At the last election, Liberal Democrats up and down the country campaigned hard to cut taxes for working people and put money back in your pocket. It was our top priority – taken from the front page of our manifesto – to increase the amount you can earn before paying tax to £10,000. This has made a real difference to taxpayers up and down the country.
Since 2003, middle wages have failed to rise with growth. When we came into government, someone working full time on the minimum wage would lose more than £1,100 from their £12,000 salary through income tax. Allowing people to keep more of their income helps improve their disposable income.
Last year someone working full time on the minimum wage saw their income tax bill cut in half compared to what they were paying under Labour. Labour pretend to be the party of the ‘poor’. But they were more than happy to tax the lowest paid on the 10p tax rate. Our changes to income tax mean the lowest paid are on a 0p tax rate. They were also “intensely relaxed” about letting the super wealthy keep more of their money.
Do not be fooled by the Tories. In the leadership debates in 2010 David Cameron said “I’d love to take everyone out of their first £10,000 of income tax, Nick…. We cannot afford it.” Indeed the pledge was not in the Conservative manifesto. The Conservatives’ top tax priorities at the last election were cutting inheritance tax for millionaires (page 12) and giving some married couples a tax break (page 35). They actually spent more of their time rambling on about “Labour’s jobs tax”.
But in April, we’ll hit our target, cutting income tax for 24.5 million average workers, who will be £705 better off. We will have taken the 2.7 million lowest paid taxpayers – most of them women – out of paying tax altogether. This will mean the personal allowance will have risen by £3,525 since 2010 – an increase of 54%. This is thanks to our party in the Coalition Government and our MPs making sure our number one election manifesto was delivered.
As the Institute for Fiscal Studies have said, “increasing the income tax allowance… is the best way of focusing income tax cuts on those with lower incomes”. In Bristol we will have taken 17,570 people out of paying tax altogether and given 173,100 people a £700 tax cut. The MP for Bristol West, Stephen Williams, has worked hard in Coalition Government to achieve this and is calling for another £100 tax cut. Nick Clegg has described this as a “workers’ bonus” and you can join the campaign here. In addition to this, the Liberal Democrats in Bristol have been campaigning to freeze Council Tax and save the average resident £125. These changes will put money in your pocket.
Do not forget why we entered into the Coalition Government – to fix Labour’s economic mess and cut taxes for ordinary working people. That’s how we enable everyone to get on in life, in a fairer and more liberal society.
* Alex Smethurst is a Parliamentary Assistant and candidate for Redland ward in Bristol in the local elections in May (written in a personal capacity).
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24 Comments
“Nick Clegg has described this as a “workers’ bonus”
Is that a bit like being a ‘striver’?
Might we consider linking the tax free allowance to the minimum wage?
And if we were really ambitious, could we merge NI and IT, flattening out the tax structure at both ends and doing away with a lot of nasty complexity?
Hang on a minute….
Have you calculated how extra much it will have cost people after you allowed the Tories to bring in the VAT bombshell you campaigned about in 2010 ?
Or the loss of income for pensioners who rely on interest from accounts now paying near to nothing ? Both Coalition parties boast about the record low interest rates.
Or how much people who have had cuts to tax credits or other benefits, including sick and disabled having Bedroom Tax imposed.
Or do those people not count ?
Or the effects for hundreds and thousands of people who’ve had their retirement age delayed much quicker than under Labour’s plans. That in effect costs them hundreds of pounds a year in lost income if they have to save to cover that year of lost pension money, [If you boast about the flat rate pension – not many voters yet realise they will need 5 more year’s contribution than under Labour’s current state pension provision].
Just turning up on voter doorsteps trumpeting Alex’s message will not make a Lib Dem revival any more likely.
Also, in some polls recently only 8% [maximum 12 to 12%] show any intent to vote Lib Dem, so isn’t seeking to impose a Lib Dem defined liberal society on us a little illiberal ?
It’s not more money in my pocket, I’ve had years of below inflation pay increases while paying for above inflation increases in the cost of transport, energy and food.
@jedibeeftrix as I understand it, our 2015 manifesto will include a commitment to link the tax free allowance to the minimum wage. However, I would like to see it raised a little further still whilst still in Coalition Government
“I would like to see it [ Personal Allowance ], raised a little further still whilst still in Coalition Government”
Just a technical point, to make sure I’ve not misunderstood the detail of PA increase ?. I thought the £10,000 Personal Allowance came with a CPI increase every year from April 2015. Or have I got that wrong?
@John Dunn you are correct! The Budget 2011 said that once the personal allowance had reached £10,000, it will then increase by Consumer Prices Index (CPI) in future years, starting from 2015-16. However, I want this ‘annual increase’ to start above the £10,000 figure, because such a figure is of course below NMW.
@Sandy. “Have you calculated how extra much it will have cost people after you allowed the Tories to bring in the VAT bombshell you campaigned about in 2010 ?”
This argument has always puzzled me. If I spend £100 on goods vatable at 20% the extra VAT is £2.08. In order to spent an extra £700 on the increased element of VAT I would have to spend £33,653.84 on goods vatable at 20%.
Remember that rent, council tax, domestic fuel and food are not taxed at 20%. Say rent £400pm, council tax £100pm, gas and electricity £100pm and food £50 per week – gives £850pm, or £10,200 per year. The first chunk of my spending is not vatable at 20%.
If I was earning £33,653 (after tax) plus £10,200 I would not be moaning about my life, I would be as happy as a pig in muck. But still, I suppose that is because I am one of those on less than average earnings. I do appreciate my £700 tax cut.
As of April 2014 :
Personal Allowance = £10,000
Min Wage = £6.31 x 8 hours x 5 days x 46 weeks = (about ?) £11,610
I’m just wondering if it might have been a better policy to annually increase the (Personal Allowance by RPI), AND (The Minimum Wage by CPI)?
Result of this new policy would be :
1. It would allow small employers to adjust their business finances (wage costs), in a more manageable way, over a longer period of time.
2. The Personal Allowance would ‘chase’, and close the gap with the Minimum Wage over a period of about 9 to 14 years (my guesstimate using recent RPI & CPI figures?).
3. Those on Minimum Wage would see a small, but definite improvement YoY in their financial situation.
4. Once the PA and Min Wage ‘synchronised’ in about 14 years, the policy could flip the annual Personal Allowance back to CPI rather than RPI, to keep them synchronous thereafter.
O.K. .. 14 or so, years is a long time, but it would acknowledge and balance out the ‘gripe’, of SME’s with the ‘gripe’, of the low waged. In short, a policy designed to let Time do the ‘heavy lifting’ of equalisation between basic tax and basic minimum pay? Can anyone see anything I’ve missed?
Hugh
There’s no need to rely on back-of-the-envelope estimates. The iFS has done the calculation for us. For the lowest income decile, they reckoned the VAT rise would reduce income by about 2.25%. For the highest income decile the figure was about 1%, and the for the rest between about 1.25% and 1.45%.
http://www.ifs.org.uk/budgets/budgetjune2010/browne.pdf
I don’t think a 2.25% cut in income for the lowest income group is in itself insignificant. And of course that group will have gained least from the income tax cut. We also know courtesy of the IFS that the lowest income group has been hit much harder than those in the middle by this government’s tax and benefit changes taken as a whole.
@Chris
“There’s no need to rely on back-of-the-envelope estimates. The iFS has done the calculation for us. For the lowest income decile, they reckoned the VAT rise would reduce income by about 2.25%. For the highest income decile the figure was about 1%, and the for the rest between about 1.25% and 1.45%.
http://www.ifs.org.uk/budgets/budgetjune2010/browne.pdf “
Hugh makes a very sensible point. I think you need to read the whole IFS report.
If you did, you would see it supports the IFS’ statement that the increase in VAT was “mildly progressive”.
Personally I am all in favour of progressive taxation.
Even if one accepts that the huge rises in VAT since the 1980s have been mildly progressive, the fact is they replaced something very progressive! As someone who is in favour of progressive taxation, should you not be resisting that change?
Cumulative inflation has been over 10% since 2010, so anyone on more than £7050 pa is worse off in real terms since then.
They may have gained £705 in income tax, but they have lost more than that paying for higher prices.
I’m afraid the best we can say on the doorstep is that we helped to reduce the impact of George Osborne’s policies, not that people are ‘better off’. We risk a snort of derision if not.
“Labour pretend to be the party of the ‘poor’. But they were more than happy to tax the lowest paid on the 10p tax rate. Our changes to income tax mean the lowest paid are on a 0p tax rate.”
Eh? Labour had a 0p tax rate too. The coalition did not introduce the concept of the income tax allowance you know. You may recall that Labour were also “more than happy” to do things like charge people less VAT and give them generous tax credits.
In fact, the government’s own figures (see the last Autumn statement) confirm that the very poorest are worse off as a result of all the coalition’s fiscal policies, with only people in the upper-middle deciles actually being noticeably better off, so why are you trying to pass off coalition tax policy as being generous to the poor?
“The Conservatives’ top tax priorities at the last election were cutting inheritance tax for millionaires (page 12) and giving some married couples a tax break (page 35). They actually spent more of their time rambling on about ‘Labour’s jobs tax’.”
Far be it from me to defend the Tories, but what you dismiss as “rambling” would have been a real tax cut for most workers (or rather, avoidance of a tax increase) – in fact the money intended for this was specifically used to finance the first allowance increase instead. If you’re really interested in further tax cuts for the low paid then perhaps you should reconsider the Tories’ plan, as many of the lowest paid people would not benefit from another increase in the allowance, but they WOULD benefit from an increase in national insurance thresholds.
@Chris “There’s no need to rely on back-of-the-envelope estimates.”
I am afraid there is. Please explain how a person working full time on NMW is worse of because of the VAT rate increase. You can’t because they are better off not worse off. I agree that changes in benefits must also be taken into account but …
The article Alex wrote is about income tax, and the comment from Sandy is about VAT.
I recall a conversation I had with Will Hutton about tax on “wages”. He did not “get” that there are thousands of self employed skilled people paying 60% tax on every hour of work they do. (From 40% income tax plus 20% VAT when they invoice their work out). He is a bright man but does not understand the lives of real people. David Ward who was sitting next to him understood in an instant and explained to the fringe meeting how the mechanics at his local garage arranged their finances and organise their business around avoiding having to register for VAT. The context was why do small employers not take on apprentices – answer is to keep their turnover down. Result higher youth unemployment.
Labour go on and on about 50% versus 45% while there are more people paying 60%.
Our policy is to help reduce the poverty trap by enabling people to help themselves. Labour feel that locking people into a benefits culture is the solution.
@Hugh
“He did not “get” that there are thousands of self employed skilled people paying 60% tax on every hour of work they do. (From 40% income tax plus 20% VAT when they invoice their work out).”
It’s the customer paying the VAT, not the self-employed person.
So Cameron says we couldn’t afford it but changed his mind whereas Nick Clegg said we could afford to abolish tuition fees and changed his mind. I wonder which one of these the voters are most bothered about.
@Stuart “It’s the customer paying the VAT, not the self-employed person.”
Very true.
If you had the choice of paying a bill for work with VAT added or without VAT added which would you choose ?
If you could organise your business so prices were plus VAT or not plus VAT which would you do ? Would you rise not being price competitive ? Or would you do some work in the “black economy” ? What I am getting at is that tax structures change behaviour. If your business is profitable enough you have to swallow the VAT to remain competitive , if not you just don’t do it. Drifting off topic now.
I am shocked to hear people say it is just the customer who pays the VAT. VAT costs both the customer and the employer because the extra price stops sometimes stops people buying altogether or forces the business to cut their price.
Paying VAT plus expenses, plus regulatory fees, plus corporation tax, plus income tax, plus national insurance if you have any employees is an another lot of money – and people wonder why so many people become tories.
*an awful lot of money.
It’s the same logic to things like green taxes – the unrealistic left thinks these only cost the corporations and not the individuals too and it just makes the Lib Dems look like middle class snobs who don’t care if we increase the bills of the poor.
The middle class snob moniker can apply to me too, with my support for cuts, so my main point is that we just need to be realistic and not swallow oversimplified theories of the left and the right when it comes to tax and behaviour.
Best wishes
@Eddie and @Hugh
You’re using the same logic companies like Vodafone and Amazon use when excusing their lack of corporation tax payments. They claim it’s OK because they are “responsible” for things like income tax and VAT, but it’s nonsense because the income tax is paid by their employees and the VAT is paid by their customers.
A self-employed person paying 40% income tax and charging VAT seems to me to be doing OK so doesn’t have too much cause to complain about being put at a disadvantage by the VAT.
Stuart, a self-employed person paying 40% tax might not have too much to complain about, but VAT still costs them and they will still complain.
Plenty of people are still financially insecure even when paying 40% tax, so they aren’t just being greedy by complaining about it. We need to move taxes onto the super rich, because they are still financially secure after the taxes.
“I am afraid there is. Please explain how a person working full time on NMW is worse of because of the VAT rate increase. You can’t because they are better off not worse off. “
Of course they are worse off because of the VAT rise. Presumably what you’re trying to say is that the income tax cut more than compensates for that. So what? My point is that taking all the tax and benefit changes together they are worse off – and that those on the lowest incomes have been hit proportionally harder than those on middle incomes. Do you disagree with that conclusion? If so, you’d better take it up with the IFS.