The Labour-supporting Left Foot Forward blog prides itself on being evidence-based. But not, it seems, when the evidence doesn’t support the conclusion they’ve already written.
That seems to be the only explanation for their slanted weekend posting that Lib Dem tax policy “fails the fairness test”, which appears to rest on two points: 1) that people who don’t pay tax won’t benefit from tax-cuts, and 2) ignoring completely the redistributive wealth tax rises that Vince Cable and the Lib Dems are proposing.
Perhaps the authors, Tim Horton and Howard Reed, hoped nobody would notice the sleight-of-hand; or at least that it would reassure those Labour bods looking uneasily at the Lib Dems’ proposals and wondering why their own party is unable to put forward fair tax policies. But their partial analysis has been taken to task by a number of Lib Dems, most notably:
- Fabians fail the fairness test (James Graham | Social Liberal Forum)
- Libdem tax policy attacked from the Left (Giles Wilkes)
- Tax policies aren’t just about who gets what money (Mark Pack | Left Foot Forward)
- Where Are The Losers? (Duncan Stott)
… the Lib Dems’ proposed tax package would significantly reduce income inequality, go some way to addressing wealth inequality, would cut the deadweight cost of Labour and would benefit the middle classes as well during an extremely challenging economic period when solidarity between the poor and people on middle-incomes will be crucial. The other major parties, and in particular Labour, have nothing on offer that comes close. I don’t think the smears will get the Fabians and other tribal Labour activists very far but if they want to make this election about the need for fairer tax policies, bring it fucking on.
The Fabians, quite simply, would prefer £17billion that Vince et al have found in forms like the mansion tax and pension tax relief ’spent’ in other ways. I don’t think that this attack will prove very effective. If it is fairly explained, most people would see the Lib Dem Tax Switch not as an alternative way of ’spending’ the money, but as a way of redistributing the tax take; taking certain (unfair) tax reliefs on e.g. pensions for the very rich, and using the money gained to tax less those for whom the decision to work must in some cases be quite marginal.
Among the millions who would be taken out of income tax all together with a £10,000 threshold are … People who will benefit from having the hassle of struggling with the tax system lifted from them. People who will benefit from not having to worry about how tax is under or over-paid if they move between jobs or different pieces of part-time work. People who will benefit from not struggling to make ends meet because, while there is a tax adjustment coming down the line, they aren’t getting the money in their bank account right now. People who just don’t have the financial resources and bureaucratic experience to see themselves through dealing with an at times complicated, unforgiving and slow moving tax system.
The Lib Dems have always made it clear that the policy is revenue neutral. This means that the policy won’t cost the Treasury anything, because the tax cut has been paid for by tax rises in other areas: raising the tax on capital gains, and the new mansion tax on property worth over £2,000,000. … This wouldn’t fit with Left Foot Forward’s narrative, so they have used statistical trickery to create a different result.
Guys, guys: if you’re going to claim to be evidence-based, try basing your research on the evidence – all the evidence, not just the bits which suit your partisan preferences.
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7 Comments
That so called ‘research’ is appalling, I’d love to see some actual research to show what the effect of Labour’s removal of the 10p tax rate in order to lower the basic rate of tax. I’d be willing to take a bet it would be shown to have been actually regressive (as opposed to progressive but a Labour blog getting mixed up what regressive actually mean) because its obvious it was (tax lower incomes more and tax higher incomes less kind of the definition of a regressive tax change)
Stephen
This “appears to rest on two points: 1) that people who don’t pay tax won’t benefit from tax-cuts, and 2) ignoring completely the redistributive wealth tax rises that Vince Cable and the Lib Dems are proposing” isn’t right. It misses the main point.about the distributional impact of making a threshold increase the main “fairness” tax policy, and why that benefits more affluent households disproportionately.
The report does discuss the impact of the package as a whole. While it may be redistributive between the top 10% and the rest, but the gradient of gains is lowest at the bottom and highest for the more affluent across 90% of the income range. This is not simply because it does nothing for those earning below £6800 and less for those earning between £7000 and £10,0000 It is also because it benefits double-income households where two earners earn more than £10k more than single-earner households where one partner has full-time caring responsibilities. Complaints that individual tax changes should not be assessed on a household basis would overturn the standard approach of everybody (including the LibDems and the IFS) and make meaningful statements about distributional impact, poverty and inequality impossible.
If you can raise £17 billion, then the field is open as to how to use it. Choosing to raise thresholds does mean that the majority of the gain (70%) goes to households in the top half of the income distribution, and under a third to those in the lower half of the income distribution. This would not be the case if there was a mixture of raising the threshold plus tax credits, while it would be more progressive if it all went into tax credits. (Some might feel that distributes too heavily towards families with children; on the other hand, the tax threshold proposal tends to favour DINKY two-professional couples over families with children).
And the overall effect of putting it all in an increased threshold is to spend all £17 billion in a way which leaves three million of the poorest households out, while all households where someone earns over £10k gain £700-£1400 per year. Alternative proposals, such as the Fabians’ for a Universal Tax Credit, would see everybody gain. The overall impact of all of the LibDem proposals would leave 3 million of the poorest in a relatively worse position against the middle, although progressive between the middle and the top. Both gaps matter.
You describe this critique as making an impossible demand because “people who don’t pay tax don’t benefit from tax cuts”.But the challenge is to which tax cuts the party proposes. They do pay taxes; its because you are focusing on income tax thresholds that you don’t address them. Yet the reason the poorest pay proportionately more of their incomes in taxes is not income tax, but primarily levels of indirect taxation. That adds to the case for a universal tax credit, or splitting spending on the threshold with reductions in indirect taxes, if the overall impact is not to reduce inequalities between the poorest and the rest, which the current policy package does.
There is a very significant opportunity cost to a £17 billion policy. That will especially be the case if (after the fiscally neutral package) what is being proposed is £80 billion of deficit reduction through “purely spending cuts”. It is of course true that all parties are being opaque about their deficit reduction plan.
I am not aware of LibDem proposals which do much for the relative or absolute position of households where nobody is earning over £7k.
Mark Pack’s preference for a measure which is less progressive but simpler doesn’t seem to me to have too much weight. The LibDems would do this while maintaining tax credits.
Sunder: on your logic, any rise in basic income tax thresholds is wrong because the money for that could always have been spent on other (in your view fairer) measures.
Must admit, I’ve missed the Fabian Society’s attacks on the budget when, nearly every year, just that was done. Can you point me at some examples of you or colleagues criticising Labour budgets at the time for unfair increases in income tax thresholds?
Would be interesting to see how thoise views of Labour budgets compare with your look at Lib Dem plans.
“The report does discuss the impact of the package as a whole.”
Still peddling that untruth, I see. The report “discusses” the tax rises in one paragraph and dismisses them as unimportant. Doesn’t appear to have worked it into any of the figures. And certainly not the graphs.
“Complaints that individual tax changes should not be assessed on a household basis would overturn the standard approach of everybody (including the LibDems and the IFS) and make meaningful statements about distributional impact, poverty and inequality impossible.”
Please, please put that straw man down now? Please? Nobody (except I think Tim Worstall) was *complaining* about using the household assessment basis. Lots of us were merely pointing out that income tax is assessed on an individual basis, not a household basis, so of course a household assessment of an income tax rise will show a rising gradient. This is just true. The only person I’ve seen mention the terms “complain” and “household assessment” in the same sentence is you.
Mark,
The point is made about a £17 billion proposal, which has been referred to as giving the LibDems “the most redistributionist” policy in the election, eg by John Kampfner. There is clearly a choice about whether to make threshold rises the very strong focus of a policy or to use a number of different measures. Hence my last comment about the balance of policy.
The threshold has risen from under £5k to £6.8k even since 2005, but there has been an approach of putting more into tax credits specifically because of the redistribution effect, while increasing the allowance with inflation:
EG, This was Brown in his 2005 budget speech. “In April I will raise the personal income tax allowance in line with inflation from £4,745 to £4,895. I could use resources available to me to raise the personal allowance by even more than inflation. But having examined representations made to me, I have found that using £1bn to raise the personal allowance would give a family in work on median earnings (£23,400 a year) with two children just 80 pence a week or £40 a year. But using the same resources to raise the child tax credit will give that same family £5 a week – or £260 a year. So the best way to do most to help low and middle income families is not through a further rise in personal tax allowances but through tax credits which offer the best family tax cut”.
In theory, it would be possible to criticise the inflation adjustment too, I think that would surely depend on having a different structural approach to avoid the problem, rather than advocating leaving nominal thresholds where they are so that they fell in real terms. (For this reason, the Fabian Tax Commission did propose in 2000 converting the income tax allowance into a flat rate rebate, offering a proposal of how do this with no winners or losers from the initial change, simply so that future rises in the threshold would not benefit higher earners more; while the more recent Solidarity Society report suggests a universal credit, and compares the distributional impacts).
We have challenged the Labour government both for not being bolder on progressive changes – consistently advocating a higher top rate throughout the last decade – and over issues like the inheritance tax changes in 2007.
***
Alix
A number of diiferent people seemed to complained about it, or claimed it was a sleight of hand, in online threads and in a couple of emails. Certainly Tim Worstall did, as you say. EG, Lee Griffin was arguing similarly on Liberal Conspiracy. “The LibDem proposal does mean £1400 for double-income households with two earners over £10k; £700 for single-earner households over £10k; ” Can we get away from this nonsense presentation? It’s a saving solely of £700 for individual people earning over £10k. If they choose to live together and gain a pooling benefit from that choice then so be it”.
If almost everybody now accepts that this is the standard way to assess welfare and distribution questions, then that’s good. Clearly, those defending the policy can say that they are in favour of more gain going to the upper-middle of the distribution because they pay more income taxes: those who believe in flat taxes will be less conflicted about that than those who believe in progressive taxation structures.
Without getting into the specific debate surrounding the policy, i think it’s worth noting that this whole thing might’ve been avoided if the Lib Dem policy unit had, with the announcement of this (and perhaps all other tax policies) put out a proper paper (perhaps in collaboration with CentreForum – don’t know how keen they’d be on that) setting out the effect on the tax system, where the benefits would accrue, and generally setting out the policy in more detail, so it’s not left to passionate party activists to have to critique someone else’s analysis of our policies before members can get a clear picture of what the effects are.
Few people without a Masters in Economics or Social Policy or whatever could tell you the nature of the effects of this kind of tax proposal off the top of their heads – non-wonkish members of the public wouldn’t, certainly. I wouldn’t have known what the effects of this policy on the labour market would be (and i’m studying for a degree involving Economics – although perhaps that says a lot about me and my degree..) without reading James Graham’s post, not to mention all the other benefits he points out, which simply aren’t obvious at first glance at the proposal. Ask someone if they’re in favour of this kind of tax package, and you won’t get nearly as good a response as you undoubtedly would when you articulate that it also a) helps the labour market at the bottom in the ways James outlines, and b) shifts the focus in taxation away from income and on to wealth.
So while a good policy, with lots of good coverage, releasing a detailed document (yes, with non-dodgy graphs..) to accompany it might, as this whole saga kind of illustrates, have been a wise move.
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