Good morning Liberal Democrats and visitors.
You don’t have time to read this right now because you are on your way to join the day of action for the campaign for fairer taxes. To find your nearest, go here and enter your postcode.
We inherited a system in 2010 where a cleaner would pay a higher marginal rate of tax on his income at 20%, than a hedge fund manager would on her income converted to capital gains at 18%. Decades of Conservative and Labour governments alike saw the progressive tax system diluted, as reliefs and loopholes multiplied, and more and more burden was placed on the most regressive taxes such as council tax and the sin taxes.
Increasing the personal allowance is the most powerful way to start to put this right. A few hundred pounds may be useful to a middle income earner, but will make all the difference to someone struggling to get by on low pay.
And with limits to reliefs, the increase in the rate of CGT and other measures, IFS figures clearly show the top 10% of earners making the biggest contribution, not just in cash terms but in percentage terms too.
This rebalancing of the tax system would be a great achievement at the best of times, but to deliver it during the austerity imposed by Labour having “spent all the money”, and in coalition with the Conservatives who are widely considered to be more sympathetic to the rich, is something to be especially proud of.
And so we campaign today to take it further.
* Joe Otten was the candidate for Sheffield Heeley in June 2017, is a councillor in Sheffield and is Tuesday editor of Liberal Democrat Voice.
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20 Comments
“And so we campaign today to take it further.”
Could we be told what further cuts in benefits this will involve?
Chris, rebalancing the tax system is paid for with taxes on the better off.
Lets not mix up the reform of the balance of the tax system with the effects of the massive unsustainable deficit. One is a Liberal Democrat policy via the coalition. The other is the undead hand of Labour’s legacy.
Yes you could argue for higher taxes overall to maintain growth in welfare spending. Personally, I think that would be unwise while the economy is fragile.
“Chris, rebalancing the tax system is paid for with taxes on the better off.”
I doubt that’s actually true. But what is indisputable is the way this government has shared out the burden of dealing with the deficit. The IFS has worked it out for us.
Granted that the 10% on the highest incomes have suffered the largest percentage decrease in income. But as for the rest of the population, the heaviest burden has been borne by the 10% on the lowest incomes. Then the next 10%. Then the next, and so on, until those who have done best in comparative terms are the 10% with the second highest incomes.
That’s not surprising, because about 40% of this income tax cut is going to people on above-average incomes – while benefits are being cut in real terms. If you talk about “fairness”, expect to be reminded about what’s really happening.
>You don’t have time to read this right now because you are on your way to …
Spend time with my family.
I wonder how many of those that turn up to the day of action actually pay any personal tax …
Chris – I don’t see how you can doubt it and at the same time refer to the IFS figures that prove it.
On the IFS figures, can I suggest looking at the breakdown by expenditure deciles (as opposed to income deciles). This shows a progressive effect at all levels, and is uncorrupted by people with lots of money to spend who just don’t happen to be earning it right now (as the IFS explains).
And remember the IFS report is about the effects of the tax system and the benefit system combined. My claim here is about the tax system alone.
Clearly the welfare budget has to take its share of the pain of austerity – I’ve seen nobody advocate an alternative fiscal plan where they find all the money without touching welfare – and this will make things more difficult for many people. But the tax system is clearly getting fairer and this also reduces the burden on the welfare system.
If you think there is a fairer alternative to be had, do lets hear it. I’d be very surprised if it doesn’t, as a start, involve a tax system that is fairer than that supported by previous Labour or Tory governments.
Joe
“I don’t see how you can doubt it and at the same time refer to the IFS figures that prove it.”
In what way do you think the IFS figures “prove” the claim you made? Please indicate what figures you’re referring to.
On the IFS figures, can I suggest looking at the breakdown by expenditure deciles (as opposed to income deciles). This shows a progressive effect at all levels …
Again, please can you back this up? The IFS figures I’m talking about are in this report on the Autumn Statement:
http://www.ifs.org.uk/conferences/PTAB_SA.pdf
As far as I can see that doesn’t include any analysis based on classifying households by expenditure. Some of the Treasury’s analysis does do that, but the graphs I can see for the Autumn Statement show anything but a “progressive effect at all levels”. Where are you getting this from?
As for separating tax changes from benefit changes, that was my whole point. Both of them affect people’s income, so it’s completely misleading to look at tax in isolation.
We had an excellent response to our Fairer Taxes leafleting in Southport Town Centre today, despite the mizzle and the cold.
Chris,
Although it is an older document there are expenditure deciles here: http://www.ifs.org.uk/bns/bn108.pdf
On the wider point, I don’t agree that it is misleading to make the tax system fairer, and then say that we have made the tax system fairer and are campaigning to make it fairer still.
Making the tax system fairer is a good thing to do and can be done in a revenue neutral way (though I’m not claiming that it is in this case) at any point in the economic cycle. A reforming government will do this whenever one is elected, particularly if there hasn’t been a similar reforming government for a very long time.
On the other hand, restraining growth in the welfare bill is something that governments of any colour must do when the public finances are dangerously unhealthy. And if you dislike that as much as I do, you should attach blame to whoever made the public finances so unhealthy in the first place.
One is right, the other is necessary. Whether you count them as part of the same bigger system or not. If you have a better alternative on welfare, let’s hear it. But whatever it is, I don’t see how it is an argument against fairer taxes.
“Although it is an older document there are expenditure deciles here: http://www.ifs.org.uk/bns/bn108.pdf”
That document is three years old. Is that really what you were referring to above?
@Joe Otten:
“I don’t see how it is an argument against fairer taxes.”
It isn’t. These people are just cross because they don’t want to believe the Lib Dems want Fair Taxes and the only party they want to support, they know didn’t do anything income distribution during 13 years of government and they don’t really believe has any genuine interest in the subject today.
Joe
My questions about the evidence for your claims weren’t rhetorical, by the way.
There’s very little point in trying to discuss any of this if the discussions aren’t going to be based on accurate information.
Chris, yes that report was an older one. By all means bring better data to the table.
But this only tangential to my point, which is about fairer taxes, rather than the effects of Labour’s deficit. If you are happy with fairer taxes, let’s leave it there.
Joe
“Chris, yes that report was an older one. By all means bring better data to the table.”
As you know, I have already linked to the IFS data I’m using, which show that the effects of this government’s tax and benefit changes are regressive, so far as the lower-earning 90% are concerned.
You claimed that the IFS had carried out another analysis that gave a different result. Please can you clarify what you were referring to? Were you thinking of that three-year-old IFS report, or what? (Not that even that report bears out your claim, as far as I can see.)
You also claimed that there were some IFS figures which showed that the tax cuts were being funded from additional taxes on “the better off”. Please can you explain what figures you meant?
Chris your charts show a big extra take from the top decile. I am saying this pays for fairer taxes at the other end. Of course all revenue and borrowing goes into a big pot and all spending comes out of it, and you can link things in different ways if you want. However in the context of a reform of the tax system to make it fairer, charging the better off more and the worse off less, I think it is quite fair to say that the one is paying for the other. Furthermore, the campaign going forward explicitly includes the mansion tax to pay for further increases in the personal allowance. (Which answers your original question.)
I’m not claiming a difference in result from different IFS analyses, though clearly they will change over time, rather that those which include expenditure deciles are more informative.
There is no suggestion here that a fair tax policy can undo all the damage that a £150bn deficit will inevitably cause. You are effectively saying ‘but what about welfare?’ Indeed, it is an important issue. But that’s not really a response to anything I am saying.
Joe
I’ll try once more.
When you wrote “On the IFS figures, can I suggest looking at the breakdown by expenditure deciles (as opposed to income deciles). This shows a progressive effect at all levels …” what was the basis for that claim?
And you say that the “extra take” from the top income decile pays for the tax cuts for the remainder. Where are the figures to show that? (Obviously you can’t tell just by looking at the chart.)
Chris, I’m not playing this game. Clearly whatever I say you will pick on some detail and demand more.
If you have a differing view present it, but I am not going to writ e your rebuttals for you.
“Chris, I’m not playing this game. Clearly whatever I say you will pick on some detail and demand more.”
Joe, I’m not playing a game. I’m trying to get at the facts that are necessary for a sensible discussion of this issue. I am simply asking you (politely!) to provide a link to the IFS breakdown by expenditure which you referred to in your comment, which you claimed “shows a progressive effect at all levels”.
The reason I’m asking is that I don’t believe any way of analysing the data would show that, because the IFS analysis by income shows a regressive effect across all deciles except the very highest. It’s not a “game” or a debating point. The way in which the government has shared out the burden of reducing the deficit is probably the single most important political issue for me, and I know from other people’s comments that I’m not alone in that.
So please respond. And if you say it was an honest mistake, I’m happy to let it rest there. But it’s important to get the facts right.
I agree with Chris that claims and figures should be substantiated and if they are not, the argument is lost, Joe.
Chris, as always there may be more up to date figures than those I linked to (page 9 in particular), but I haven’t seen them. I would expect more up to date figures to have moved a little in one direction or the other. If you have them, link to them. If you haven’t, on what basis are you disputing the older figures? At the very least you could look at the difference between the various ways of calculating the progressive/regressive effects of policy in the paper I linked to, and guesstimate the effect on a more recent version of one of the charts by applying those differences to it.
But anyway this is tangential to the point – I made this reference to be helpful, not because your point about tax-and-benefit effects was relevant to the argument you were making against my point on the tax system alone. (With hindsight, being helpful is a bad idea in some kinds of argument.)
However I entirely take the point regarding the importance of “The way in which the government has shared out the burden of reducing the deficit”<.i>. This merits a post of its own rather than being tacked on to something about fairer taxes.
But can I ask you what your baseline for comparison is? And how do you disentangle the effect of there being less money to spend period, from the effects of the particular choices of where spending cuts or tax rises should fall within that umbrella? (Clearly the government is responsible for the latter, whereas the former is a fact on the ground for which we can attribute blame to Labour, the banks, bad luck or whatever if we want to get sidetracked.)
It’s not at all obvious what a good baseline is. Clearly a poorer country has less to spend on public services and welfare than a richer one has. Do you therefore judge the government of the poorer country as being less interested in fairness?
If GDP goes down, do taxes have to go up whatever it takes to maintain welfare and services? If so, the corollary would seem to be that when GDP goes up, it is OK for taxes to fall and for welfare and services to stagnate.
Joe
OK. From that, it seems clear that you don’t know of any evidence for the claim you made. Although you don’t seem to want to admit it was a mistake, I’ll err on the side of generosity and assume it was.
In the circumstances I’m afraid I don’t want to waste more time on this, but I will briefly say:
(1) I have already linked to the IFS’s up-to-date assessment. The IFS appears to have given up presenting things in terms of expenditure deciles – quite rightly in my opinion.
(2) The ‘baseline’ the IFS is using is perfectly straightforward – the effect of tax and benefit changes announced by the present government.
(3) The three-year-old paper you referred to was mostly presenting measures that were a combination of those already announced by the previous government and those announced by Osborne in his first budget – and obviously it doesn’t include anything announced subsequently. The chart you refer to on page 9 is showing such a combination – not just the effects of this government’s changes. And I can’t even understand why you think that chart shows a progressive effect. If you are suggesting that expenditure is the appropriate determinant, then the green line showing the effect as a percentage of expenditure is presumably the one to look at, and that shows a horribly regressive effect. Even the black line showing the effect as a percentage of income (which seems quite inconsistent with the classification according to expenditure) isn’t consistently progressive – you can see it goes up and down.