Olney: Jeremy Hunt expects people to pay for Conservative mistakes

Jeremy Hunt’s media round this morning was sobering stuff. Tax rises and public spending cuts seem to be the order of the day.  While he might talk about protecting the most vulnerable, Conservatives have never been good at understanding how to do that.

Our Treasury spokesperson Sarah Olney had this to say:

This may be a new Chancellor but it’s still the same old Conservative party whose failed economic experiment has cost this country billions.  Now Jeremy Hunt expects struggling families and pensioners to pay the price for those mistakes.

Thousands of families are facing increased mortgage costs and rising prices at the checkouts while our struggling public services will have their spending slashed.

There is no doubt that the folly of the past two weeks will have long term implications for many people. Whether its losing our rented house, not being able to afford a mortgage or struggling to pay bills, or losing their jobs (as Royal Mail announced 6000 losses yesterday), there are perilous times ahead for many of us

* Caron Lindsay is Editor of Liberal Democrat Voice and blogs at Caron's Musings

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41 Comments

  • Tristan Ward 15th Oct '22 - 12:54pm

    Jeremy Hunt is right because collectively we can’t have what we can’t pay for. The markets have made that brutally clear, and its going to be a tough few years for everyone.

    I hope and expect however that the Conservative who have got us into this mess will pay with their jobs.

  • During the Tory leadership campaign. Sunak represented the economic reality that long experience has shown to be a necessary response to stagflationary conditions,while Truss presented the more traditional conservative platform of steep tax cuts. The Truss/Kwarteng approach is based on a supply-side ideology based around a smaller state to spur growth while still relying heavily on increased borrowing during a time of rising interest rates to implement their plans. Liz Truss was a member of the Hayek society at university and seems to have embedded the Hayekian philosophy in her thinking.
    Jeremy Hunt’s comments today make clear that most of the Sunak tax rises will be implemented and public spending will be held down.
    An economic recession is inevitable at this point. The only question is how deep and prolonged it will be. That will in large part be dependent on global conditions and particularly interest rate decisions by the US Federal reserve.
    Economic policy will not be able to rely on increased borrowing as a % of GDP going forward or robust economic growth in the medium term. That will be made clear in the OBR forecasts.
    LibDem economic policy needs to be able to address these realities with structural reforms to the tax system and borrowing primarily for investment only. Tackling inflation must come first. Reflation and growth will need to be addressed from the bottom up with a combination of a guaranteed minimum income, job guarantee programs in social care and childcare and accelerated investment in energy security.

  • It is going to be interesting to see whether Jeremy Hunt’s tax rises will go as far as removing non-dom status – the LSE estimates that would bring in £3.2bn a year of additional tax whilst having zero impact on existing taxpaying residents – look a lot like “low hanging fruit”…

  • Rif Winfield 16th Oct '22 - 11:54am

    Yes, the Conservatives certainly don’t understand the situation of those on the lowest incomes. Sadly, there are many in the Labour and even in the LibDems who don’t understand that either. Harping on about the working poor is only the start – what about the sizable number of those who for one reason or another cannot seek employment – those on fixed incomes? How about those on the (new) State Pension of £185.15 per week (£9,660 per year) without an occupational pension? How about those whose disability prevents or inhibits their ability to work full time, or indeed hold any employment. How about those on the National Minimum Wage (£9.50 per hour if you are aged 23 or over, but not achievable for many people unpaid for a 35 hour week). If their income is under £12,570 per year they are exempt from paying either income tax or national insurance, so cutting tax rates won’t give them a single penny more to cope with soaring energy bills, although hopefully this might by inflation-linked to £13,827 per year next April. But THIS level of income is what we mean when we talk about those in the lowest income category.

  • Rif Winfield 16th Oct '22 - 12:01pm

    The essence of all Liberal philosophy is that we seek to provide freedom to all people in our nations, but we recognise that freedom can only be achieved providing it can be unconstrained by “poverty, ignorance or conformity” (and the first of these governs the other two). THAT is where we depart from either Conservative or Labour values. In practice, it is of course extremely hard to achieve this, but it has to remain the cornerstone of what we are working towards. This is why a Basic Income is essential, paid to every adult in the country (even those who are in salaried employment, in which case we fulfill the aim of ensuring that employment is always rewarded by a greater income). You will spot the obvious consequence – higher tax take from those receiving more than the Basic Income. But this is essential if we are to achieve our aim of abolishing the concept of poverty.

  • We can fund a basic income but not a Universal one. The optimal solution is an integrated tax and benefits system. Policy solutions based on increased borrowing or unrealistic economic growth assumptions will not be credible in this political climate.
    A minimum income guarantee of £100 per week would replace Universal Credit basic allowance only (with other supplementary benefits continuing in place) and redistribute taxes from lower income to higher income taxpayers. The monthly minimum is £433.33. That compares with a UC standard allowance of £334.91 for a single person (£265.31 for under 25s). Currently, a couple receives a standard allowance of £525.72. Under an individual minimum income guarantee they would receive £867 (433.33 each).
    The minimum income guarantee is paid in one of two ways. Either as a tax reducer or as a UC benefit. Anyone with income below £15,639 would automatically be entitled to the UC basic allowance without means testing, but would not be eligible for a tax reduction i.e. they would pay 33.25% on their taxable income through PAYE or self-assessment for self-employed. Those with income above £15,639 would pay combined tax and NI at 33.25% (53.25 for higher rate taxpayers) and receive a tax reducer of £5,200 per year through PAYE or self-assessment.
    Someone earning £10k a year would take home £6675 + receive £5200 UC and any current supplementary benefits to which they were entitled i.e £1875 per year better off.
    Someone on £30k would take home £25,225 against £24,205 now plus any supplementary benefits to which they were entitled. i.e. £1020 better off.
    A higher rate taxpayer on £60k would take home £40,790 against £43,257 now i.e £2467 less. A taxpayer on 90k would take home £54,815 against £60,325 before any relief for pension deductions i.e. £5510 less.

  • Lorenzo Cherin 16th Oct '22 - 4:09pm

    Rif and Joe

    For ages I , on this site and elsewhere have been trying to argue we ought to bring about a basic income not a universal one.

    My point is to pay everyone earning under fifty thousand, five thousand a year no strings., funded in whole or part, by charging everyone over five hundred thousand a year an extra five p tax, ie fifty p top rate.

    Simple and fair and cost effective.

    Thus slash the DWP, changed to be a department that deals with pensions, and offers really helpful careers advice, voluntarily.

    Similarly the Business Department offers business start up advice and grants and no interest loans for small and new businesses.

  • Lorenzo, I do hope you check this out first with the OBR and the Bank of England because otherwise you might be recalled to Downing Street on an early flight from East Midlands Airport with a request for your resignation as Chancellor of the Exchequer in Sir Ed’s Government (after, of course, the next General Election)..

  • Rif, Joe and Lorenzo,

    Katharine Pindar and I have been pushing for years the idea that we as a party should make ending poverty in the UK our number one aim. As Rif states, “we recognise that freedom can only be achieved providing it can be unconstrained by “poverty, ignorance or conformity” (and the first of these governs the other two)”.

    Katharine pushed the idea that tackling of poverty be one of the main aims of the Fairer Society working group. And so in the motion to our Autumn Conference to accompany that policy paper in one of the options we called for the ending of deep poverty defined as 50% of median income adjusted for family size and composition within the decade. This would mean increasing Universal Credit (for those 25 and over) from £77.29 a week to £138 and for a couple from £121.32 a week to £238. It is currently party policy to increase both by £20 a week to £97.28 and £141.32. If inflation was 9% in September we would increase them to at least £106.04 and £154.04 in April 2023 and possibly more if inflation was higher closer to April.

  • > funded in whole or part, by charging everyone over five hundred thousand a year an extra five p tax, ie fifty p top rate.
    aka Government-assisted trickle-down – can’t see how the rightwing Tories could object, given their belief in trickle-down economics, only this version avoids (many of) the middlemen, so more reaches the lower well off quicker…

  • Joe Bourke,

    You are not clear that you are also suggesting increasing the Income Tax Personal Allowance and National Insurance threshold to £15,639, an increase of £3069 which would cost about £27.57 billion! Also it seems you haven’t taken account of the 1.25% reduction in National Insurance which is coming into force in November. Not reducing it will save the government according to government figures about £17 billion.

    You have not been clear why people earning 60k or 90k would have an income reduction.

    Lorenzo Cherin,

    You are not clear if people on benefits receive the £5000 on top of their existing benefits or if it replaces all their benefit including housing benefit. Someone on ESA in the support group currently receives 77 + 40.60 = £117.60 a week which is £6115.20 a year not including any housing benefit or disability premium they might receive. Increasing the additional and higher rates of Income Tax will generate according to government figures about £10.3 billion next year. According to our figures produced last year there are 41.4 million people in the UK of working age. If you just paid your £5000 to 20 million of them this would cost £120 billion. It might be simple, but it is not cost effective.

    Last year we said that providing a UBI of about £71 a week (£3692 a year) would cost about £30 billion on top of abolishing the Income Tax Personal Allowance and National Insurance threshold.

  • Lorenzo Cherin 17th Oct '22 - 1:08pm

    David

    I think Culture or Education Secretary would be my roles, so might not be dismissed by Sir Ed quickly!

    Michael BG

    Good responses. I give a notion out here, not a policy document. An idea can be made into a policy, but of course I only make it begin here, with no claim as to the full costs.

    If your figures are correct, as your sources are excellent I accept them, yet, I shall say this. Firstly my plan here is without top up for housing, disability . Secondly, the seventy seven you and the party have discussed here before, was for how many people? If it cost thirty billion, why can my suggested one hundred, for far fewer people, as not for anyone above fifty thousand, cost so much?

    My view is if something is right, do it, find the sums from somewhere to add up! Slash DWP, save a lot with this, alone. Similarly the current unemployment support would be replaced with this, bar housing and disability.

    The trouble with figures put out first, as a methodology, is it distracts from the idea. Yes, of course these figures must be emphasised, but lets discuss notions that are necessary first.

    I would happily give it up to thirty five thousand, but would rather make it more widely available. The key is it must not come with strings. No benefit sanctions.

  • Lorenzo Cherin 17th Oct '22 - 1:18pm

    Roland

    It isn’t trickle down, its progressive not conservative. Yes there are some, or were some, progressive Tories, though fewer than they like to make us believe, they would not be keen on my five p more for those on five hundred thousand!

  • Joseph Bourke 17th Oct '22 - 9:15pm

    Michael BG,

    there is no income tax and NI threshold under the proposed tax reforms. The thresholds are replaced with a tax reducer of £5200 per year that is equal for all earning below £100k per year, whether you are a basic rate or higher rate tax payer. The difference is that higher income earners no longer benefit from tax relief at 40% on tax allowances or any upper threshold on employee NI contributions and pensions tax relief is limited to basic rate. The combined basic rate of tax mentioned of 33.25%, in the examples given, is a combination of income tax at 20% and NI of 13.25% i.e inclusive of the current existing rates of tax and NI at the time of writing. Abolition of the Health and Social care levy has not yet passed into legislation and may yet be reversed in the Lords.
    Other tax reforms, as outlined in an earlier post A manifesto for stagflation, include reinstating Petroleum revenue tax for North Sea oil producers; unfreezing the fuel price stabiliser as oil prices fall back below £90 per barrel; and removing the starting NI threshold for employers national insurance for larger employers while increasing the NI employment allowance of £5k per year to keep most smaller employers free of paying employers NI.

  • Lorenzo – My point was that we need to get better at twisting and reusing some of the soundbites Conservatives like to use.
    Truss in her commitment to trickle down, implicitly accepts the rich should be handing wealth down and not hanging on to it like dragons sleeping on a hoard.
    Thus force them to justify why it should be a capricious trickle and not a guided cascade.

  • Lorenzo Cherin 17th Oct '22 - 11:06pm

    Roland, not a daft point, like this, understand what your’e getting at!!

  • Laurence Cox 17th Oct '22 - 11:07pm

    @Joseph Bourke

    If you are going to cut off the tax reducer of £5200 per year for everyone earning £100,000 or more, then you are creating a system in which someone earning £99,999 receives it, while someone earning £100,000 does not, making them £5199 worse off than if they earned £1 less. Even with our present system, anyone with an income of over £100,000 is paying a marginal income tax rate of 60% because their personal allowance is reduced by £1 for every extra £2 they earn on top of the 40% tax rate. So even tapering off the tax reducer could still lead to marginal tax rates above 100%. Back in 1976 this actually happened in Sweden when the author of Pippi Longstocking, Astrid Lindgren, discovered that she would be taxed at 102% on her income through a combination of income tax and employers’ fees.

    Assuming your figures for tax rates and a 50% taper rate, someone on £100k would be paying a marginal rate of 53.25% (40+13.25) in tax plus an additional 26.625% for the effect of the taper, so a smidgen under 80%. Add in their student loan repayment (because they probably are a graduate) and that takes you up to 89%, a higher rate than ever charged on earned income. A postgraduate student loan would push it up even further to 95%.

  • Lorenzo Cherin,

    As I wrote the cost of £30bn is a net cost once the savings from the abolition of the Income Tax Personal Allowance and the National Insurance threshold (£102.7bn) were taken into account. Also there would be reduced benefit payments which we said were worth £17.8bn. The gross cost for £71 a week for all people aged between 16 and 66 was £152.8bn.

    While I welcome that you are not abolishing housing benefit and disability benefits. Now you are saying that someone receiving £77.29 a week Universal Credit would instead receive £96.15 a week which is less than party policy which is to increase it by £20 a week to £97.29.

    When you make suggestions you should have some idea how much they will cost and when suggesting tax changes you should have some idea of how much they will raise. The government publish regularly what they call “Direct Effect of Illustrative Tax changes” and this will give figures for some tax changes but not all that you could think of. (Just enter Direct Effect of Illustrative Tax changes in your search engine to find it, I use Google.)

  • Joe Bourke,

    I did understand that you had abolished the Income Tax Personal Allowance and National Insurance threshold. As you point out (sort of) giving people £5,200 instead of these allowances in the same as increasing these allowances to £15,639. As I pointed out this will cost £27.57 billion gross and £10.57 billion as you haven’t reduced NI by 1.25%.

    Currently someone earning over £100,000 loses their Income Tax Personal Allowance progressively until it is all gone when they earn £125,140. I assumed you would increase this to £131,278. However, I don’t understand how someone on £60k would take home £2467 less and someone on £90k would take home £5510 less. Please can you provide the figures for all thresholds? Have you increased NI to 13.25% on incomes over £50,270? (If so this was not clear in your earlier comment.)

  • Laurence,

    the marginal tax rate at present for earnings between 100k and £125k is 60% + 3.25% NI. The tapering amount would maintain that marginal rate, most likely by tapering the £5200 tax reducer away between £100k and £152k at a rate of £1 for every £10 over £100k and the additional tax rate of 45% would begin at £152k. The additional NI is 10% on all earnings and is not tapered. The combined marginal tax rate in this case would be 63.25% i.e. as it is now.
    For earnings over £152k the marginal rate falls back to 45% (unless this is increased back to 50% as sometimes suggested) + NI of 13.25% (58.25% or 63.25% with a 50% tax rate), but overall tax paid increases as income increases nonetheless. Higher marginal rates on transitional bands of income are the consequence of tapers in the tax and benefit system.

  • Michael,

    the tax reducer does not have an aggregate cost £27.57 billion for the simple reason that there are no tax allowances on which tax relief of 40% is given and eliminating the upper rate NI threshold brings all earnings into account for employee NI. It is a revenue neutral tax redistribution between income bands designed to raise an equivalent amount of tax and NI, not outgoings to be funded. Tax and NI on earnings below £15,639 are NIL (based on a tax and NI rate of 33.25% and a tax reducer of £5200). Higher rate taxpayers, however, will see their current tax relief reduced i.e. they will not get the equivalent benefit of a £15,639 tax allowance and the NI allowance is abolished.
    A 40% taxpayer with an allowance of £12,570 benefits from a £5,028 tax reduction. A basic rate tax payer earning above the personal allowance gets a tax reduction of £2,514. Changing the personal allowance to a tax reducer means all taxpayers (with income below £100k) get a flat rate tax reduction of £2,514 and a NI reduction of £1,665 regardless of their tax band. These tax and Ni reliefs equate to £80 per week. The funding for additional tax relief of £20 per week comes from the reduced tax relief for higher rate earners and eliminating the upper threshold for employee NI, so earnings over £50,270 bear an additional 10% of NI. An average earner on £30k will see an increase in take home pay of £20 per week. Someone on £60k will see a reduction in take home of £47.5 per week. This is the redistribution for taxpayers. The higher rate taxpayer loses the benefit of tax relief at the higher rate and this is substituted with the flat rate tax reducer at a lower level of tax relief. The higher rate taxpayer also incurs additional employee NI of 10%.
    The other proposed tax increases/reduced tax reliefs for pensions are funding required to finance the replacement of the UC standard allowance with an uplifted basic income of £100 per week. That is increased public spending that requires financing.
    This is how a basic income/minimum income guarantee can be delivered without an increased deficit while stimulating spending in the economy at the lower end of the income scale.

  • Mick Taylor 18th Oct '22 - 8:21am

    This all very laudable and does indeed make a start on reducing poverty and redistributing income. What no-one on this thread has yet done is to produce a simple explanation of this idea that can be sold to voters and not be easily misrepresented by the Tories.

  • Mick,

    the messaging is a £100 per week minimum income guarantee for working age taxpayers and benefit claimants alike, paid as a tax reducer or Universal credit allowance i.e a basic income, if not a universal one.
    The Tories will always seek to misrepresent policies of other parties for their own benefit. To be fair we are not wholly innocent of that ourselves. That’s politics.
    The key policy criteria is to put money in the pocket of lower income earners where the cost-of-living crisis hits hardest, by shifting more of the burden of income tax and national insurance levies to higher earners and larger companies without increasing government debt as a % of GDP.
    The government doesn’t raise more income and employee NI, but is does redistribute how it is assessed and collected raising more of the tax money from higher income earners and less from lower earners.
    The increase in Universal credit benefits will need additional funding. Suggested increases above include reinstating Petroleum revenue tax for North Sea oil producers; unfreezing the fuel price stabiliser as oil prices fall back below £90 per barrel; and removing the starting NI threshold for employers national insurance for larger employers while increasing the NI employment allowance of £5k per year to keep most smaller employers free of paying employers NI.

  • Lorenzo Cherin 18th Oct '22 - 12:59pm

    Michael BG

    A few pence less than current party policy, hardly a criticism! The policy I advocate is simple. You are correct about figures. But you realise I am talking of replacing all current help other than housing and disabled support. So included must be cost of that as now. And I would pay it from eighteen or twenty one. We need a simple policy, hundred a week, five thousand per year. We need it to be popular. Also I want it only up to certain income, not universal. I get what you say about sums. My view is decide something then find how to pay for that as needed.

  • Alex Sabine 18th Oct '22 - 2:26pm

    Joe – Interesting scheme and a more plausible version of the basic income idea than the ‘full fat’ UBI. As you say, “the optimal solution is an integrated tax and benefits system” (which does not require a UBI). I applaud your attempt to inject a measure of fiscal discipline.

    In principle, there is scope for redistribution within the National Insurance system (whether as part of a basic income scheme or not) by applying the full rate of NI all the way up the earnings scale as you suggest.

    However, there’s no denying this would be a very hefty tax rise for several million people at earnings levels that are well above the national average but not orders of magnitude above it. And this is the context of fiscal drag having drawn millions more people into the higher rate (40p) income tax bracket over the past decade. As your figures demonstrate, someone earning £60,000 would see a reduction in take-home pay of almost £2,500 per year and would face a combined marginal tax rate well above 50%.

    Whether this is appropriate is a matter of political and economic judgement. But recall the fate of John Smith’s infamous ‘shadow budget’ of 1992, whose centrepiece was abolishing the upper earnings limit for NI. This proved to be lethal politically, since large numbers of people hoped within a few years to earn an amount that would have been caught by the higher NI rate and it was seen as a cap on aspiration.

  • Alex Sabine 18th Oct '22 - 2:30pm

    This is the eternal dilemma when it comes to personal taxation: the honest approach to redistribution (which you put forward here, and which involves not just the rich but large swathes of taxpayers paying significantly more) usually collides with the reality that people believe that significantly higher taxes are only suitable for the genuinely rich – who are not sufficiently numerous and tend to be the most able to devise legal ways around them.

    Interestingly, at the time of the 1992 shadow budget, Ken Livingstone (then in a largely unreconstructed phase, long before he became mayor of London) was very critical of the NI rise – and even Corbyn’s Labour party tried to restrict their more obvious tax-raising ambitions to the top 5% of earners. So the idea most associated with the moderate John Smith cast a long shadow even for his much more left-wing successors (not only for Blair, Brown, Mandelson et al).

  • It’s very easy to get lost in the numbers, so lets lay down some basic, progressive principles. First of all we present people with the truth. They may not like it, they may not vote for it at first, but when they realise that the reason for the economic mess we are in is that they have voted for liars for years, we might be in business.
    That truth is that if you want great public services then we need a higher tax take. If you want tax cuts then you will get rubbish services. That’s not rocket science, is it ?
    Secondly, if you don’t earn a living wage you don’t pay tax. Taxing people and then giving them benefits to make up for the tax you’ve taken off them is madness. So the tax free allowance goes up to approx £20,000. NI threshold the same.
    Abolish student debt. Political winner and will be funded by higher marginal rates of tax on the high earners.
    Income tax rates : £20,000-£50,000 @ 22%. £50,000 – £100,000 @ 40%, 100k-250k 50%, 250k+ @60%.
    Abolish the 1% marginal NI rate for earners. Full rate to be paid on all income.
    Obviously I don’t have access to tax modeling programs so all figures above could be tweaked, but it lays out the principles.

  • @ Chris:
    It’s very easy to get lost in the numbers – Indeed, yet making sure the numbers stack up is quite important when coming up with changes to tax policy. We’ve just had a pretty brutal real-world demonstration of what happens when you fail to do that…

    Taking your proposal as an example, there’s clearly an attraction in whacking the income tax and NI thresholds all the way up to £20,000. However, it would be hugely expensive to the Exchequer…

    The Treasury publishes a ‘ready reckoner’ which estimates the direct cost/yield of various illustrative tax changes. Raising just the income tax personal allowance by 10% (i.e. approximately £1,250) costs 8.4 billion. There are no illustrative figures for a £20K threshold for both income tax and NI, but my guess is it would be circa £75 billion per year – more than the entire fiscal ‘hole’ which the government is now desperately trying to fill through tax rises and spending cuts.

    I appreciate that you’re suggesting raising income tax rates to claw back revenue. A 2p rise in the basic rate (bearing in mind it will apply to a smaller tranche of income) is likely to net something like £9 billion. Increasing the higher rates and compressing thresholds would yield a few billion at best. Charging the full NI rate on all earnings would raise significant sums, simply because it will affect an awful lot more people. There would still be a massive shortfall.

    https://www.gov.uk/government/statistics/direct-effects-of-illustrative-tax-changes/direct-effects-of-illustrative-tax-changes-bulletin-june-2022

  • Joe Bourke,

    You did not make it clear that you had increased the National Insurance additional rate from 3.25% to 13.25%. I don’t think you had made it clear that you were reducing pension relief to the basic rate of tax until 17th October 9.15pm.

    On 16th October at 1.33pm you wrote “A higher rate taxpayer on £60k would take home £40,790 against £43,257 now i.e £2467 less. A taxpayer on 90k would take home £54,815 against £60,325 before any relief for pension deductions i.e. £5510 less.”

    I asked you to produce your workings out but you haven’t.

    Yesterday at 3.51am you wrote, “Someone on £60k will see a reduction in take home of £47.5 per week.” I disagree they will be £47.47 better off over the whole year.

    Current system
    £60,000
    37,700 @ 33.25 = 12535.25
    9730 @ 43.25 = 4208.225
    Total reductions 16,743.475
    Net earnings £43,256.525

    Your system
    50270 @ 33.25 = 16714.775
    9730 @ 53.25 = 5181.225
    Total reductions 21896
    Net earnings £38104 +5200 = £43,304
    £43,304 is £47.47 more than £43,256.53

    Someone earning £90,000 using the same method currently has a net income of £60,281.53 and under your system a net income of £52,129 + £5200 = £57,329. £2952.53 worse off quite a bit different from £5510.

    You wrote, “A 40% taxpayer with an allowance of £12,570 benefits from a £5,028 tax reduction”. This makes no sense.

    I have shown that your idea is not easy to explain. I wonder how many people have heard of a tax reducer.

  • Michael,

    adding rows of tax workings rarely makes anything clear. What people want to know is what is the bottom line. For a working age basic rate taxpayer, it is an additional £1020 per year (£20 per week) in their pocket. For working age benefit claimants, it is a basic standard allowance of £100 per week per person.
    Under the proposed tax redistribution system there is no tax allowance or NI threshold. This is replaced with a flat rate ax reducer. A taxpayer earning £60,000 would pay a combined tax and NI rate at a basic rate of 33.25% on the first £37,700 of earnings (i.e. £12,535,25) and a higher rate of 53.25% on earnings above this level (i.e. 22,300 @ 53.25 = £11,874.75). Total tax is £24,410 less the tax reducer of £5200 (i.e. £19,210). Net pay is £40,790 (i.e £2,467 less than current take home pay).
    A 40% taxpayer with an allowance of £12,570 benefits from a £5,028 tax reduction. The current tax allowance of £12,570 @ 40% equates to £5028 of tax relief. The same tax allowance is worth only £2,514 (12,570 @ 20%) of tax relief for a basic rate taxpayer.
    As mentioned above, the messaging is relatively straight forward “a £100 per week minimum income guarantee for working age taxpayers and benefit claimants alike, paid as a tax reducer or Universal credit allowance”

  • Alex,

    I think the announcement of Ed Davey’s plan for an energy cap and windfall tax on energy companies was well received as the only one recognising the scale of the problem back in August. Both Labour and Conservatives have adopted the plan in part.
    I would liken the current climate to the 1970s where we had a decade of high inflation, widespread industrial strife and real hardship for many as well as an IMF bailout.
    I think the scale of the current economic problems does require some fairly radical thinking with so many families facing food poverty, even before the energy price hikes really begin to bite this winter. I see the minimum income guarantee as part of a suite of policies that we need to develop to address this cost-of-living crisis.
    We are looking at real austerity from this government now at a time when public service spending has been constrained for several years. With the NHS backlog growing by the day, adult social care collapsing, chaos in the court system, food prices spiralling and a winter of public service union strikes ahead of us, the 1970s might even begin to look not so bad.
    We do need to heed the lessons of the past and it will take some careful handling to steer the economy and public services back to the level that people have a right to expect in a modern society.

  • Alex Sabine 19th Oct '22 - 2:13pm

    Joe,

    Re: the current economic situation requiring radical solutions, I’m just not persuaded that swingeing tax rises on earnings are the right answer any more than large unfunded tax cuts. We now have an extremely narrow path to tread in terms of the fiscal position and inflation outlook (made worse by the botched mini-Budget), and restoring macroeconomic stability is the prerequisite for any sustainable growth.

    A wholesale shake-up of the personal tax-and-benefits system involving much higher marginal rates would be a considerable hostage to fortune at this juncture (even if in theory it could be costed as revenue-neutral).

    As you say, we are now facing a protracted squeeze on public spending. But as I understand it, the major increases in tax rates proposed within your scheme are required to fund the tax credit scheme – i.e. to redistribute the tax burden – and therefore won’t fund additional public spending elsewhere (NHS, social care, court backlogs etc). Raising some taxes in order to cut others does not ease spending pressures, whatever the intrinsic merits.

    I agree with what you have written previously about the need for structural tax reform in the longer term, drawing on ideas in the Mirrlees review (including taxing economic rents, aligning tax bases to remove artificial or unhelpful incentives such as the debt vs equity bias in corporate taxation etc), alongside other supply-side reforms in the areas of housing, planning, infrastructure etc – but I see higher taxes on earned income as running counter to that.

  • Kevin Langford 19th Oct '22 - 2:26pm

    We had a guaranteed basic / minimum income proposal to present to conference before it was cancelled. It was along the lines of much of what is discussed here – but did not present a specific funding proposal – this being left for the treasury / manifesto teams – and was offered alongside a UBI proposal, for conference to make a UBI/ GBI choice.

    Over the next few weeks we will be updating the proposal to reflect changes in the economic environment – and the plan is then to present it to the spring conference.

  • Lorenzo Cherin,

    No one living on benefits would see £1.14 a week as unimportant. Perhaps you should consider increasing your suggestion to £5200 a year – £100 a week is nice and simple. However, the extra revenue I gave for a 5 pence increase in income tax was for income above £50,270 not your £500,000. Perhaps you should consider why you are giving someone earning over £35,000 a year an extra £5000. Your suggestion is not generous enough to the poor. I have stated earlier that a single person requires £138 a week not to be living in deep poverty. If you wanted to remove them from poverty they would need £166 a week. Your £96.15 is £69.85 less than a single person needs to be living at the poverty level. You haven’t worked out how much your suggestion would cost and you haven’t provided a means of financing it. Alex Sabine has given the link to government figures on the effects of changing various taxes and benefits which would assist you in developing a realistic way to fund your suggestion once you have some idea of the cost.

    When working with Katharine Pindar as a member the Fairer Society working group we listed many tax changes, which could fund the £35bn plus they were talking about to fund either a UBI or increases to benefits, some of which Joe Bourke has included in his suggestion.

  • Alex,

    my view is that we have to address the issue of income inequality (at least in part) by making the system of income tax and employee national insurance more progressive (as suggested by the Mirrlees review).
    Funding for public services and increased benefits will likely have to come largely from other sources of tax if we are to keep borrowing available for spending on much needed housing and infrastructure (most probably taxes on capital gains/wealth and consumption taxes).
    The UBI proposal referred to above by Kevin was reviewed in an article here last May UBI can be achievable and affordable
    The proposal for a UBI of £78 per week was to be funded by abolishing tax and NI thresholds and raising additional tax funding of £39 billion from taxes on capital.
    The second proposal was a GBI targeted at the benefits system. It establishes a commitment over time (2 parliamentary terms) to get all households to a certain income level, and uses a reformed version of the existing benefits system to steadily increase the amount of this ‘guaranteed base’.
    Neither proposal looks to be able to address, in any substantive way, the cost-of-living crisis facing us here and now or realistically in-work poverty in any realistic time frame.
    The Libdem 2019 Manifesto relied on £37 billion worth of tax increases including increases in income tax and corporation tax rates and a net £14 billion Brexit bonus. Those sources of funding will no longer be available and additional borrowing for day-to-day spending is far too risky in the current climate.
    Both short-term and longer-term structural reforms of the kind you reference are essential. But we must be seen to be able to competently address today’s inflation and income inequality issues now.

  • Lorenzo Cherin 19th Oct '22 - 6:05pm

    Michael

    I find this sort of comment rather patronising, I am in a real world scenario, have known awful financial problems, disability a real problem, a wife with permanent issues from a car accident, have in the past been on benefits , struggling now even , as self employed with little work, and have also advised people on benefits, and am the most staunch advocate for a basic income due to my care for those people!

    My point about a few pence was I find the obsession with giving out figures here pedantic. I favour ideas, and themes and plans which can be small medium or huge, but need to be understood. I value your contributions but based on my track record here would prefer not to be treated as though I am out of touch, I am in real need!

  • Lorenzo Cherin 19th Oct '22 - 6:14pm

    As for your detail, correct. My numbers were a response to the plan most were advocates herein regarding, some while ago. That is, seventy seven pounds a week, was posited. My one hundred was radical then, it was before the uplift, in universal credit. I advocated it as more generous. I would prefer to give much more to those in most need. I would rather not give it to anyone about say twenty five thousand. My point was and is, it need not be universal. I get fed up with some here adding, why give it to HM and the Windsors.
    The party cannot even mention ubi, let alone one hundred and forty pounds a week you advocate, good on you! Sell that to Sir Ed! I am not in the Ed team, unfortunately.

  • Joe Bourke,

    What people want is policies they can understand and you have failed to present your proposal in a clear way.

    Thank you for giving details of someone earning £60,000. It reveals a new tax increase you are proposing, but have not been clear about. I assumed that when the income tax and national insurance thresholds are abolished the amount of earnings where the higher tax rate comes in hasn’t changed. In this case a person would have to pay the basic income tax and national insurance rates on the first £12,570; on the first £50,270 that they earn (the current £37,700 plus the part which they didn’t pay income tax and national insurance on £12,570).

    Someone earning £50,270 has a large reduction in their income under your proposal.
    Current situation
    37,700 @ 33.25 = 12535.25
    Net income £37,734.75

    Your proposal
    37,700 @ 33.25 = 12535.25
    12,570 @ 53.25 = 6693.525
    Total reductions £19,228.775
    Net earnings £31,041.23 + 5200 = £36,241.23
    £37,734.75 minus £36,241.23 = £1,493.52.
    This is a hidden tax increase.

    I suppose your proposal could have been worse and you could have reduced the 37,700 by £3069, which often happens when the personal allowance is increased but when people pay the 40% rate isn’t increased.

    Kevin Langford,

    Adding where we could generate extra government revenue from to the Fairer Society policy paper would be very useful to ensure any pressure to downgrade what the working group were proposing is resisted.

  • Michael BG,

    the basic rate applies to the first £37,700 of taxable income as now. The existing allowance for tax and NI are replaced with a tax reducer. That is the purpose of the reform.
    All those eligible for the UC basic allowance will benefit from a minimum income guarantee of £100 per week and all working age taxpayers with income over £15,639 will benefit from a £100 per week tax reduction. All working age taxpayers with income below £42,800 will benefit from lower taxes as a result. Those with income above this level will pay progressively more tax as a proportion of their income than currently. That is why it is called progressive taxation. An individual with income of £50,270 currently pays 25% of that income in tax and NI. This will increase by just under 3% to approx. 28%. That is all there is to it.

  • Joe Bourke,

    Currently people don’t pay tax or national insurance on the first £12,570 of their income. You are changing this. They will pay tax and national insurance on everything they earn, but will receive £5200 towards this which in effect means that those earning £15,639 will be £1020.44 a year better off. This is not £100 a week; it is £19.62. This does not apply to all working age taxpayers. As you now write all those earning above £42,800 will be worse off.

    I am not against a more progressive tax system and this is why I am suggesting that to fund the restoration of the energy price cap freeze for two years those earning above average earnings should pay at least three-quarters of a penny more on every pound they earn above £33,000 (https://www.libdemvoice.org/jeremy-hunt-continues-with-the-conservative-governments-trashing-of-the-economy-71709.html).

    Some of the tax increases in the 2019 manifesto are still available today. Increasing benefit levels to £100 a week does not deal with the cost of living crisis. A lot of the cost of living crisis is due to the huge increase in energy prices. The energy price increase for those on benefits until April has been covered by government action accept for £2 if they have the energy usage of the average household and their house is in Council Tax bands A to D. I am concerned about what happens after April and the fact that the increase in benefit levels of 3.1% in April does not cover the current inflation rate of 10.1%.

  • Alex Sabine,

    I think that it is possible to increase the percentages that those on high income pay to the government on their earnings.

    As those earning over £100,000 currently have a marginal tax rate of 63.25% keeping that rate for them should not be an issue. It is extended every time the personal allowance is increased. We had the policy of increasing the income tax personal allowance and we did it when in government. We are again calling for this because the government has frozen them for some time. I don’t see why having a new rate between 43.25% and 63.25% is too much of an issue. If we want to continue the policy of reducing the personal allowance for those earning above £100,000 and the 60%+ marginal rate it should be possible to have a marginal rate of 50% or above when the personal allowance has been reduced to nil (currently £125,140) as this would still be a rate reduction.

    Lorenzo Cherin,

    For people on benefits every penny counts. Benefits were caped to only 1% increases during some years of the coalition and then the Conservative froze them for a few years.

    If we had held our Conference in September I would have put in a speakers card to advocate the policy of increasing benefits to end deep policy which would mean increasing benefits to £138 a week for a single person and £238 for a couple. I do hope this policy will make it to our next Conference.

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