Ed Miliband’s speech on tax the other day sparked bemusement amongst Liberal Democrats. For years, Labour have passed off the Liberal Democrats as the sellout Spawn of Satan and here they were embracing Vince Cable’s Mansion Tax and trying to make out that they knew how to make the tax system fairer.
Amongst those bemused Liberal Democrats is Chief Secretary to the Treasury Danny Alexander, the man who has given 23 million people a tax cut by raising the threshold at which they start to pay tax. For the tax year beginning in April, this will amount to £600 being cut from every basic rate taxpayer’s bill.
Danny has asserted the Liberal Democrat claim over the fair tax ground in today’s Guardian. First he reminded us all what life was like when Labour were in power:
When the two Eds were in government, there was no mansion tax, just scorn poured on the Lib Dems for suggesting it. Worse, there were loopholes galore in stamp duty, so the very wealthy avoided paying even that. Hedge fund managers paid a lower rate of tax than their cleaners. The top tax rate for 155 of the 156 months they were in office was 40p, not 50p or even 45p, as it will be from April. In fact, Lib Dems – in coalition with the Conservatives – have made sure that the wealthiest will pay more tax in every year of this government than they ever did when Labour governed on their own.
The hypocrisy of Labour’s position is most apparent on the issue of the 10p rate. Miliband and Balls knew when they supported its abolition that it would mean a tax rise for more than 10 million low-income workers. Balls was a Treasury minister at the time, Miliband a senior member of the government. To blame Gordon Brown for it, as they did this week, rather than offering a simple apology, just shows how little they understand why Labour lacks any economic credibility.
Danny signalled again that the Liberal Democrat aim beyond this Parliament is to raise the tax threshold beyond the minimum wage:
We will continue this in government until the first £10,000 you earn is tax free. I’d like us to go further after the election – with the goal that you don’t pay income tax until you earn more than the minimum wage. That is the sign of a fair tax party.
In government, Labour increased tax on low income households; in government the Lib Dems have led the largest programme of tax cuts for working people for a generation. If it’s fairer taxes you want, the Liberal Democrats are the real thing and Labour a pale imitation.
Oh, I almost forgot – he used that phrase again:
And now it is the Lib Dem idea of fairness that is shaping a better tax system for the future. It is why only the Lib Dems can deliver a stronger economy and a fairer society.
It’s the sort of robust, confident language you have every right to use if you have implemented the most prominent pledge on the front of your manifesto. You can read Danny’s whole article here. You can also sign up to support the Liberal Democrats’ campaign for fairer tax here.
* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings
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23 Comments
> We will continue this in government until the first £10,000 you earn is tax free. I’d like us to go further after the election – with the goal that you don’t pay income tax until you earn more than the minimum wage.
This is really crucial to emphasize. Labour is proposing a 10p tax rate for minimum wage earners. Lib Dems propose a 0p tax rate.
Why is raising the tax threshold “fair”?
@Peter – well obviously different people will have a different view of what is ‘fair’. In this context the Lib Dems believe that it is fairer to ask those on the highest incomes, or with the largest wealth, to contribute more, and those on lower incomes to contribute less, with the reduction in tax targeted particularly at those earning at minimum wage levels or below.
I also think most people would regard this as ‘fair’.
Some may not, and they’re probably not the Lib Dems’ target audience.
“with the reduction in tax targeted particularly at those earning at minimum wage levels or below.”
But it’s not targeted at them. It’s the same tax cut for all basic-rate taxpayers – except for those below the minimum wage who won’t get the full benefit.
If you ignored the latter it would be mildly progressive, but coupled as it is with real-terms cuts in benefits it’s not, in terms of its effects on the lower-paid.
@ Peter Watson.
“Why is raising the tax threshold “fair”?”
There is a minimum wage, and a living wage, which is slightly higher.
Why is it fair or even logical, for a government to take tax from someone, that they acknowledge has not attained the level of a living wage? Then said government, compounds the absurdity, by recycling their own taxes back to them in the form of benefits, to raise their income to something like ‘livable’.
How daft is that?
Far better to let them keep the first (say) £12,500, and cut the top-up benefits, plus also saving the associated cost of Benefits Agency bureaucracy, inherent in giving people their own money back.
Why do we only talk about tax in the context of income. There are other taxes you know and I am not sure this Government’ record can be considered particularly ‘fair’
Liberal Neil, well the rich have done pretty well with the cut in the top rate…..is not A,expander party to that as well as raising the threshold ( which incidentally helps some people but the poorest don’t pay income tax anyway)
@ BCrombie
The 50p tax rate raised virtually no money for the Treasury and may even have cost it some.
Under the Lib Dems, taxes on the rich are higher than they were under 99.4% of the time Labour were in power.
Not to mention the fact that Labour CUT capital gains tax for the rich from 40% to 18% – a massive reduction that enabled many rich people to drive a coach and horses through the tax system.
The Lib Dems sorted their mistake out for them by raising CGT back to 28%.
Labour’s actual record (rather than their public relations stance) on taxing the rich was dreadful.
@RC – but for most of the time Mrs Thatcher was PM the top rate of tax was 60p, so we could say taxes are lower than under Thatcher. The direction of travel is also important though.
Interesting that under her government reducing the top rate of tax was a lower priority than it has been under the government of people who always list her as someone they admire.
RC
The figures for the 50p rate are disputed but your statement of fact is not necessarily correct
http://www.guardian.co.uk/politics/reality-check-with-polly-curtis/2011/sep/07/reality-check-50p-tax-rate
What is known is that those who pay at 50p now will pay less in the future – the whole argument on the 50p tax not making money is based on a philosophical one about what people’s behaviour will be. Not a good argument in my view
I am not here to defend Labour but to put all the blame on them seems a bit silly – it was the Tories who started the move from taxation on income to VAT – you may say that is the right thing to do, taxing consumption, but it also hits those not earning the lowest.
I don’t think any party has a good record on taxation to be honest.
The changes to the benefits system are also a ‘tax’ on the low earners
Glad to see you acknowledge this is a LD Government – can we have a chat about privatisation of the NHS and education then without you saying ‘we only have a few MPs’
No wonder Matthew Huntbatch gets so frustrated………
@ Richard S
“The direction of travel is also important though.”
Too true.
For 99.4% of the time Labour were in power, the “direction of travel” of taxes for the rich was flat or declining. Using your argument, the fact that they raised the top rate a month before they were kicked out of office is an insignificant blip, and viewed over their whole term in office, not a trend.
@bazzasc
“What is known is that those who pay at 50p now will pay less in the future”
I think most of them will actually end up paying more.
@Simon Shaw I think most of them will actually end up paying more
I think you’re probably correct when you also consider some of the some tax changes. For example under Labour high earners could claim tax relief of up to £255,000 a year of pensions contributions so some one earning £1 million a year could protect more than 25% of their annual income from income tax. In the coming tax year that limit will be £40,000 the same person earning £1 million will only be able to protect 4% of their income from income tax.
If you do the calculation that’s an extra £215,000 taxed at 45% so an additional bill of £96,750. Of course there is the 5% saving on income over £150,000 which would save £42,500, but clearly the net impact on some one taking maximum advantage of pension tax relief is that they will be paying tens of thousands of pounds more next year than they would have had to pay under Labour.
@John Dunn & Liberal Neil
If everybody pays 10% of their income as tax, then someone on a low income pays less than someone on a high income. So why is it “fair” for someone to pay no tax, and somebody else to pay 20% or 40% of their income? Or for somebody earning a degree now to pay more through the tax system than somebody who graduated a couple of years or decades ago? Paying benefits with one hand and reclaiming tax with another might be inefficient but that does not mean it is unfair.
It strikes me that politicians and others bandy around words like “fair” or “rigorous” without defining those terms or explaining why their policies could be honestly described by them. How can any tax system be “fair” unless every tax payer is treated in exactly the same way? Why is Lib Dem tax policy “fairer” than Labour’s; how much “fairer” is it than Conservative policy?
Fair, fair, fair, fair, fair. According to Wikipedia, “Semantic satiation (also semantic saturation) is a psychological phenomenon in which repetition causes a word or phrase to temporarily lose meaning for the listener, who then processes the speech as repeated meaningless sounds.” That pretty much sums up how some of the discussion of Lib Dem “fair” taxation sounds to me.
Simon Shaw
And how does that work then – if they were paying at 50p tax then why will 45p tax cost them more? Are you suggesting they were hiding income and thus evading tax? Should be in prison as well then
What you suggest is that people who avoid or evade tax now will suddenly have an attack of conscience and start paying. This is unproven, based on the same shaky foundations as the Laffer curve.
If 45p raises more than 50p then why not 40p – where does it stop? Or is it perhaps just that proponents of this don’t care how much it raises, just that the rich don’t pay much…how low your party has fallen
Mark Inskip – you are right in your post but surely if you follow the Simon Shaw argument they will just cheat their way around it because they will never end up paying more – they just decide what they want to pay and then pay that.
The argument seems to be, a 50p tax rate causes the rich to evade/avoid tax so we have to reduce that to 45 p to encourage to pay tax – but then claim that they will pay more due to other changes. Why will they just not avoid that as well? Why not leave the 50p tax in place and at least that will catch the PAYE lot
@ Peter Watson
It still sounds daft, to take tax from someone who is on ‘less than a living wage’, only to process it through an unwieldy bureaucracy like the Benefits Agency, and then give it them back in credits and benefits,, so as to make them up to ‘a living wage’ again.
In fact the more you think about it, it’s an expensive, bureaucratic, and pointless exercise. Seems to make far more sense and ‘fairness’, to crank the Personal Allowance up to a living wage, and save taxpayers money from undue Benefits Agency ‘meddling’.
@bcrombie “Why not leave the 50p tax in place and at least that will catch the PAYE lot”
I think its pretty clear that the 50% to 45 % rate cut was a Tory move (though of course they would preferred it to go complete). Reducing tax relief on pension contributions for very high earners, increasing capital gains tax from Labour’s 18% to 28% for high earners and significantly increasing the personal allowance for low earners were driven by the Lib Dems and consistence with their manifesto commitments.
@bcrombie “Why not leave the 50p tax in place and at least that will catch the PAYE lot”
I think its pretty clear that the 50% to 45 % rate cut was a Tory move (though of course they would preferred it to go complete). Reducing tax relief on pension contributions for very high earners, increasing capital gains tax from Labour’s 18% to 28% for high earners and significantly increasing the personal allowance for low earners were driven by the Lib Dems and consistent with Lib Dem manifesto commitments.
i find this tax debate a strange business.
i am content that the top middle and bottom groups all pay roughly 30% of their income in tax.
however, there are two caveats on this:
1. i am horrified at the complexity and inefficiency necessary in order that we can say this
2. i abhor taxing people who can’t afford it and then giving it back in benefits, a client state is not a healthy thing for a democracy
it boils down to fairness………………. and how much you care about it.
i don’t very much.
i would far rather a greatly simplified tax system even if it means the rich end up paying a lesser percentage of their total income.
as far as i am concerned, they have already paid for their use of government services in teacher/doctor dollars, ten times over, a hundred times over, and this is what I consider to be tax for; paying for essential state services.
not as a tool of social engineering to reduce relative inequality.
One thing that seems to be lost in this is what happened to the previous 10% tax rate. LibDem policy at the time was to abolish it by lowering to 0%.
Gordon Brown “abolished” it by raising it to the standard rate – 20%!
Peter Watson
Why is raising the tax threshold “fair”?
because those who have higher incomes can pay accountants and lawyers to pay less than their fair share of tax.
jedi,
the reason you don’t care very much about the poor paying too much tax is twofold. First, because you are not in this category, and second, because you don’t see that when the poor pay too much tax richer groups have to pay more tax as a result.
If you, as a wealthier person, want to pay less tax, then the cheapest and most efficient way to do this is by making the poor pay less.
Furthermore, by reducing tax complexity, it frees up capacity in the private sector which is currently restricting growth – making everybody richer.
you put words in my mouth, and assume ill intention on the basis that i am wealthy.
i never said i didnt care if the poor paid too much tax, and in fact made mention that i dizapproved of taxing the poor only to pay it back in benefits.
likewise, you are struggling to accept our common position on the joy of a tax system adam smith would approve of.
i am really unsure where you are going with this……….?
@Oranjepan “Why is raising the tax threshold “fair”? because those who have higher incomes can pay accountants and lawyers to pay less than their fair share of tax.”
Surely you don’t mean everyone earning above the tax threshold can afford to pay accountants to pay less than their fair share of tax? Many of those earning above average wages are on standard PAYE schemes with no scope to game the system in the same way as Jimmy Carr or Gary Barlow. And if those who do so are playing within the rules, then why is that unfair? Man City have a lot more money than Leeds United but I don’t think their victory today was unfair – bothteams played by the same rules.
My gripe is not with any particular tax policy from any of the major parties, it is with Lib Dems misappropriating the comforting word “fair” to describe their policies. If anything, the theme seems to be ‘envy’ of those “with the broadest shoulders” rather than any notion of fairness. It annoys me in the same way that “rigorous” is used in an apparently meaningless or undefined way to justify Gove’s education reforms.
I would welcome any attempt to define fairness in this context. Perhaps somebody would like to pick one of these at http://www.thefreedictionary.com/Fairness to explain why Lib Dems have the fairest tax policies. Otherwise we may as well say we have the “purplest” policies and it would mean just as little.
@bcrombie
“Simon Shaw – And how does that work then”
Mark Inskip spelled it out, shortly before your post.