see debate on disablitiy in Should I go or Should I Stay).
I do hope Conference shows strong diapproval of this and demands a much more equitable tax and benefits system. Conference doesn’t have to roll over and let the Tories tickle its tummy and it needs to be very bold and clear to enable the Lib Dem members of the Coalition to maintain their Lib Dem principles. Yes we have to make cutbacks – that’s understood – but we believe in a fairer society don’t we?????
A sound policy, but this is either
(a) a meaningless pledge, since he talks about it only happening in “the next parliament” when there are no plans to renew the coalition agreement into the next parliament,
or
(b) an ominous Freudian slip revealing the intention to renew the coalition into the next parliament, and thereby drive whatever is left of the independence of the Liberal Democrats into obsolescence and/or electoral dependence on the Conservatives.
Hate to admit it, but this is one LibDem policy I’m strongly in favour of. I don’t understand why Osborne doesn’t use it as an opportunity to revamp the tax and benefits system:
1) Raise tax threshold
2) Make NI lower – it’s just hidden income tax. Gordon Brown used it to raise tax quietly
3) Make the tax rate more realistic – say 30% as it was in the 80s and early 90s. It’s what they’re spending, lets make things clearer rather than hiding behind NI
4) Abolish the million and one tax credits and payouts that half the population seems to receive – that would pay for a fair chunk of the threshold being raised.
5) Change how the over 60s pay tax on their savings – they’re the only group who would lose by dropping NI and raising tax.