LibLink: David Laws – Tax cuts for the rich can wait. Tax reform can’t

In today’s Times, David Laws, Liberal Democrat MP for Yeovil and former Chief Secretary to the Treasury , argues that the coalition must live with increased taxes on the rich as part of its deficit-reduction programme, but that reforming Britain’s complex and unfair tax system must be undertaken in earnest. Here’s an excerpt:

Under the last Labour Government tax policy was characterised, in the words of the Institute for Fiscal Studies, by “drift, punctuated by poorly thought-out changes”. A 10p in the pound rate of income tax was introduced and abolished. National insurance changes were made for political, not economic, reasons. Capital gains tax was changed backwards and forwards. And recent, incoherent changes to income tax mean that people face marginal tax rates of 60 per cent in incomes between £100,000 and £114,950, but 40 per cent just above and below this.

This flawed system has real economic costs: disincentives to work and save, more expensive compliance and greater avoidance and evasion.

The Government has set out a long-term agenda on welfare reform, education and deficit reduction, and it makes sense to do this for taxation, too. The recent Mirrlees Review offers some useful signposts for reform. Corporate taxation, environmental taxation and the taxation of savings and income are all ripe for reform.

Of course, the Chancellor already has an important medium-term tax objective. This is to raise the tax-free personal allowance to £10,000 — helping people on low and middle incomes. The first £1,000 instalment of this policy will take effect this April. After that, further progress will be made as soon as it can be afforded. Quite sensibly, the gains from this bold — and therefore costly — policy are being focused on people on low and middle incomes, so the starting point for the 40 per cent tax band has been adjusted so those on higher incomes do not gain. In tough times, you have to take tough decisions.

Achieving the £10,000 personal allowance is the coalition’s tax priority. It is right that it should take precedence over other desirable reforms, such as getting rid of the 50 per cent rate of income tax.

You can read David’s article in full here (£).

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29 Comments

  • Yet more evidence, if it were needed, of what the Coalition has lost by Laws’ absence.

  • Poppie's mum 7th Feb '11 - 5:33pm

    [email protected]

    You mean someone who by his own admission contravened rules on claiming tax payer funded expenses ?

  • Poppie’s Mum. I’m not going over the ground of Laws’ removal (and in any case, he claimed less in the arrangement he had than he could have claimed quite legitimately if his relationship was open).

    I am merely lamenting the absence of one of the most progressive Liberal thinkers in the party.

  • Living in hope 7th Feb '11 - 6:08pm

    I agree with Tabman.

  • I also agree with Tabman

  • I agree with Tabman, too.

  • OMG I’m agreeing with Tabman! someone pass the whiskey quick 😉

  • steve wilson 7th Feb '11 - 6:35pm

    I agree with Poppie’s mum

    The fact you can do what Laws did and still get published by a national newspaper (especially on financial matters affecting other people) is a step too far for me, but utterly unsurprising.

  • All above – aw shucks 😉

    Steve Wilson – what did Laws do? And what did plenty of Labour politicians do who seem to have no issue with being published?

  • Two issues here

    1) Expenses – Laws should not have felt the need to resign over what he did. Apologise, sure. Leaving aside that he claimed less than he could have claimed quite within his rights, his case shows just how close the story over expenses has come to a witch hunt. Privacy does have a meaning – and I don’t even like the bloke.

    2) Tax system – It is strange that Council Tax does not seem to get a mention. £10k allowances are well and good, but I have a nagging suspicion that it is not the winner some think it is, not least put next to VAT. Hope I’m wrong. Anyone know if the tories are still on about a flat tax?

  • @Tabman. “I’m not going over the ground of Laws’ removal” Why not? Could it be because Mr Laws’ behaviour (along with Tory and Labour politicians) fell short of total honesty? If this is the case then don’t refuse to talk about it – tell it as it is (or was).

  • I agree with Duncan (on point one).

    Re point 2, AIUI anyone on a low enough wage for who the £10k threshold would make a significant difference is likely to be in receipt of Council Tax benefit. Which isn’t to say that Council Tax needs a radical overhall.

  • Ed Shepherd 8th Feb '11 - 8:47am

    The £10k tax threshold is a very sensible policy that will help people on lower incomes. Sadly, I think the benefits from it may be matched or even outweighed by the VAT increase which has hit the spending of the poor and made our lives more expnsive.

  • Nick (not Clegg) 8th Feb '11 - 9:17am

    To all those who want to see Laws back in the Cabinet, which LibDem would you like to see leave to make room for him?

  • I see no Iceberg 8th Feb '11 - 11:09am

    @Nick (not Clegg)

    I agree with it being Nick.

    😉

  • What is all this love for Laws? Have the LibDem’s lost there way so much they’ll support a hard right ex-banker (JP Morgan) is now *the* progressive voice of Liberal UK?! You guys do realise this whole tax thing is a movement towards a flat tax, right? With mental prowess like this, no wonder you guys are now shafting us with the Tories.

    I used to carry my LibDem card with pride, I’m so very pleased that I ripped it up & returned it. This was a very long time ago. You’re just a bunch of third-rate Conservatives.

  • nx – “What is all this love for Laws? Have the LibDem’s lost there way so much they’ll support a hard right ex-banker (JP Morgan) is now *the* progressive voice of Liberal UK?! You guys do realise this whole tax thing is a movement towards a flat tax, right? With mental prowess like this, no wonder you guys are now shafting us with the Tories.”

    Its precisely because His Lawsness is a former banker that we love him. Someone with experience in the heat of the financial furnace.

    Banker becomes Tory – dog bites man
    Banker becomes Liberal – man bites dog.

  • richard heathcote 8th Feb '11 - 2:59pm

    i fail to see how he could have claimed more expenses legitimately his partner had a property in London why should the tax payer have paid for that with or without disclosure of the relationship. this 2nd home rubbish is a joke its exploited and making rich people more wealth, im sure it would be cheaper to put mps up in hotels if they have buisness to attend to in London, most other buisnesses operate this way for working away from home. id even be happy to pay travel expenses for them at a typical rate most employers pay.

  • steve wilson 8th Feb '11 - 4:16pm

    What did Laws do?

    He claimed £40,000 of taxpayers money that he should not have claimed.

    You cannot claim on ‘expenses’ to pay rent to your partner.

    @Tabman: The fact that you quote Labour people doing similar things is quite correct. They should also face the music. “He did it too” is an ‘excuse’ I hear all day long at school. Of course, it is no excuse at all.

  • richard heathcote 9th Feb '11 - 2:23pm

    increasing your tax allowance by £1000 doesnt give you an extra £1000 in your pocket it means you dont pay tax on that additional allowance which works out an extra £250 or so whatever the rate of tax is. so the ammount of extra money people will gain £5 a week roughly will more than be taken in increasing fuel and living costs.

    so yes doing the maths shows its going to make not an awful lot of difference to people

  • richard heathcote 11th Feb '11 - 12:49pm

    actually its an increase of £3525 pounds on the current tax code which will work out at a saving of about £13 a week in 5 years time. i can tell you now my costs have increased by more than that ammount over the last 6 months even before vat rises come into effect. the extra £13 a week wont even cover the increases in my car fuel never mind increases in gas electricity the cost of food. i know food is exempt but the transport costs arent and this is unfortunately added to the cost of food on shelves. the promise of an extra £13 a week in 5 years time isnt really going to help when inflation is running at current levels either. im sorry but the 10K tax band is good but its no where near going to compensate for the increases in cost of living

  • Once again there is an argument about Laws,he did claim £40,000, it was against the rules, yes others have done it,but it is still a claim he should not have made as it was disallowed. There is now an inquiry taking place about his actions. He did claim the money, no excuse he should resign and be prosecuted, along with all the others doing likewise. Otherwise the whole system comes into disrepute and why should we not follow suit??

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