The Guardian reports on the growing rebellion among Labour MPs as the full impact of the removal of the 10% tax band in last year’s budget becomes clear:
In what were described as tense exchanges, the prime minister was challenged over the issues when he addressed backbenchers in private at the regular meeting of the parliamentary Labour party this week.
Now 26 Labour MPs, including former ministers Janet Anderson and Gisela Stuart, have signed an early day motion saying the tax changes will have “a disproportionate impact on people who can ill afford to be made worse off”.
An IFS economist, quoted in the same article, says that of the 5 million households who will lose out by the changes, “a fairly large number” will not be compensated for the losses in the form of tax credits.
People earning below about £18,000 will see their take-home pay decrease from next week.
UPDATE: And it’s a double whammy of dismay as licensing minister Gerry Sutcliffe says the publican trade is “right to be upset” by the recent budget’s increases on alcohol taxes.
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22 Comments
There was some Labour MP on the World at One saying they hadn’t realised at the time what the effects would be, but they had become clearer over time.
Clearly they weren’t listening to the debate, as it was pretty clear to David Laws during the then chancellor’s speech!
I should also have added this “I told you so” from Vince Cable last year:
http://www.libdems.org.uk/economy/younger-workers-clobbered-by-budget-cable.12273.html
What a pity we don’t have a tax policy that would reverse Labour’s disgraceful attack on the low paid – particularly young, single workers. On the other hand, what an opportunity for us… if only we could think of a way of taxing the unearned wealth of the property-rich “haves” so removing minimum wage earning “have-nots” from paying tax on their productive contribution to the economy altogether – taxing wealth, not work…
Far too difficult I expect; it would probably take a hundred years to come up with something that practical, progressive and popular.
Er, Andrew, we do. Apart from LVT, I mean. Let’s not cut off our nose, now!
I think not Alix. It is certainly one of our many “longer-term goals” to take those on NMW out of tax, but exactly how we do it has yet to be resolved. All I know is that wealth gap keeps on growing!
The wealth gap has bugger all to do with income tax.
Hmm, that was rather brief of me. I should clarify: disparities in wealth have very little to do with the present rates of income tax. Abolishing income tax on the poorest would not be a solution to wealth disparity. It would, of course, still be a very good thing, but it would not serve the purpose of closing the ‘wealth gap’, at least not at first.
I’m personally not at all concerned with the idea of ‘gaps’, and would rather care about people’s absolute level of welfare. For that reason, alleviating taxation on the poorest is very important and, as far as I am aware, party policy on this is well ahead of anything Labour are doing (admittedly, this isn’t hard given that Labour are essentially moving backwards on this issue).
Rob, the reason the “gaps” are important is because Homo Sapiens is a social creature of rank and status. The gaps between those ranks and statuses are a measure of how easy it is to traverse the gaps (social mobility), and therefore give indications to the various levels of society how much they may benefit by attempting to rise through the ranks and how much work that will take; or how comfortable their life may be if they stay where they are (quality of life).
It is natural and normal for social creatures of rank and status to examine where they are in the ranking scheme, and to make choices based on this. All other primates do it, as do other social mammals.
The problem comes when the “gaps” become so large that the masses start to doubt that they can ever have a chance to traverse a gap. It becomes clear at that point (to the masses), that those below the “gaps” are supporting those above them, without any possibility of enjoying the same in the future. In other words, it becomes clear that the game is played, but can no longer seriously be won. The rules are such that those winning will continue to win, always. At this stage, those below the gaps start aspire not to work to cross gaps (since it requires relatively too much work and will probably fail anyway), but for fantasy-style windfalls – like talent shows, winning lotteries, striking it rich, and other instantaneous ways of crossing the “gaps”.
This is why “relative poverty” is important, as well as absolute poverty. Homo Sapiens lives in a society where the rules of fairness need to operate. Otherwise, why bother with society? As the gaps grow, Homo Sapiens asks: why continue to play the game? When the rules are so obviously unfair, why stick to them? At this point social cohesion starts to break down. A “Robin Hood” mentality spreads, that the “rich” are something other, and that what they have was unfairly taken and therefore can be taken back (i.e. stolen) without shame. In extreme circumstances, revolution becomes possible.
Research shows that people are much more likely to be contented by being relatively rich than by being absolutely rich; i.e. where you fit in the ranking is very important. We can try to pretend that people aren’t so shallow; that we are all very egalitarian and don’t care about how rich our neighbours are; and that’s fine on an individual level because it doesn’t matter if we put our head in the sand individually. But it’s a very silly thing to do on a national scale. Ignoring human nature at the national level (e.g. Communism) is asking for big trouble.
Speak for yourself! I, personally, really do not care about how much money other people earn or how much wealth they have. Maybe I am genuinely weird, but I just can’t get exercised about it. I’m not just saying this to be awkward – I genuinely don’t care. And this creates a problem if you’re trying to justify a policy based on how ‘Homo Sapiens’ thinks – I’m a Homo Sapiens and I don’t think like that. Of course, I don’t think that policy should be arranged to my convenience, but I can’t help but be a little bit confused about the notion that everyone is apparently so upset over what everyone else is earning when I’m not (and, for the record, I earn somewhere below the median salary and am nowhere near owning a house).
‘The masses’ – do you include yourself here? You refer to ‘the masses’, ‘Homo Sapiens’ and ‘people’ and claim to know what’s in their best interests. You might be right, but it all sounds a little odd to me.
So, a reduction of the gap won’t help, right? Because there will still be someone at the top and someone at the bottom, even if the gap between the two is smaller. Seriously, I think that a far more important consideration is the material wellbeing of the poorest in society, rather than worrying about whether the people with £1m of assets are unable to catch up to the people with £10m of assets.
I know plenty of people who have grown up in poor circumstances and who have simply adopted a positive, pro-active attitude in their own lives and have been happy as a result. They don’t worry about what other people have got, and as a result they’re more satisfied with their own achievements. Surely this is what we want to see more of?
Now, before this begins to look like more of a disagreement than it really is, I’ll make my usual prediction which is that we probably agree on a whole lot of things and that our disagreement here is more about the ‘feel’ of an argument than the substance. I don’t like justifying policy on the basis that certain outcomes might upset some people; I place more value on having fair rules that apply to everyone, without any room for arbitrary complaint about how well others are doing. But for this to work, those rules must be fair, and the present ones are not. So, we probably agree on that. I’d just like to get to a point where arguments like yours aren’t heard any more, because everyone accepts the fairness of the system. If someone fairly achieves more than others, there should be no room for complaint.
I must agree that I don’t know why removing NMW workers from tax altogether wasn’t built into the 2007 package, just as I don’t know why regressive NIC rates weren’t tackled or why either of these things were lower down the list of priorities than raising the 40% threshold to £50k. I think in particular we may get outgunned by the Tories on NMW if we’re not careful – it seems logical to me to tackle IHT to deal with it. Or, back in reality, Vince’s recent noises about non-doms could be brought to bear.
But it’s daft to see this in terms of absolutes – we’re not making the NMW tax-free THEREFORE we don’t have a tax policy. The fact is, we would still reverse the recent 10p band decision (all the way back to zero) and drop the basic rate to 18p, or 16p with Local Income Tax. And this is costed to come partly from removal of relief on capital gains tax. The shift from taxing income to wealth is aided by the current measures.
So while I can sympathise with the position of LVT eggs who say we should stop all this fiddling around and just go for LVT, it’s contrary to imply, as you do, that no difference would be made by what we’ve already got. I echo Rob here – I’ve lived on the monthly equivalent of the minimum wage and frankly I was far more concerned with whether I had enough food than whether I could afford the same consumer goods as my peers. Concern with contrasting standards of living comes *after* basic subsistence has been achieved – Layard shows that. And the current tax package works towards basic subsistence for millions of people.
“ABOLITION OF THE TEN PENCE TAX RATE02.04.2008
Pope, Greg
The Status of this EDM is Suspended.
”
I wonder for why….
Ha, took the words out of my keyboard. I’ve just seen this:
http://www.guardian.co.uk/politics/2008/apr/04/taxandspending.gordonbrown
Apparently ministers are going to reconsider the impact of the 10p decision “especially on pensioners aged 60-65”.
So if you’re young, poor and childless you can still go screw yourself, seemingly. I predict an obscenely over-complicated NuLab tax credits style solution which will cost more to implement than it will actually give out…
“So if you’re young, poor and childless you can still go screw yourself, seemingly.”
Which is why so many people are living with their parents! If I hadn’t had the good fortune to get a council tenancy I’d definitely be one of them. I think people in their 20s are more intelligent and better educated than any generation we’ve ever had, but their/our prospects are worse than those of their/our parents and grandparents!
Mark is right and has put it much better than I will. Objectively a person on benefits in a one bedroom flat in a Tower block in Leeds is “wealthier” than henry the 8th was. Think about the electricity, central heating, calorie intake, TV, radion, libraries, internet access, health care, life spane etc.
But I doubt they feel it. There is ample evidence that the most unequal societies are the most violent, crime ridden, mentally and socially stressed. WE are social animals and the gap between extremes and how easy it is to travel in that gap is enormously important to self esteem and any sense of social contract.
Its the biggest contradiction in my liberalism. All my instincts are to say set a fair playing field and let everyone get on with it and if david becjham does the best then so be it. But the disparities are no so extreme that some sort of intervention is necessery.
Thats why (puts tin hat on and runs for cover) I have always been quite sympathetic to the Baby Bond scheme. Yes some people will blow it all on gas/booze/coke/a month in Ibiza but it is at least a genuine attempt to address asset inequality.
“Its the biggest contradiction in my liberalism.”
We-ell, yes and no, it’s Liberal Democrat liberalism isn’t it: “…in which we seek to balance the fundamental values of liberty, equality and community”
That contradiction is, to me, a necessary part of liberalism in a civilised world. In fact we should probably even stop thinking of it as a contradiction, which is what a right wing shouty plonker or a left wing grim control freak would think, because they believe that nothing that’s not dead simple can possibly be right. We’re only stuck with the idea of its being a “contradiction” because we can perceive much greater complexity in abstract systems than we can ever express in a language that basically developed to facilitate the manufacture of stone-working tools.
Hm. Anyway.
Well Yes and No. I’d love the social outcomes of the Nordics its just I can’t quite bring myself to support the levels of tax to pay for it. We are after all confiscating personal property (income) on pain of inprisionment. I’ve always struggled slightly with that part of the preamble because I suspect the price of complete liberty will always be some inequality. And forced to choose between liberty and equality I’d pick liberty because I don’t trust the state.
God i’m not normally this Philosophical.
I don’t object to inequality so long as there is social mobility (that requires more equality of opportunity than we have now). Anyone who imagines we live in a meritocracy is deluded. Not under clunking fist, we don’t!
Is the wealth gap really used as a measurement of social mobility? Must confess – I’ve never known how social mobility’s measured but assumed it to be an attempted measure of to what extent people move around the financial ranks (rather than just how big the gaps are between the ranks). Ie. if I’m born on a council estate in Peckham, what chance that 30 years later I can own a house in Blackheath (irrespective of how much more money I’ll need in Blackheath than Peckham)?
Also, the measurement of wealth gaps is of interest; when these supposedly massive increases are cited, are they based on measures of the lowest wealth vs the very highest? Presumably not, and there are more sophisticated means of measuring dispersions. To use another quick example: if I’m earning £17k, it may affect me if a lot of people around me are earning £80k, £100k, £150k and so on, swanning around in their BMWs whilst I scrape by – but frankly I’m not going to care that Lewis Hamilton, at the extreme, earns whatever billion it is per annum as this simply doesn’t affect me.
Maybe some smart soul like Mr Knight can cure my ignorance.
Julian, isnt it self-evident that the bigger the gap between states the harder it is to transition from the lower state to the higher state? This is a principle of physics, which is surely reflected in the real world.
Regarding BMWs and Lewis Hamilton, yes clearly what matters is what people see during their everyday lives. What is probably more significant to people is not the bloke down the road with a nice car, but the comparison made by people who live on the decaying Council sink-estate as they travel on the bus through the neighbouring suburb of fine Georgian Houses.
Many British cities have deprived areas cheek-by-jowl with wealthy areas. Those in the wealthy areas try not to look at the other estate, and hope the wind is blowing the right direction. Those in the deprived areas note that the police respond to calls much faster elsewhere, that graffiti is cleaned immediately when on a Georgian building; that all the local schools are crap, while over there they are excellent; that groups of drunk youths are never tolerated over there; that life expectancy is 15 years longer over there; etc…
Mark: “isnt it self-evident that the bigger the gap between states the harder it is to transition from the lower state to the higher state”
I wouldn’t suggest that there is unlikely to be any correlation between wealth gaps and social mobility, but these are two different variables and it’s not satisfactory to combine them on the assumption that there is direct causation and exact correlation between them.
My second point was made because there of course isn’t so simple a situation as a ‘lower state’ and a ‘higher state’ of financial class, rather there are many strata and thus the problem is not one of extremes (ie. getting from the very bottom to the very top) but movement (aka ‘social mobility’) within.
Your schools example is a good one and returns us to the fundamental issue as emphasised by Mr Clegg – better education to increase equality of opportunity. More school choice could see kids from the council estate attending the neighbouring schools that were previously only available to the plush postcodes surrounding those schools.
“Apparently ministers are going to reconsider the impact of the 10p decision “especially on pensioners aged 60-65″.
So if you’re young, poor and childless you can still go screw yourself, seemingly.”
One of those groups votes, the other doesn’t – hence government policy favours those who vote.
It would also be fair to say that there are a lot of very comfortably off people in the 60-65 age bracket (and maybe a bit higher) who benefitted from high stock market growth, decent annuity rates, the rise in property prices and the wider provision of final salary pension schemes which were much more amenable to early retirement a few years ago.