There is a set of well known slights aimed at the Liberal Democrats. First, no one knows what they stand for. Or maybe they stand for lots of things but too complex and subtle for anyone to bother with. Secondly, they are just somewhere in between Tories and Labour. And that means you don’t need to listen to what they say because you can just take a bit off the edges of Tory and Labour.
Sell it right and this week’s tax policy is the sort of thing that will at least chip away at those preconceptions. Conveniently it may also be right.
The key part is – or should be – the abolition of income tax on the first £10k of earnings. That is a policy which can be sold from the left or the right. And we should do it openly and hard from both angles.
It is the policy the right want but just aren’t prepared to pay for. The tax levied on low-paid workers is just the flip side of the benefits trap they love to focus on. After a decade long economic boom, with the economy creating millions of jobs, still millions of people were economically inactive. National papers post spoof job adverts in areas of high deprivation to prove that no one will apply. Some of the London boroughs with highest unemployment are within walking distance of the greatest supply of jobs.
Well, fine. Make work pay again. It simply isn’t possible to reduce benefit levels – but it is realistic to increase the benefit of working. Our new policy would give someone on £10,000 just under another £60 per month. So, each month’s work pays an extra week’s worth of JSA. You don’t have to be a free marketeer to accept that this will have an incentive effect. A common line on right-wing blogs is that work should always pay more than claiming benefits. This is a move in that direction – but without the punitive attack on the least well-off.
It is an obvious policy for the left. Although hard to calculate exactly, and dependent on life style, the poorest 10% may well pay more of their income in tax than the richest 10%, because of all the fixed levies – council tax, VAT etc. £10,000 is just below what you receive (gross) for working 35 hours per week over a 52 week year at the minimum wage. Alright, no income tax below £10k isn’t a panacea and it offers nothing to those unable to work. But those who do this work still deserve a fair day’s pay for a fair day’s work. We saw how uncomfortable Labour were with the abolition of the 10p tax band. They will hardly jump to oppose tax cuts for the poorest workers.
The BBC have presented this almost wilfully off line. First, spin personality, clash and division. It is said to be a climb down from the “mansion tax” about which there was a “row” at conference. That is how staff reporters wrote it up for the website. Second, write about house prices (Stephanie Flanders). Third, Nick Robinson seeks to argue that people earning over 50k would lose out. The benefits are rather less well covered. Those we should sell hard from left and right.
Now, I’m the person who couldn’t find a party at party conference so I hesitate … but there really does seem to be next to nothing about this on the party website, save a not very specific press release. And even if it is there – accessible it isn’t.
So this policy – bold, original, might work (unlike most policies any government seems to have tried in about 30 years) – could chip away at the two slights we started with. There are others we all know but it’s a good start.
And it might just be right. And it might just work. And either would be much better than anything we have seen from government since about when the Beatles split up
* David Lawson is a Lib Dem member in Lewisham.
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8 Comments
Tax cuts to the lowest paid go straight back into the economy, Tax cuts to the wealthy often just increase their wealth.
Brill. Could not agree more. Only the Liberal Democrats have the principles, the policies and the political will to tackle the poverty in our society.
Absolutely. It should be pushed hard in all seats.
I think this will play very well in my constituency – let’s get out there and show people that we’re fair on taxation!
I agree with this policy, but let’s not go overboard with how much it will help people in poverty. If you are in work, or get a job, and are on tax credits, housing benefit etc, you will lose a chunk (typically around half) of the fall in tax in reduced benefits.
The arch-Tory Maurice Saatchi once wrote a pamplet calling for the same.
Raising the income tax threshold to £10,000 is an excellent policy, but also a very costly one at a time when we have a cavernous fiscal deficit. I know the tax package is supposed to be self-financing, but self-financing policies are not enough when we have a deficit of nearly £200bn per year this year and next.
I’m also not convinced by the costing assumptions, particularly the idea that we’re going to raise nearly £5bn in “anti-avoidance measures”. This is the same kind of thing Vince complains about when the Tories or Labour claim they can save large amounts through cutting “waste and bureaucracy” in public services. We’ll see whether the Institute for Fiscal Studies has anything to say about the costing.
It’s also worth noting that the revised mansion tax still only raises £1.7bn towards the £18bn or so required, so it looks suspiciously like a token piece of populism rather than a shift towards taxing property (or preferably land value) more and income and enterprise less. It’s come to something when Clive Anderson has to make the case for LVT on Question Time and Vince looks faintly bemused…
I’m concerned that we’re putting too much emphasis on redistributing income/wealth and not enough on creating it. For example we seem to have no proposals on National Insurance, corporation tax or improving the climate for the wealth-creating businesses that the UK’s future prosperity depends on.
Arguably a more limited tax-cutting package aimed at supporting job creation (say by cutting payroll tax and maybe the corporation tax rate) would be more credible and appropriate for these times. Then, once it is affordable, we should look to progressively raise the threshold for both income tax and NI (thus keeping them aligned and not complicating the personal tax system).
Other than aligning income and capital gains tax rates, we also seem to have abandoned any real effort to reform the horrendously complex tax system to make it simpler, more economically neutral and less prone to loopholes. The best way to tackle tax avoidance is to simplify the tax system and reduce the opportunities to game it.
Alex Sabine, you can rest easy about the anti-avoidance measures – they amount to removing/supplementing certain bits of legislation that currently benefit the small number of people they were intended to PLUS a whole load of others who can afford tax accountants. Labour’s tax law-making has always been full of unintended consequences. For once, this isn’t a meaningless statement along the same lines as “waste reduction”. It really could happen in an observable way.
On the article – couldn’t agree more.
Alix, OK, I will look at these ‘anti-avoidance measures’ in more detail. But if it’s that easy to raise nearly £5bn then you have to think Darling is going to snap up that opportunity in either the PBR or the pre-election budget, in which case we will no longer be able to claim that revenue stream.
He’s already shot Vince’s fox to some degree on the scaling back of tax relief on pension contributions, and may do the same by raising capital gains tax next March, to judge by the media noises. In which case, once again we will find ourselves uncomfortably looking around for more sources of revenue to fund the redistributive tax cuts, and no doubt flirting with more tax populism as a result.
Totally agree with you about unintended consequences – but that is directly related to the horrendous complexity of the tax system, which is why we should be proposing radical simplification and not merely redistribution. Remove market-distorting reliefs (thereby also closing loopholes), reduce rates, simplify tax credits and subject our tax policies not only to the test of fairness, but also whether they are more or less likely to support economic growth and improve the supply-side of the economy.
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