Stephen Tall

EXCLUSIVE: What Lib Dem members think of the Coalition Budget measures and that VAT increase

By | Mon 5th July 2010 - 8:20 am

Lib Dem Voice has been polling our members-only forum this past weekend to discover what Lib Dem members think of the Coalition Government’s budget, and what you make of the Lib Dems’ and Government’s performance to date. Almost 350 party members responded, and we’ll be publishing the full results of our survey this week.

First, we asked what Lib Dem members: Do you support or oppose the following budget changes announced by the coalition government?

Here’s what you told us:

Increasing VAT from 17.5% to 20% from January 4, 2011
Strongly Support: 6%
Support: 42%
Total support = 48%
Oppose: 28%
Strongly Oppose: 14%
Total oppose = 42%
No View: 11%

Increasing the personal income tax allowance by £1,000 in April to £7,475:
Strongly Support: 74%
Support: 24%
Total support = 98%
Oppose: 1%%
Strongly Oppose: 0%
Total oppose = 1%
No View: 1%

Freezing Council Tax for one year from April 2011 in England:
Strongly Support: 17%
Support: 34%
Total support = 51%
Oppose: 21%
Strongly Oppose: 5%
Total oppose = 26%
No View: 24%

Increasing Capital Gains Tax from 18% to 28% for higher rate taxpayers:
Strongly Support: 57%
Support: 35%
Total support = 92%
Oppose: 2%
Strongly Oppose: 1%
Total oppose = 3%
No View: 4%

Freezing child benefit for the next three years:
Strongly Support: 14%
Support: 38%
Total support = 52%
Oppose: 22%
Strongly Oppose: 5%
Total oppose = 27%
No View: 21%

Reducing tax credits for families earning over £40,000 from 2011:
Strongly Support: 53%
Support: 38%
Total support = 91%
Oppose: 2%
Strongly Oppose: 1%
Total oppose = 3%
No View: 6%

Lone parents expected to look for work when their youngest child goes to school:
Strongly Support: 15%
Support: 45%
Total support = 60%
Oppose: 15%
Strongly Oppose: 5%
Total oppose = 20%
No View: 20%

Restoring the basic state pension link to earnings from April 2011, with the pension guaranteed to rise in line with earnings, prices or 2.5%, whichever is the greater:
Strongly Support: 57%
Support: 33%
Total support = 90%
Oppose: 4%
Strongly Oppose: 2%
Total oppose = 6%
No View: 5%

Accelerating the increase in state pension age to 66:
Strongly Support: 28%
Support: 49%
Total support = 77%
Oppose: 10%
Strongly Oppose: 3%
Total oppose = 13%
No View: 11%

Cutting Corporation Tax next year to 27%, and by 1% annually for the next three years, until it reaches 24%:
Strongly Support: 12%
Support: 35%
Total support = 47%
Oppose: 18%
Strongly Oppose: 10%
Total oppose = 28%
No View: 26%

Cutting small companies’ tax rate to 20%:
Strongly Support: 25%
Support: 47%
Total support = 72%
Oppose: 10%
Strongly Oppose: 2%
Total oppose = 12%
No View: 16%

New bank levy to apply to the balance sheets of UK banks and building societies and the UK operations of foreign banks from January 2011:
Strongly Support: 58%
Support: 32%
Total support = 90%
Oppose: 2%
Strongly Oppose: 1%
Total oppose = 3%
No View: 8%

Two-year freeze in public sector workers pay if they earn over £21,000; flat £250 increase in both years for public sector workers earning less than £21,000:
Strongly Support : 27%
Support: 42%
Total support = 69%
Oppose: 14%
Strongly Oppose: 6%
Total oppose = 20%
No View: 11%

According to our survey, therefore, every single one of the Coalition Government budget measures announced attracted more support than opposition among Lib Dem members. Indeed, only two of the measures recorded less than 50% approval in total: the cut in corporation tax, and the increase in VAT.

The VAT increase was the most controversial Budget announcment, and the one proposal that two Lib Dem MPs voted against in the Commons. So we asked party members, Which of these statements comes closest to your view of the coalition government’s decision to increase VAT:

Here’s what you told us:

    29% – I support the increase. It was essential to tackle the deficit.
    44% – I am unhappy with the VAT increase. However, I accept there were no easy choices in this budget.
    26% – I oppose the increase. I think alternative tax increases should have been found instead.
    2% – Other
    0% – Don’t know

It’s an interesting breakdown, especially when compared with the survey’s earlier finding that Lib Dem members supported the VAT increase by a narrow margin of 48% to 42%. What it shows is that, while roughly two-thirds of those we surveyed have their reservations about the increase, only one-quarter of Lib Dem members are outright opposed. And, indeed, outright support is slightly higher than outright opposition.

For the moment, then, it seems that Lib Dem members – like much of the public – are prepared to give the new Coalition Government the benefit of the doubt as they tackle the UK’s financial mess.

Here are a selection of comments those who responded to the survey submitted:

  • There is only one thing worse than being in coalition with the Tories and that is appearing split while being in coalition with the Tories.
  • More should be clawed back from the banks who were the cause of the problem in the first place.
  • I earn less than 10,000. I value the raising of the income tax threshold, but feel that the advantage of this is wiped out by the increase in VAT.
  • I think every party would have looked at VAT as an area to raise more…no-one ruled it out.
  • VAT increases disproportionately hurt the poor. The focus should be on stopping tax avoidance by the rich.
  • Unfortunately there was no choice but to increase VAT given the severity of the economic crisis. Labour would have had to do the same.
  • It is better that we give people more money in their pocket and tax what they, as individuals, choose to spend it on. As Nick Clegg said, this is a liberal move that taxes consumption rather than income.
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    71 Comments

    • Ian Eiloart 5th Jul '10 - 10:06am

      “I earn less than 10,000. I value the raising of the income tax threshold, but feel that the advantage of this is wiped out by the increase in VAT” – well, the breakeven point for VAT increase versus income tax decrease is about £10,000. You’ll benefit if you spend less than £10,000 on VATable goods. So, if you spend half that income on rent and food, then you’ll keep about £100 of the income tax reduction.

    • Jack Holroyde 5th Jul '10 - 10:41am

      I’m on the dole – and i never get a chance to buy any VATable goods. Not even choccy biscuits.
      Labour are shouting about ‘the poor’ but in actual fact they mean the lower middle classes. The REAL poor will most likely benefit from this – more work to be found!

    • Caroline P 5th Jul '10 - 10:53am

      @Jack Holroyde – you have hit the nail on the head. I’m currently supporting a family of five (including one with serious disability needing 24/7 care) on a councillor’s allowance. I can’t afford most VATable items – and I too will be better off under this new budget. The ‘poor’ will have had to spend £16,000 per annum on VAT-able goods to be the £400 worse off that labour have mentioned. That would by MY definition of well-to-do!

    • Andrew Suffield 5th Jul '10 - 11:08am

      Unfortunately there was no choice but to increase VAT given the severity of the economic crisis. Labour would have had to do the same.

      Labour were going to hike NI instead. Probably not a big difference.

    • Anthony Aloysius St 5th Jul '10 - 11:20am

      Actually, the IFS figures show that the overall effects of the tax and benefit changes in the budget will be to leave the 10% of households with lowest incomes about £200 worse off, and the 10% of households with lowest expenditures about £100 worse off.
      http://www.ifs.org.uk/budgets/budgetjune2010/browne.pdf

    • Tom FD 5th Jul '10 - 12:50pm

      So why did your party make such a fuss about it at the election?

    • paul barker 5th Jul '10 - 1:24pm

      I would like to support John McArdles points. One obvious way to save money would be to stop paying out Billions to the Atos shareholders. The idea that shifting people onto unemployment benefit will save any money is an illusion. The savings in benefits will go on wages for extra jobcentre staff, more fake jobs “helping” people who arent fit to work pretend to look for jobs that dont exist.

    • Tony Greaves 5th Jul '10 - 3:42pm

      Interesting that the balance of opinion here seems to have swung to right-wing mean-mindedness in a number of cases.

      Of course not all these people are necessarily Liberal Democrat members or even voters.

      Tony Greaves

    • pat roche 5th Jul '10 - 4:03pm

      I have noticed that compassion seems to be absent in the decisions that are being made. There is a coldness, almost treating cuts like a game. I expect this to be moderated but at least I have said it.

    • Ryan M 5th Jul '10 - 4:50pm

      It worries me slightly Tony, that as a legislator, you cannot comprehend theis sentence in the opening paragraph: “Almost 350 party members responded, and we’ll be publishing the full results of our survey this week.” Only forum members are invited to participate, andd you must be a current member to join the forum.

      I hope you do a better job comprehending proposed legislation before speaking out on it.

    • Anthony Aloysius St 5th Jul '10 - 4:58pm

      Ryan

      Did it not occur to you that Tony was talking about the comments just above?

    • David Allen 5th Jul '10 - 6:11pm

      You asked about thirteen budget measures. Five of them were “nice” (a tax cut or benefit rise). Four of them were “nasty but progressive” (for example the bank levy and the reduction in tax credits for those earning £40,000 plus). Only four of them were purely “nasty” (a tax rise or a benefit cut not identifiable as progressive in nature).

      So if you’re a centre-lefty sort of person, you begin by voting for the five “nice” things, because not many people want to turn away a free offer. Then you vote for the four “nasty-but-progressive” things, because you would really like to believe that the coalition government your party is part of is fundamentally progressive. Then you see that there are only four more “nasty” questions, which might trouble you. But you know we are encountering hard times, and you have just given the government credit for nine things that are either nice or progressive. It seems churlish to vote against just four “nasty” measures like the increased state pension age, so you probably don’t.

      Hey presto, a brilliantly executed gerrymander! But were the questions really a fair overall reflection of the budget?

      No questions about withdrawal of housing benefit. No questions about withdrawal of incapacity benefit. Nothing about why CGT didn’t rise higher than 28%. Nothing about 25% cuts or 40% cuts in spending. Forget about all those, let’s all join John Cleese on the crucifix, and look on the bright side of life!

    • mike cobley 5th Jul '10 - 6:54pm

      There are several other policy questions which this survey could have included, like – Q: Do you support or oppose axing hundreds of thousands of central and local government jobs? Q: Do you support or oppose the Free Schools initiative which removes schools from direct democratic oversight and control? Q: Do you support or oppose the gradual privatisation of the NHS via public sector providers? Q: Do you support or oppose the ringfencing of PFI contracts, which could have been renegotiated to save the country billions?

      The point I want to make is that the gulf between our party and the Tories cannot be bridged by coalition agreements. It is inevitable that David Cameron and his circle will bring forth policies of such a diametrically unacceptable nature that no amount of ‘nice’ policies can make up for them. A genuinely progressive government would not work that way; to pretend otherwise is to engage in a gargantuan deceit. Ambivalence is the keyword to this government, not progressive.

    • Alex 5th Jul '10 - 7:41pm

      Of course, we didn’t actually get the increase of the income tax threshold to £10,000. Instead, we got the full increase to £10,000 in 5 years time.

      This is an important difference. Assume, for instance, that inflation averages where the government wants it to be i.e. the Bank of England’s 2% target. This means that raising the threshold in 2015 will help those under £9,000 currently, not £10,000. Nice sleight of hand there from Osborne.

      Of course, inflation might not average 2% over the next 5 years. Assume instead then that inflation is higher (it has been above target over the last few years more often than its been over target, so there is precedence for this). Say 3.4% where it is now. This means those currently under around £8,500 benefit, but those on between £8,500 and £10,000 would not. Nice sleight of hand there from Osborne.

      True, inflation could be under the target. In fact, I think there’s a good chance of this. Let’s try 1% over 5 years. Then the magic number becomes £9,500. A lot closer to the £10,000 but still a sleight of hand from Osborne.

      However, don’t even be thinking that potential average 1% inflation over the next 5 years is a get out of jail card. If inflation averages there (or even lower!) then we can be reasonably confident in knowing that disinflationary, perhaps even deflationary, conditions have returned. And that would signify a lack of aggregate demand, and the Keynesians among us will know that that would mean the Coalition’s economic policy has failed as the UK would be either in recession again, or teetering on the edge of one.

      Now tell me, do people like Vince Cable or Danny Alexander know about this sleight of hand? If so, why do they continue to deceive the public in claiming that the Lib Dems got exactly what they wanted on the £10,000 issue? If not, why should anyone trust their judgement, when even novice George Osborne can trick them with a dose of inflation?

    • Andrea Gill 5th Jul '10 - 7:58pm

      @Alex – given the state of the finances I can’t honestly see how a majority Lib Dem government (one can dream!) could have done this in one fell swoop, least not without also raising VAT by possibly even more.

    • Andrew Suffield 5th Jul '10 - 8:06pm

      This is an important difference. Assume, for instance, that inflation averages where the government wants it to be i.e. the Bank of England’s 2% target. This means that raising the threshold in 2015 will help those under £9,000 currently, not £10,000.

      You appear to be assuming that tax thresholds are not increased in line with inflation. In fact, tax thresholds are increased in line with inflation.

    • Anthony Aloysius St 5th Jul '10 - 8:14pm

      “You appear to be assuming that tax thresholds are not increased in line with inflation. In fact, tax thresholds are increased in line with inflation.”

      I’m starting to think we need some kind of remedial class here.

    • George Kendall 5th Jul '10 - 8:55pm

      @Alex
      You’d be right, but for one false assumption: that without this policy, tax thresholds would have gone up with inflation.

      For many years, not raising thresholds with inflation has been a favourite trick for Chancellor’s to raise extra income tax revenue, without breaking a pledge to raise income tax, or indeed, while cutting income tax. Most people don’t appreciate this, so they’ve got away with it. As a result, after allowing for inflation, tax thresholds are a fraction of what they used to be decades ago.

      To follow your argument, one would expect you to be furious with those Chancellors and their parties. Are you?

      One of the successes of the 2010 Lib Dem campaign is, by tying the issue into an eye-catching policy, no tax on the first 10k, tax thresholds can no longer be treated in this way. If you hate the way tax thresholds have been withering on the vine, as I do, you must be delighted with the success of this Lib Dem campaign. Are you?

    • John Fraser 5th Jul '10 - 11:58pm

      @ dave Allen

      Your point is entirely correct Dave and I feel most disappointed at Lib Dem Voice for apparently putting the questions in a biased way.

      If the question on Caputal gains tax was :-

      ” Was Capital gain tax raised the correct Amount under the circumstances ”

      The answers would ofcourse have been different.

      Its a bit like asking whether you should give a grian of rice to a starving man . Everyone will say yes even though we would think the person that ONLY gave him a grain of rice was the meanest nastiest person around .

      I usually have a lot of time for Lib Den Voice but this opinion poll is a total farce . i only hope its a question of a Cock up and not a conspiracy.

    • Anthony Aloysius St 6th Jul '10 - 12:30am

      “You’d be right, but for one false assumption: that without this policy, tax thresholds would have gone up with inflation.”

      Except that Alex didn’t make that assumption. He pointed out that there’s a big difference between raising the allowance to £10,000 immediately, and raising it to £10,000 in five years’ time – because of the effects of inflation. (Incidentally, has a commitment been made to do this in as little as 5 years’ time? I thought it was simply a “long-term aim”.)

    • Andrew Suffield 6th Jul '10 - 1:47am

      Incidentally, has a commitment been made to do this in as little as 5 years’ time?

      Not really. Nobody in the government is silly enough to second-guess what the economy might be doing in 5 years. We’ll get all the long-term stuff if the economy recovers like people hope, and we’ll get nothing if it crashes again.

    • Mark G 6th Jul '10 - 5:13am

      My main complaint was that a golden opportunity was missed to introduce a carbon tax (or at least indicated that it would be brought in). This could have raised significant revenue as well as achieving green aims.

      My issue with the VAT rate increase is not that it was done at all but that history shows VAT rates never go down so we will be stuck with this rate until the next fiscal crisis when it will go up again….

    • Andrew Suffield 6th Jul '10 - 8:09am

      My main complaint was that a golden opportunity was missed to introduce a carbon tax

      Too soon for something so complex. This was an emergency budget, remember. They had to stick with what could be worked out in a few weeks.

      Hopefully we’ll see consultations in the next few months, with the first tax measures appearing in next year’s budget.

    • ExLibDem 6th Jul '10 - 5:42pm

      I’m a civil servant working in a scientific field that’s directly relevant to UK and international industry, producing a concrete, tangible output for the economy, i.e. certainly NOT a ‘diversity champion’ as beloved by certain newspapers.

      Today I learn that, as well as freezing my pay for 2 years and attacking my pension, your government plans to force through a cut to my redundancy terms (conveniently in time for big layoffs) to be much less than that than other public services such as teachers, nurses, police, etc.

      I didn’t cause the banking crisis. I didn’t cause any overspending by the last government. But now it looks like I’m going to be the victim of really hard Thatcherite cuts. Savings have to be made, but these seem stupidly rushed and harsh. Not well thought-out, i.e slash education and science, on which the future of the country depends, but make no savings in the NHS (because your partners the Tories can’t be seen to cut the NHS, can they?). Are you happy with this? Really? I suppose the Tories have to cut as deep as fast as possible before you bail out, possibly after the AV vote.

      I’ve looked at some of the comments on this forum and I must admit some of it seems like ‘navel gazing’: you don’t seem to have woken up to the fact that YOU are in government now. YOUR cuts = job losses, breakups, illness, depression, worse… Is this slash and burn really worth it to get AV and keep the Tories happy?

      I’d add I’ve been a Lib Dem voter up until now. I always thought the LDs were ‘sensible social democrats’ with an welcome emphasis on civil liberties and the environment. But NEVER again. I never thought that you – or at least Clegg & co – would turn out to be tories – not even ‘one-nation’ tories. This has turned into a rant but i’m feeling really angry and betrayed.

    • George Kendall 6th Jul '10 - 7:24pm

      @ExLibDem

      The threat of losing your job must be gnawing at you, and I’m not surprised you feel angry and betrayed. I really hope your fears prove unfounded.

      I’m an ordinary party member who supports the coalition, and so, you’re right, I’m implicated in the government’s decisions.

      You’re right too, that cuts will lead, as you say, to job losses, breakups, illness, depression, worse.

      I’ve never bought the idea that the deficit could be sorted out with efficiency savings, and without cuts to frontline services. Cuts to backroom operations can be utterly counterproductive.

      All the main parties are agreed that there have to be very significant cuts.

      However, there seem to be three areas of disagreement:
      – should we cut now, or hold off for a year?
      – do we spread the cuts over eight years or over five years?
      – do we leave an ongoing deficit, and leave our children with an ever-increasing debt?

      I used to believe in holding off cuts for a year, but no longer. In my opinion, if Labour had won, they too would have started cutting now. They’d have been too worried to delay, in case the crisis threatening Europe engulfed the UK.

      Of course, now they’re in opposition, they’ve stuck to their pre-election position of opposing immediate cuts. I don’t like it, but that’s politics. And we shouldn’t complain too much, perhaps we’d have done the same if we’d been in opposition.

      The second question is more difficult. I think there are serious risks with cutting fast, but also with slowing down the cuts.

      Cutting fast can mean cuts which are less well thought through. And it will give those affected less time to adjust.

      But delaying cuts will mean more years with a higher deficit, and a greater risk to our triple-A credit rating. If our credit rating is reduced, we’ll have to pay higher interest payments. A higher total debt and higher interest rates will eventually mean even heavier cuts to balance the extra cost of those interest payments. The Governor of the Bank of England has warned that delaying cuts would lead to higher interest rates, which would slow down a recovery in the private sector.

      On balance, I favour slowing down the rate of reduction in the deficit, and I’ve made this suggestion elsewhere on this site. But I’m by no means convinced. I’ll read more detailed arguments on both sides of the argument before I firm up my views.

      And the speed of the deficit reduction doesn’t alter the truth. However we pace it, those cuts will eventually have to be made. This point was very well made by a former Labour minister. http://news.bbc.co.uk/1/hi/politics/10270585.stm

      You suggest that the NHS should share some of the burden of the cuts, and I agree. But both the other parties had a manifesto commitment to ring-fence the NHS, and I’m afraid whichever party we had formed a government with, we’d have been vetoed on that.

    • Anthony Aloysius St 6th Jul '10 - 7:38pm

      “However, there seem to be three areas of disagreement:
      – should we cut now, or hold off for a year?
      – do we spread the cuts over eight years or over five years?
      – do we leave an ongoing deficit, and leave our children with an ever-increasing debt?”

      And of course, in a democracy, these issues would have been put to the people so that they could decide. Instead, all three parties lied about their plans, so the people had no opportunity to decide. There’s precious little point in our having earnest discussions about them now on LibDemVoice!

    • Caroline P 6th Jul '10 - 7:59pm

      @ Tony: OK: What measures make me better off? My tax improves. Simple as that.
      You see, I dont claim either carers or attendance allowance.i don’t claim benefit. I don’t claim tax credits. This budget -per se – said nothing about cutting my councillors allowance. I buy all our clothing from charity shops , cycle everywhere and grow a proportion of our food. This is why i live in genteel rather than abject poverty! (Thank you this last government whose many policies forced this lifestyle on me, eh? )

      And “will this be taken away when the spending review looks at your “councelors allowance””?? Seems to me if i may so say so that your ultimate aim on this thread is to cause dissent rather than discuss this budget.!

    • mike cobley 6th Jul '10 - 9:50pm

      The consensus on this thread is both astonishing and dispiriting. Almost everyone believes in cutting jobs and services, and almost no-one thinks that the wealthy – individuals and corporations – should be heavily taxed. Clearly, the dominant mindset here is that the poor and the ordinary citizen should pay for the mistakes of the banks. We’ll see how comfy this consensus is when people start striking in defense of their homes and livelihoods.

    • George Kendall 6th Jul '10 - 10:17pm

      @mike cobley

      If it could be shown that raising taxes on the wealthy wouldn’t reduce the tax take, I’d be interested. But from the IFS Briefing note [ http://www.ifs.org.uk/bns/bn84.pdf ], and from what I’ve heard from other sources, raising taxes on the wealthy would mean the government would get less tax, have a bigger deficit, and mean even heavier cuts.

      If you’ve a link to a respected think-tank that disagrees with the IFS, I’d be interested to read it. But, as far as I know, there’s a consensus on this.

      If you can’t get more tax out of the rich, I would prefer to take it out of those on a middle income, and avoid taxes that’d lead to higher unemployment. For this reason, I’d favour increasing income tax over employer’s national insurance or corporation tax.

      For me, the big debate is on whether the Office For Budget Responsibility are right in their predictions, that lower interest rates resulting from cutting the deficit will mean more private sector jobs, and more than the jobs that will be lost as a result of those cuts.

    • Caroline P 6th Jul '10 - 10:18pm

      @ Tony: I’m not claiming anything but that I”m better off under the budget. You appear now to blaming me for not claiming things deliberately to spoil your argument. Come on, now!

      Thisis exactly is what is disgusting me about a lot of the budget negativity and scaremongering. It seems to be put about by the affluent middle-classes pretending to wear their hearts on their sleeve ‘for the poor’, when their real gripe is that itt may be their (richer) pockets that will be tapped. As they should be in a fair world!

      No-one denies the ‘massive catalyst of spending cuts.” The necessity of them is something too many people skate over. As a genuinely poor person, who has had to budget for many years I have learned to cut my suit to fit my cloth. Most genuinely poor people do the same. It comes with the territory.

      Now the country has to do the same. Those of us who are used to making do, make do. Those used to a more lavish lifestyle – particularly those in the heavily cushioned public sector – whinge like spoled children about losing perks such as job security, final salary pension schemes, six years salary (count it!) as redundancy, automatic pay rises.There are plenty of people out there who have got used to this alreadyand it wasn’t under this government that they lost their pension schemes, job security, pay rises etc!

      Poor people know that if there ain’t any money you have to make do with less. Richer people deny it, run up credit card debts and remortgage their houses! In this analogy the last government was the latter and the Coalition is the former.

      I am much more comfortable with that!

    • Alex 6th Jul '10 - 11:52pm

      George:

      “You’d be right, but for one false assumption: that without this policy, tax thresholds would have gone up with inflation.”

      No, I’m not making that assumption. Surely I can criticize what the government is saying or doing without automatically supporting what any other Labour Chancellor would have done.

      For many years, not raising thresholds with inflation has been a favourite trick for Chancellor’s to raise extra income tax revenue, without breaking a pledge to raise income tax, or indeed, while cutting income tax. Most people don’t appreciate this, so they’ve got away with it. As a result, after allowing for inflation, tax thresholds are a fraction of what they used to be decades ago.

      To follow your argument, one would expect you to be furious with those Chancellors and their parties. Are you?

      Yes. Bracket creep is wrong. Please don’t assume bad faith by insinuating I may not disapprove of similar policies pursued by other parties.

      One of the successes of the 2010 Lib Dem campaign is, by tying the issue into an eye-catching policy, no tax on the first 10k, tax thresholds can no longer be treated in this way.

      That’s a non-sequitur. How exactly does a policy of “no income tax on the first £10,000” stop future Chancellors from freezing the bands meaning more bracket creep?

      If you hate the way tax thresholds have been withering on the vine, as I do, you must be delighted with the success of this Lib Dem campaign. Are you?

      I am pleased that the tax threshold is going up substantially. That is good. But my last comment was pointing out this was being sold as if we had got what they wanted. That no-one would be taxed on their first £10,000. But that “£10,000” is different from the £10,000 mentioned in the election campaign.

      However, we should also remember why this proposal was proposed in the first place. I can think of two reasons:

      1. To increase the progressive nature of the tax system.

      2. To reduce marginal tax rates as people have benefits withdrawn and are suddenly hit by tax (this was also Conservative policy too from IDS).

      The first point didn’t happen, since the tax system was made more regressive by this budget. It can’t be argued (at least not by Nick Clegg) that this was unavoidable, since I specifically remember him arguing before the election (when journalists asked him why he didn’t just advocate putting the savings and tax raising measures to pay for the threshold increase into cutting the deficit instead) that its not credible to deal with the deficit if the tax system isn’t fair. Well now it’s been made more unfair.

      And we didn’t see improvements on the second point either – in fact more people will now suffer marginal tax rates of 90% due to this budget.

      So it’s not much of a “success” when the reason we wanted the policy was to do things that have now been made worse.

      Andrea:

      given the state of the finances I can’t honestly see how a majority Lib Dem government (one can dream!) could have done this in one fell swoop, least not without also raising VAT by possibly even more.

      Funny, because I remember a “fully-costed” plan to do this in the back of the manifesto. Not all of the original proposals to pay for this will be implemented. There was no mansion tax for instance. Yes, I know, most Tories wouldn’t agree to that, and that is a reason I can appreciate better. I’d much prefer Vince Cable to come out on Question Time or wherever, and say, “Sorry, this budget could’ve so much better, but we’ve had to compromise” (and then people can debate over whether the compromise was worth it) rather than what we now get which is “All of this was unavoidable. Every decision the Treasury makes is objectively correct because we can’t afford anything else, and you can’t question it” which is trivially false. Not only are there many other tax raising measures, and spending cuts many Lib Dems agree with but aren’t going to be done, but also the fact remains that the government financial position is no worse than where it was before the election. The deficit is lower than expected. Interest rates on government debt are lower or roughly the same. And we have our own currency with our own Central Bank, which if necessary could finance the deficit if only the politicians would listen to the macroeconomists. Anything about comparing us to Greece is government spin.

    • Anthony Aloysius St 7th Jul '10 - 12:36am

      Caroline

      Actually, the IFS figures show that the overall effects of the tax and benefit changes in the budget will be to leave the 10% of households with lowest incomes about £200 worse off, and the 10% of households with lowest expenditures about £100 worse off.
      http://www.ifs.org.uk/budgets/budgetjune2010/browne.pdf

    • Caroline 7th Jul '10 - 7:51am

      Antony Aloysius St
      Having read the IFS link It says that people with low incomes have high expenditures as a proportion. Having confirmed with the IFS (by their extraordinarily simplistic analysis of poverty ) that I am not even in the bottom decile but actually in the bottom quintile for wealth in the UK I now feel statistical justification in continuing to maintain that a significant part of these pronouncements come from treating the poor as if they spend like the rich (eg by buying vatable goods like new clothes, new consumer durables, new cars, using vat-registered tradesmen, weekly shopping in Tescos etc ) . This does not happen, while the statistical impact of a relatively small sum of money becomes magnified by their poverty . In my case a percentage looks so much better than saying that each of the five people in my household MAY be 38p a week worse off which, lets face it, is not a big deal by anyone’s measure. The hits absorbed by the rich are similarly cushioned by their wealth (which i have to point out increased dramatically in relation to the income of the poor over the last 13 years) making their impact less excessive statistically than it is in terms of hard cash.

      Having read, digested and inwardly absorbed Ben Goldacre, I take a rather gung-ho attitude to stats – particularly predictive ones. They smack of prejudice-based evidence-production: “I hate what you’ve done because I’m sure you’re going to make things worse and if it doesn’t come about I’ll forget i said this and find something else to dislike you for”.

      Why doesn’t everyone sit down for a bit and see what happens?

    • Anthony Aloysius St 7th Jul '10 - 9:10am

      Caroline

      I posted those figures originally in response to your assertion that:
      “The ‘poor’ will have had to spend £16,000 per annum on VAT-able goods to be the £400 worse off that labour have mentioned. “

      It’s important to bear in mind that these are purely the results of the tax and benefit changes announced in the Budget. They don’t take into account the effects of general cuts in public spending. One study estimated the effect of those on the poor as 20% of income. No doubt the exact figure can be argued about, but I don’t believe you can cut public spending by as much as is being proposed without having a significant effect on the poor.

      The depressing thing is that after all the cant we’ve heard from the Lib Dems about cutting taxes to help the low-paid, the low-paid have been left worse off by these changes, and are in fact one of the worst-hit groups, regardless of which classification you use.

    • Caroline 7th Jul '10 - 12:24pm

      Anthony Aloysius St:

      I was – of course – referring to the added 2.5% on VAT (the THAT VAT increase of the title, if you care to scroll back).

      Do the sums: if £400 = 2.5%, £16,000 =100%. That’s not a statistic – thats a fact! So that is £16,000 of disposable income that is dedicated to spending on vat-able goods. What world are people like you living in? If that is your definition of poverty – give me some.

      By the way, I’m pretty offended that it is possible to be poor ( I reiterate my income and necessary expenditure puts me in the bottom quintile in the UK) and STILL the target of jibes by affluent proselytisers, just because I point out that people as poor as me are NOT going to lose huge benefits (like that – to me, unbelievable -six years’ salary redundancy payment); that we WILL benefit from the income-tax changes – again, unlike the affluent – and that the measures by which the affluent measure poverty irely on all sorts of inessential that many people do without. (Oh yes, and someone was considering it a matter of BLAME for ‘electing’ to do without tax credits too… )

      Is comment on the plight of the poor the province of the disaffected affluent?

    • ExLibDem 7th Jul '10 - 7:00pm

      Hi all

      Thanks for your comments on my post above – they seemed much more reasoned and measured than mine!

      I have sympathy for the LD position: PR and coalition politics are core values so, when a coalition opportunity came along, you couldn’t just run away. And the Tories legitimately got the greatest no. of seats/votes.

      Given that reality, regarding the cuts the key question is how much and how fast. Well, the situation seems to be (a) financial institutions act appallingly, (b) they need bailing out, creating – at least in part – big govt debts (c) the financiers/markets say, oh, don’t like those debts, we may have to charge you more interest and (d) the govt has to cut (and/or raise more money in taxes) as a result.

      Accepting we have to dance to the tune of our creditors – and, er, apparently, cough up when they screw up – cuts are to be made…

      The Lib-Cons have opted for the hard/fast option: surely 25-40% must be seen in this light, esp given many govt depts have to make, say, 4% efficiency savings every year in normal times. Sensible? Well, it seems to be a cost-benefit question: would a 25% cuts programme over say 6-7 yrs be better? – the interest charged may go up (an admittedly terrible waste) but the human cost and ‘baby with bathwater’ effect (e.g. graduate dole queues) may more than compensate for this… Incidently I don’t believe we are “like Greece”: our debt may be comparable but our economy is much bigger (7 times?) and more advanced…

      Anyway, just some (oversimplistic?!) thoughts. Finally, on the specific cuts to the civil service, by attacking every area – pay, pensions, redundancy – at once, it feels like a deliberate act to provoke. If unions don’t respond with strikes and do little, members will desert them in droves. Maybe 2010/11 will be for civil servants what 1984/5 was for the miners. Maybe cutting our pensions sounds good short term but who wins when everybody ends up with nothing to live on in old age, working til we drop? Hmmm, not those bankers again, surely, the 5% rolling in money while the 95% just take it?!

    • ExLibDem 7th Jul '10 - 8:04pm

      PS In response to Caroline, I had to address this:

      “just because I point out that people as poor as me are NOT going to lose huge benefits (like that – to me, unbelievable -six years’ salary redundancy payment);

      – it’s unbelievable because it doesn’t happen – propaganda – I can think of no civil servant who would actaully get that.

      Please see – http://www.civilservice.gov.uk/about/facts/mythbusters/index.aspx# – if you don’t believe what you read, check out the PCS or Prospect union websites or the BBC news page. The average annual pension paid to a retired Civil Servant last year was £6,700 (from above site).

      And I cannot understand this jealousy: civil service jobs are open to all and, before the pay/recruitment freeze, there were plenty advertised. It’s not like the monarcy, anyone can apply. And, no, you don’t need a degree or masses of qualifications – many, many GCSE level jobs with open prospects for promotion (well, they did have).

    • ExLibDem 7th Jul '10 - 8:18pm

      to Christine Melsom:

      Civil servants, like NHS workers, etc, are NOT paid out of council tax. In fact, many civil service departments are ‘trading funds’ and make a overall contribution to the govt by charging for their services. If you think the public sector is so well rewarded, wht not apply for a job there? Some govt depts got in trouble for not even paying the minmum wage when it came in.

      “council tax, most of which goes on above average salaries and overwhelmingly good pensions. The state employment is over paid, and over pensioned and certainly overstaffed.”
      Any evidence for this? Which parts of state employment?

    • Caroline 7th Jul '10 - 11:15pm

      @ Ex Lib Dem:
      Sigh. Ok: Yes the average pension paid to an ex- civil servant is indeed £6,700. This is a notorious bit of disinformation commonly used by the Civil Service to justify its ridiculously generous terms and conditions. It was unravelled by R4s Statistics buster programme as recently as a week or two back. They explained that this as a common propogandist myth because it conflated the pension of everyone who had ever worked in the Civil Service – even for as short time as a year. Easy to make an average low if you spin it that way.
      Thats why arguing with statistics – especially averages- is so shabby and shoddy and plain disingenuous.

      As regards the rest – on the one hand you say the Civil Service is a so good an employer that you ‘cannot understand this jealousy: civil service jobs are open to all and, before the pay/recruitment freeze, there were plenty advertised. ‘ and on the other hand “If you think the public sector is so well rewarded, wht not apply for a job there? Some govt depts got in trouble for not even paying the minimum wage when it came in.”
      So which is it?

      And as regards the six years – if it were genuine disinformation its a crying shame the Civil Service union rep forgot to mention this when taxed with it on R4s Today programme a day or two back! And indeed, if the terms of payout for voluntary and compulsory redundancy in the Civil Service were reduced to fifteen months and a year like most other peoples – and here I’m not referring to the astronomical sevanance packages that the last government allowed, say, Fred the Shred – why should that be so deeply unfair?

      We are to believeevidence that supports your case and disbelieve evidence that doesn’t. Thats hardly scientific. Seems to me this entire argument has been filled with prejudice-based evidence making.

      @Tony: while i thank you for the compliment, i take exception to the fact you can say “I really do not find you to be a typical poor person” even though you are very keen to refer elsewhere to the IFS document that puts my income in the bottom 5% of the population of the UK. Er.. so if you are poor but articulate you don’t count?

      Seems to me its very easy to make points about poverty if you discount the opinion of any poor person who disagrees with you!

    • ExLD 8th Jul '10 - 12:22pm

      Hi

      Some quick comments while on lunch…

      Caroline: you’re right to sigh. Very sorry for the stats. I was busy, looking for something to counter the views raised, and was a bit rushed. Just trying to counter the ‘Sir Humphrey’ View of the CS.

      Addressing your point: “As regards the rest – on the one hand you say the Civil Service is a so good an employer that you ‘cannot understand this jealousy: civil service jobs are open to all and, before the pay/recruitment freeze, there were plenty advertised. ‘ and on the other hand “If you think the public sector is so well rewarded, wht not apply for a job there? Some govt depts got in trouble for not even paying the minimum wage when it came in.”
      So which is it? ”

      – I didn’t actually say “the Civil Service is a so good an employer ” – I was simply addressing the point that if – if – the CS was SO better rewarded overall (T&Cs, pay, pension) then why don’t the people who complain about this simply apply for jobs in the CS? This doesn’t seem to happen in general, i.e. posts are unfilled, etc. I can see no logical problem there, although my comment may not have been very clear.

      The (historic) point about the minimum wage was really just to emphasise this, and to illustrate that the treasury and CS don’t have a cosy relationship – they pay us the lowest they can get away with, and arguably that’s right.

      You do make some fair points re the redundancy issue – and i guess my concern is more with pensions.

      My key point: in my direct experience from my dept and others, most in the CS, represented by the largest PCS union, are in grades earning, say, £ low ‘teens’ K, and their pensions should be taken as part of an overall package. Overwelmingly NOT quango heads, govt spin Drs, etc.

      Christine: all public sector workers aren’t the same. I don’t know much about local govt and am fully prepared to admit they may do daft things with our council tax. But the CS isn’t funded by council tax and, in my experience, do sensible, cost-effective things – e.g. CS scientists working in aviation or nuclear safety; admin grades making sure pensions are paid – and i’d refer to my comments about our jobs above.

      Apols in advance, – I realise that ‘outing’ myself as a public sector employee on a Lib Dem website (and ranting a bit – sorry) may lead to further comments, but I’m v busy at the mo so may not get to reply to future ones.

    • ExLD 8th Jul '10 - 3:13pm

      Christine:

      “Ex LD
      But the civil service is funded by the taxpayer and is therefore reliant on the taxes collected though Government agencies.

      – yes – and unless you are proposing the privatisation of the CS, this has to happen.

      I paid into a private pension while working in the private sector with no contribution from an employer, and because of the fluctuating markets have found that the payouts (not yet taken) have decreased to such an extent that they will certainly not give much support when I decide to claim. They will certainly not pay my council tax – not by a long way.

      In state employment the pension is protected and in Local Government (I suspect the civil service is the same) additional revenue is collected from the tax payer and the council tax payer to insure the employee still receives more than adequate pension. In the case of many councils well over 20%. So, every year, from my depleting pension pot I am subsidising the local government workers and the civil service so that they can receive a pension I can never aspire to.

      – I too worked in the private sector with no resulting pension. Then, when I joined the CS, most of my friends were earning much more in IT consulting, finance etc. Indeed I felt like a bit of a mug, but valued the compensation from the pension. It was the package as a whole. At least partially I chose pension security over monthly pay.

      Your argument above seems to be as follows: “I chose to work in the private sector, with a pension contract that was dependent on the markets, i.e. there was a risk. This has not worked out how I hoped, so now I have the right to (campaign to) change the contractural rights of public sector workers who made a different choice”.

      Hardly seems fair or liberal.

    • ExLD 9th Jul '10 - 1:26pm

      PS to my last comment:

      Many civil service agencies (20 odd? Including Companies House, Ordnance Survey, poss Met Office?) are ‘Trading Funds’ that are fully self-funding from the products and services they sell, i.e. they and their civil servants are not funded by tax/council tax. As a result, they have greater freedom to set their own terms and conditions, as required to recruit and keep staff in their fields. Any money provided by the treasury has to be reimbursed, and there are yearly efficiency savings targets that have to be met. Any losses are born by the individual trading fund (e.g. by recent job losses in a dept I know) but often profits end up in the central govt pot.

    • George Kendall 10th Jul '10 - 10:49pm

      @ExLibDem

      Thanks for your posts. Nice to read a critic who acknowledges the dilemmas facing the coalition.

      I’m not really qualified to comment on the detail of your remarks about civil service pay and conditions, but it’s been interesting to read.

      However, I do have a more general point.

      We’ve seen a very large increase in the size of the state in the last thirteen years. When we have a significant and ongoing trade deficit, and an enormous budget deficit, it’s inevitable that will be cut back.

      In the way they cut, the government have a choice. Cut numbers, or cut pay. I’d prefer them to cut pay and conditions. There will be job losses, but I’d rather they were as few as possible, and mostly through natural wastage.

      Unfortunately, this will mean financial hardship for those who’ve made long-term plans on the basis of their existing pay and conditions. But I’d much rather the pain was spread more widely, than concentrated on a minority who have all those pay and conditions taken away (in other words are sacked).

      And if some jobs are saved because the government gives a worse deal on *future* pension contributions (note emphasis), then I think that’s, on balance, probably the better option.

      Is it grossly unfair? Indeed. Do I wish that the greedy speculators who helped cause this mess could be made to pay to sort it out? Yes. But, sadly, what I wish for ain’t always possible.

    • ExLibDem 12th Jul '10 - 9:14pm

      Thanks George (and apologies again for my more intemperate comments last week!). I know exactly what you mean, and agree savings have to be made, but just have a few more thoughts:

      – Reducing pay and pensions may look good in terms of immediate savings but can lead to increased costs, even in the fairly short term. Here I’m thinking of the Dept that continually recruited and trained up good graduates, at taxpayers expense, only for 80-90% to head off to law firms after, say, two years; it happened year in, year out – the interview, training, IT etc costs were much more than (eventually) providing a competitive wage that meant people stayed;

      – The psychological effect of a public pension (“at least I can rely on my pension”) may well outweigh the financial benefit of eroding it; that is, once that trust is lost you may well end up spending more to recruit and keep people – maybe not too easy to get across, sorry, hard to quantify;

      – “And if some jobs are saved because the government gives a worse deal on *future* pension contributions (note emphasis), then I think that’s, on balance, probably the better option.” – I know what you mean, but I fear they may not stop at ‘future’ contributions; in fact I think existing contributions, in both public and private, are affected by the change from RPI to CPI… oh, and then I thought what it would feel like in, say, 2040, still effectively paying for the 2008 crisis! The markets/private sector may well have raced away again by then. Given the supposed aim is to sort out the problem in one term, I think most people would prefer a short term hit, if possible – like the 5% pay cut for the millionaires in the cabinet (sorry, couldn’t resist that!) – rather than paying for the rest of their lives…

      – While changing pension provisions to account for longer lives and so on seems fair, I agree that changes resulting from the crisis won’t be fair. That’s life. But I think the key thing is that they’re made for the right reason (averting crisis) rather than, I would say, the wrong reasons (hey, there’s a crisis, let’s use it as a trojan horse to force through ideological changes to the state sector).

    • ExLibDem 12th Jul '10 - 10:51pm

      “This is something that worries me. I regard the situation as a crisis, and ghastly decisions are inevitable. But where Lib Dems might see these changes as unpalatable short term measures to turn the country around, some Tories will see them as a wonderful chance to trash the public sector. It is something we need to think more about.”

      – Agreed. And to be clear, in my experience ordinary members of the public sector are as keen as anyone on having efficient services – we’re taxpayers too, and working within inefficient systems is very annoying!

      But the pace of this feels different. Folk in the Business Dept have been given until to the end of July to decide whether to jump now or hang on with the risk of redundancy later. In own my dept, the union has only had a week to consult on announced changes. Some cuts to T&Cs may not be legal and frantic advice is being taken. I’m sure many private sector people have been treated like this, but it feels maybe worse if it’s political rather than economic. Possibly the Govt knows more than us – we need to protect our AAA rating within weeks or months – but it feels like a hijack at the mo.

      Goodnight!

    • ExLibDem 13th Jul '10 - 6:52pm

      “Do you now which minister is driving this?

      – Vince Cable is in charge of Business, Innovation & Skills (BIS).

    • Anthony Aloysius St 13th Jul '10 - 7:11pm

      “I wonder if the problems Gove has had might be a blessing in disguise, if they force the coalition to take a deep breath, slow down, and proceed with more care. We’ll still have to go fast, there will still be bad decisions made, but there won’t be as many.”

      Not much sign of increased caution in the White Paper on the NHS. I’m sure you’ve seen the comments on the proposed timetable by the Chief Executive of the King’s Fund:
      “Setting a deadline for GP consortia to take full financial responsibility for commissioning by 2013 is very ambitious – whether this can be achieved will depend on appropriate support being put in place.”

    • ExLibDem 13th Jul '10 - 10:41pm

      Re NHS reforms, this may be of interest: http://www.tribalgroup.com/Mediacentre/Pages/TribalpublishesresponsetotheHealthWhitePaper.aspx

      This caught my eye:

      “Denationalisation: this white paper could result in the biggest transfer of employment out of the public sector since the significant reforms seen in 1980s. As NHS trusts become foundation trusts, this will see the transfer of billions of tax-payers’ assets to employee-controlled businesses.”

      Sounds like they’re gearing up… I can’t remember this privatisation being mentioned during the election but it may have been a consequence of one party’s plans if I’d cared to look I suppose…

      Anyway, this may well be my last post (yes, I know I said that before) – I’m getting far from my area of knowledge, and am not sure that thinking/writing about these things is a recipe for a happy life at the moment! Thanks for all your responses.

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