Jeremy Browne questions wisdom of ratchet effect on tax cuts while the deficit remains so high

Jeremy BrowneThe Huffington Post reports some interesting comments by Jeremy Browne, Lib Dem MP for Taunton Deane and former foreign and home office minister. Browne expresses reservations over campaigns to raise the threshold further as a method of seeking to attract credit for the policy, suggesting that the Lib Dems should do so by reminding voters of the substantial increase that has already taken place.

Here’s an excerpt from the piece:

A former Lib Dem minister has criticised Nick Clegg’s flagship policy of pushing to increase the amount of money people can earn before the pay income tax.

Jeremy Browne, who served as a coalition Foreign Office minister and Home Office minister, said the Lib Dems should be careful not to message to voters there was “money to splash around” given the size of the deficit.

“I think the government needs to make sure it explains the necessity of deficit reduction with absolute clarity,” he said on Wednesday. “The headline delivery point will be arrival of the £10,000 exemption from next month.”

“I wonder then where the government will go,” he said. “The Lib Dems are very keen to make sure everyone understands this is a policy stamped with a Lib Dem ownership mark, but the Tories are keen to usurp the ownership of that.”

“As a result there is a tendency within government, between the two governing parties, to keep knocking it up another £500 every Budget just to keep try and stay ahead of the race.”

Browne, who was unexpectedly reshuffled out of government by Clegg in October last year, told a pre-Budget event hosted by Policy Exchange that while he supported the £10,000 threshold, raising it higher would “cost a large amount of money”.

“Maybe the government could be better placed to realise how much money has already been given away through this policy, rather than working on the assumption we need to keep giving away large amounts before people will start to notice,” he said.

There are more quotes from Jeremy at the Huffington Post.

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  • Geoffrey Payne 13th Mar '14 - 1:14pm

    I have some sympathy for this point of view. Raising tax thresholds will not benefit those on low incomes who are not paying tax already of which there is a larger number these days. They are the ones that need more money in their pockets. And for the policy to be affordable then more cuts are needed elsewhere, and again it is those on the lowest incomes who will lose out. For raising tax thresholds to be a progressive policy it needs to be part of a package of policies that can iron out the inconsistencies. It is bazarre to claim you are progressive supporting this policy, but support benefits cuts to people on low incomes at the same time.

  • Eddie Sammon 13th Mar '14 - 1:20pm

    I agree with Jeremy here, even though I disagreed with his speech at conference (watched on Youtube).

  • There’s some logic to his argument but I think there’s one big counter argument:

    The Lib Dems will have major “trust” issues at the next election. Every manifesto promise will be countered with “why should we believe you? Broken promises… Tuition fees etc.” Having the flagship manifesto policy being a continuation of arguably the party’s greatest achievement over the past 5 years goes some way to reducing that problem. For raising the tax allowance, the answer to “why should we believe you?” is easily answered by “look at our record. We’ve done it every year for the last 5 years, vote for us and we’ll do it again for the next 5 years.”

  • Bill le Breton 13th Mar '14 - 2:28pm

    Ffhfhffh, that indeed is the logic, the campaigning logic, and Browne knows it and his along with many of his colleagues’ re-election probably depends on it, but nevertheless he wants to bolster his reputation as a deficit hawk. Politics – funny old game.

  • Nik Porteous 13th Mar '14 - 2:39pm

    Rather than arbitrary giveaways as pre-election sweeteners, I would much prefer a simple mechanism to be legislated whereby NMW and the personal tax allowance is linked to inflation. Inflation i.s 2%, personal allowance rises 2% the following year.

  • With a minimum wage, full time earnings might be around £13 000, so there is still scope for raising the threshhold. Raising the threshhold does much more for the lower paid than reducing the base rate of income tax or raising the 40% threshhold.

    Although people are bound to look at how the raised threshold affects them personally, this policy is all about removing disincentives to work and getting away from the dependency trap, which is where Labour’s policies were going wrong.

  • Stuart Mitchell 13th Mar '14 - 6:44pm

    “Maybe the government could be better placed to realise how much money has already been given away through this policy”

    Of course the government has not “given away” a single penny through this policy. It has simply taken less of people’s money via income tax (while of course taking plenty more through other taxes).

    An another pedantic note, this article has not really got anything to do with a “ratchet effect”.

  • Geoffrey Payne

    “I have some sympathy for this point of view. Raising tax thresholds will not benefit those on low incomes who are not paying tax already of which there is a larger number these days.”

    There is some truth in that, however the low paid shouldn’t be seen as a static group. It is conceivable that someone paid £7,000 this year could be paid £12,000 a couple of years later so the marginal rate of tax for them would matter to them a great deal.

    This should of course is why the rate of benefit loss should be given a higher profile than it is as that also has a massive effect on the low paid as they move up and down the earnings scales (which at that level can be huge %).

    NI is another under considered issue as it hits the low paid who have erratic earnings.

  • I agree with Jeremy Browne – £10k is a good level to have reached and gives us enough to say we have delivered our promise. Simply bunging more money at this does not seme to be the best way to go. Either spend any “spare” money more astutely (e.g. cut NICs for the U25s to try to get youth unemployment down) or make fewer painful cuts to essential services or pay off the deficit a bit sooner!

  • Stuart Mitchell 16th Mar '14 - 11:18am


    It’s worth remembering that the Tories gave up their plan to cut NI payments (or rather, cancel planned increases) specifically to finance the first tranche of the allowance increase.

    It’s pretty clear that an NI cut now would be a more effective means of helping the very low paid than another increase in the allowance (since many low-paid workers pay no income tax but still pay NI). If the Lib Dems are really bothered about targeting the low paid, then they should give this some serious thought – or is it just a case that they wouldn’t want to be seen to be ditching *their* policy for a “Tory” policy?

  • >It’s pretty clear that an NI cut now would be a more effective means of helping the very low paid
    disagree, the most effective way to help the low paid is to shake up tax credits and universal benefits so that they are fit for purpose and that a person has only to complete a single annual tax return (to HMRC) to receive their full entitlement.

  • Stuart & Roland

    Raising the NI threshold (also attaching it to an annual amount not weekly) are important improvements along with addressing the marginal rate of benefit withdrawal.

    That doesn’t mean that raising the tax threshold to a sensible level (minimum wage) isn’t important.

    I think the real reason Income Tax is being prioritised is that it has momentum right now. Better to get a sensible principle of when Income Tax cuts in established then work on re-arranging the other thresholds to match.

    In a perfect world it would not matter which was done first but the reality is that it does so the order is probably due to an intended order to try and prevent future governments gradually bring more at the poorer end of the spectrum in to paying more.

  • Stuart Mitchell 18th Mar '14 - 7:42pm

    I did say “more” effective, not “most” effective. I agree with you about tax credits. Again, the coalition used some of the savings from cutting tax credits to help fund the allowance increase. Four years on, we’re told that the government is now to give large tax rebates to couples earning £300K. This seems like an odd way of targeting hard-pressed families.

    I don’t agree that ANY increase in the threshold is justified now, since it won’t help people at the bottom but will help people in the middle. The government’s budget impact statements make it pretty clear that those in the middle/upper-middle have been the only real gainers from coalition fiscal policy so far. So why are the Lib Dems going around claiming they are targeting help at the worse off?

  • Stuart

    Someone earning 11000 or 12000 is not “in the middle.” That would be 26k more than double that figure.

    It is not enough alone, the NI rate and the benefit withdrawal rate need to be addressed but the tax free threshold matters.

  • Stuart Mitchell 19th Mar '14 - 10:35am

    “Someone earning 11000 or 12000 is not ‘in the middle.'”

    Of course, which is why I never said that. I said that a further allowance increase would benefit those in the middle but not those at the bottom – which is true.

  • The simple fact is that politicians could, if they so wished, take everyone earning less than £12,500 (or whatever) out of income tax without splashing out billions and billions of pounds on tax cuts for those on middle and higher incomes. They could introduce a tapered rate of income tax between (say) £12,500 and (say) £20,000.

    I suggest the reason they (or at least the lot that are in power at the moment) don’t do it is not because they are averse from over-complicating the tax system – who works out their tax payments with pencil and paper in this day and age? – but because the middle class is their main electoral target, and they rather like the idea of dressing up a middle-class tax cut as a way of taking the low-paid out of tax.

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