Tag Archives: income tax

Austerity and Napoleon

There is an old joke: Income tax was introduced (by Pitt the Younger) to pay for the Napoleonic wars and now that those wars are over, surely it must be time to get rid of Income tax.

As a Liberal I believe in the individual and to build a society that will support and nurture that individual’s potential. If you look at examples in history, in almost every case it’s the individual who has made a difference so it makes sense to support creative/driven individuals to enable them to realise their vision.

However, society is made up of groups and communities with individuals of different capabilities. The predicament is to have a tax system that not only encourages investment and reward but one that ensures society is also equally served.

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Raising tax for health and social care: National insurance or income tax?

Last month, the independent panel of health experts set up by Norman Lamb published its interim report on “a new deal for Britain’s Health and Social Care Services”. The panel were “unanimously of the opinion that it is necessary to raise additional revenue for health and care through taxation” and Spring Conference seemed to agree. Similar views may partly explain why the Conservatives have so far (sensibly) refused to rule out any headline tax rises in the next Parliament.

The interim report, which may influence the Lib Dem manifesto, concludes with three options: 1) raise Income Tax (e.g. raising all rates by 1p); 2) raise National Insurance (NI); or 3) introduce a dedicated health and care tax. All have their pros and cons, and in the grand scheme of things Income Tax and NI rate increases raise similar revenue and are both very progressive. But in this post I want to highlight a few reasons why the current NI system might not be the fairest vehicle for boosting health and social care – points that are also important for considering what a ‘dedicated’ tax should involve.

Don’t raise employer National Insurance

First up, there’s a question about what forms of NI would be increased under that option. In short, you would want to raise the personal forms of NI that individuals – employees and the self-employed – pay, but not employer NI. That might sound backward – hitting individuals but not companies (though in the long run both just reduce take-home pay). But the existing employer NI system already creates damaging and expensive distortions. Foremost, it creates a large incentive for companies (and you and me) to use self-employed labour rather than employees. No-one seems to be suggesting this but for the avoidance of doubt: unless/until that major problem is solved, don’t raise employer NI further.

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Willie Rennie announces Scottish zero rate tax plan

Last night in his annual speech to the David Hume Institute, Willie Rennie set out plans for a plan to help low and middle income Scottish earners by introducing a zero rate band of tax to go beyond the raising of the tax threshold. Because he’s also announced a plan to raise income tax by 1p to secure a £475 million investment in education, this new tax plan is going to be revenue neutral.

Both Liberal Democrats and Labour have announced plans for a 1p rise in income tax. However, Liberal Democrats are focusing on what you would get for it – more college places, reversing education cuts, a pupil premium and more nursery education. Labour’s is so complex that everyone is talking about the tax part of it. Fair play to both, though, for actually trying to use the powers we have.

Under Willie’s zero rate plan, Liberal Democrats would build on our record in government when we increased the personal allowance by over £4,000, helping to lift more people on lower incomes out of tax. Tax revenues gained by investing in education and boosting business by closing the skills gap would create a zero-rate tax band.

Willie  contrasted the progressive Liberal Democrat proposals with George Osborne’s commitment to increase the Higher Rate threshold from £43,000 to £50,000 by 2020, giving record-breaking tax cuts to the richest and costing Scotland £400m.

He said:

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The graph which shows why the Lib Dem policy of raising the personal allowance is the wrong priority

Here’s a graph which should make Lib Dems who continue to advocate increasing the personal allowance as an effective way to help low- and middle-income earners sit up and pay attention.

It’s from the Resolution Foundation’s report, Missing the target: tax cuts and low to middle income Britain, published yesterday.

What it shows is which households gain from the party’s policy to increase the threshold at which income tax is payable to £12,500 over the course of the next parliament. As you can see, those households which benefit most are at the wealthier end of the spectrum; the poorest 20% benefit least.

res fdn tax cuts lib dem graph 1

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Lib Dems pledge more tax cuts: after personal allowance raised to £12.5k will also increase National Insurance threshold

Danny Alexander by Paul WalterToday’s big announcement from the Lib Dems has been the “plan to cut your tax bill further”. Here’s how The Guardian reports it:

The Liberal Democrats are to burnish their credentials as the tax-cutting party for the low paid by floating the possibility of cutting national insurance contributions for anyone earning below £12,500 a year.

In a challenge to David Cameron, who is facing pressure from Tory MPs to pledge bold tax cuts as the economy grows, the Lib Dems will promise in their general election manifesto to raise the level at which workers start to pay national insurance contributions.

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What Lib Dem members think about top-rate tax: 53% back 50p (or higher) BUT only if it raises more revenue

Project 365 114 - MoneyLib Dem Voice has polled our members-only forum  to discover what Lib Dem members think of various political issues, the Coalition, and the performance of key party figures. More than 830 party members responded – thank you – and we’re publishing the full results.

53% support 50p (or higher) top-rate of tax; 31% say stick at 45p; 13% back 40p (or lower)

Currently the top rate of income tax is 45p in the pound for earnings over £150,000. Which rate do you support this top rate being set

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Memo to both Left and Right: Income Tax isn’t the only tax that matters

There was some leftie love showered on this ConservativeHome article by Peter Franklin this week: Right-wingers should stop boasting about how much income tax the rich pay. His point was absolutely right, as he laid into the supposedly slam-dunk argument glibly tossed around by unthinking capitalist Tories like Boris:

The richest one per cent of Britons contribute 30 per cent of all the Income Tax collected in this country. This, supposedly, is a ‘killer fact’ – deployed with devastating complacency by the free-market right: Rising inequality? No need to worry about that! The rich are kindly paying your taxes for

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Opinion: More money in your pocket from April

MoneyAt 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 …

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Opinion: In defence of consumption taxes

MoneyWhenever the “cost of living” comes up as a topic, we often hear lists of consumption taxes that can be reduced to lower it. Most recently have been the green levies on energy bills; last year a big deal was made about fuel duty; the year before it was the top rate of VAT.  Some people even argue that taxes on cigarettes and alcohol hit the poorest and should be cut back.

I’m certain that there’s all sorts of taxes that we’d like to lower, but there’s no such thing as a free lunch, and any tax we lower requires us to raise another tax or cut spending elsewhere. Wealth taxes, and even a high rate of land value tax, would only raise so much, so if we’re to cut tax then we’re going to have prioritise.

My position is: whichever consumption tax you’d like to reduce, we’d be better off using the revenue to raise the Income Tax and Employee NI thresholds. This is for three reasons:

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Danny Alexander MP writes… This is the Liberal Democrats’ policy and everybody knows it

The Conservatives may claim to be the party of hardworking people. But the same cannot be said for their policy wonks. According to today’s Financial Times, the Conservatives are apparently considering a proposal for their manifesto to increase the personal allowance to £12,500. An almost identical idea to our own policy of raising the personal allowance to the minimum wage that we first passed in our spring conference of 2012 and reaffirmed just one month ago at our Autumn conference in Glasgow. Once again, it is the Liberal Democrats who are shaping the future of the British tax system.

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Opinion: Rewarding marriage – with less than the cost of the cake…

There must be better ways for Liberals to support families that the marriage tax allowance.

Politics has always been about compromise and pragmatism and in a coalition Government we are seeing the impact of this in a very public and often painful way. For every moment of joy there are two where I want to bury my head in my hands and weep for the future of liberalism.Don't Judge

Whether we like it or not the coalition agreement set out a commitment to introducing a married couples’ tax allowance. I don’t know what the logic was at the time for agreeing such an obviously un-liberal and expensive gesture. I hope that what we gained outweighs the feeling of nausea that this policy gives me.

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“We cannot afford it” – Cameron on raising income tax threshold to £10k. In 2010.

With a hat-tip to Ed Stradling, here’s a reminder of what David Cameron told Nick Clegg about raising the income tax threshold in the first leaders’ debate:


(Watch it on YouTube here.)

I think it’s fair to say the Tories have since had a change of heart. Apparently it was their idea all the time:

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IFS verdict: Labour’s 10p tax idea “has no plausible economic justification”

institute-for-fiscal-studies-logo-370x229Ed Miliband’s announcement yesterday that Labour will re-introduce a 10p starting rate of income tax paid for through the introduction of Vince Cable’s mansion tax has received a tepid response from the Institute for Fiscal Studies. The IFS put out a note yesterday headed simply, Better options exist to help low earners than 10p tax rate:

A 10p tax rate would reduce taxes for those on low incomes and strengthen their work incentives. A far simpler and more sensible way of achieving these aims would be to spend the same

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Lynne Featherstone writes… Three Lib Dem policies really stand out for me in 2012

International Development minister Lynne Featherstone writes a monthly column for one of her local newspapers. Here is the latest one…

What a year 2012 has been! There are three Lib Dem policies that really stand out for me this year: the Pupil Premium, income tax reductions for low paid and middle income workers and equal marriage.

Before entering Government, the Lib Dems knew there were serious social mobility problems in the UK. Only one in five young people from the poorest families achieve five good GCSEs compared to three out of four from the richest families. Through the …

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Danny Alexander: Your money, back where it belongs, in your pocket

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Opinion: This graph of income tax rates might surprise you

If this graph seems confusing, it’s because it accurately describes taxation of income in the UK. What alternative can Lib Dems offer? I think there are four key problems and solutions.

  • Firstly, while the personal allowance is rising (to £9,205 next year), the National Insurance thresholds lag behind. As I’ve written previously, raising these is more progressive and, so, equalising the thresholds and the allowance must be the priority before going beyond £10,000.

  • Then there’s the withdrawal of the

Posted in Op-eds | 28 Comments

Labour put down tax amendment that would have given Tories tax cut they want – which Lib Dems stopped

I realise that Parliamentary shenanigans and point scoring isn’t everybody’s cup of tea, but it’s worth pointing out that Labour today squandered a relatively good position going into the first PMQs of the new Parliamentary term. Ed Miliband had an open goal ahead of him given controversy over the pensioners’ tax allowance,  “pasty tax” and charity tax relief yet he and his strategists still managed to misunderstand parliamentary procedure to a ludicrous extent. He’s just lucky that more excitable members of the Tory benches didn’t take their chance to have some fun.

Miliband looked not to Labour big hitters of the …

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Opinion: What message would scrapping the 50p rate send?

The rumour mill is turning at an alarming rate about next week’s budget- the grapevine is whispering that the 50p rate is about to be scrapped, and less than a week after Liberal Democrat spring Conference voted for this:

“Conference resolves that the wealthy and those with the very highest incomes should make the greatest proportionate contribution to the tax measures necessary for the reduction of the structural budget deficit and that the Additional Income Tax Rate of 50% on the top 1% of earners is needed to achieve this.”

Fairer taxes, one of our four key manifesto pledges supposedly delivered in the CSR, will mean …

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Tim Farron gives party members a sneak preview of tomorrow’s Party Political Broadcast

Party President Tim Farron has emailed Lib Dem members with an exclusive preview of tomorrow night’s Party Political Broadcast, with a reminder to sign the petition to fast track the Lib Dem £10,000 income tax threshold policy:

The Liberal Democrats want to give tax cuts to millions not millionaires – to put more money back in your pockets and take the poorest workers out of tax completely.

Tomorrow night you’ll have the chance to see a party political broadcast about our plans to do this.

In the meantime you can do two things:

Watch an exclusive preview of the broadcast:

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Clegg’s call for income tax cuts for the low paid is welcome, but will the Tories back him?

It’s no secret that Nick Clegg is personally very committed to the Lib Dem – and now coalition – policy of raising the threshold at which people begin to pay income tax. It was one of the first big policies he argued for at conference after becoming leader, and was a key message during the 2010 election campaign. Clegg returned to the theme this morning, though, to call for the implementation of the policy to be speeded up.

Personally I think this intervention is very welcome, not only because the policy is a good and liberal thing in itself, but …

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How big business got the 50p tax rate wrong

From the Financial Times:

Fears that the 50p rate of tax would hinder recruitment of top executives have been allayed, according to a survey of 50 large companies that will relieve pressure on George Osborne to accelerate plans to abolish the controversial levy in next week’s autumn statement.

Only 13 per cent reported that the 50p rate for those earning more than £150,000 a year was proving a barrier to attracting senior managers to Britain, according to KPMG, the professional services group, in what it said was a “dramatic change of sentiment” since 2009 when over 80 per cent of companies

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LibLink: Nick Thornsby – A simple change to the tax system could ease Britain’s economic woes

Over on Comment is free, Nick Thornsby is arguing for income tax cuts:

Political leaders in the eurozone must sort out their problems – and there is finally some hope on that front. When it comes to inflation, while George Osborne’s options to tackle the problem itself may be limited, he can certainly take action to negate its effects on the people on whom it impacts most severely. One of the most effective things he could do is to let those on low and middle incomes keep more of the money they earn. The coalition agreement already commits the government to

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What Liberal Democrat members think of different tax policies

Lib Dem Voice has polled our members-only forum to discover what Lib Dem members think of various political issues, the Coalition, and the performance of key party figures. Some 550 party members responded, and we’re currently publishing the full results.

Cut income tax and VAT but raise taxes on property: that’s the message from Liberal Democrat party members in our latest survey. Some answers to our tax questions are unsurprising, such as the North Korean style (or, for older readers, the Albanian style) majority in favour of raising the personal allowance threshold for income tax to £12,500, approximately equivalent to what a …

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Demonstrating how the Lib Dem policy of raising income tax thresholds IS an irrefutably progressive step

Another week, another attack on Lib Dem tax plans. This one comes from Kayte Lawton, Senior Research Fellow at the IPPR, whose publication on Coalition Tax Policy concludes that raising income tax thresholds is regressive in its impact.

What do terms like ‘regressive’ or ‘progressive’ mean? Quantitatively, it’s a little difficult to define: we’re not talking about a single number, but about a distribution – the shape of a graph. If we consider net gains to an individual and order our data by income percentile, then a progressive distribution of gains would slope down from left to right; if we’re …

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Opinion: Now is NOT the time to abolish 50p tax rate

A letter appeared in the FT today from a deficit* of economists which suggested that the 50p tax rate be dropped. Their reasoning, as was stated on yesterday morning’s Radio4 Today programme is that hedge funds are relocating to Switzerland in favour of the cheaper tax. While I assume if the tax was dropped the 0.5% of the population in the UK who actually pay that level wouldn’t contemplate leaving?

Having worked with hedge funds I recognised a few of the names, such as Sushil Wadhwani, listed in the BBC article as former Monetary Policy Committee (MPC) member. In other …

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Danny Alexander suggests £12,500 income tax threshold

Danny Alexander MP has argued in an interview in this week’s New Statesman magazine that he would like to “push further” eventually on raising the income tax threshold higher than the planned £10,000.

Here’s an excerpt from the interview, published in the Staggers:

From the Treasury perspective, the main Lib Dem contribution to government has been the plan to raise the income-tax threshold to £10,000 by the end of the parliament. Alexander is very attached to this policy as a way of compensating people on low incomes for the cuts. “I think it’s a direction that we will want to

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Opinion: Time for that Lib Dem tax cut in full?

“Under a Liberal Democrat government, you will not have to pay any income tax on the first £10,000 you earn.”

So said the manifesto on which we fought last year’s election. And while we didn’t get a Liberal Democrat government, we did get the policy.

The coalition agreement commits the government to making real terms steps each year towards the target of £10,000, kicked off by an initial increase of £1000, benefiting the low paid by £200 this year.

But should we be moving faster?

Recent economic growth has, of course, been weaker than expected – no surprise given the circumstances. The events of …

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Nick Clegg’s delivery diary

Nick Clegg’s article in the Indy today is a spare, evidential piece, as neatly sliced and lacking in rhetoric as an appointment diary.

But what a diary. Flip back a year, and Gordon was driving to the Palace to call the General Election, as the Liberal Democrats prepared to launch their manifesto.

Now, Nick writes,

…something is happening that, for the Liberal Democrats, is a new experience: the policies we championed during the election are becoming reality. I don’t mean that consultations are being announced, votes held, or papers published. Over the next few days, lives will be changed for

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Two major tax reforms the government should see through

There’s been some promising chatter in the run up to next week’s Budget about two major changes to our tax system, both of which have often been talked about across the political spectrum and both of which politicians have previously ended up shying away from because of the political hurdles involved.

First is integrating income tax and national insurance. As The Independent reported,

The move is expected to be signalled by George Osborne in his Budget next Wednesday. Although such a huge change would take years to implement, the Chancellor is determined to be seen as a reformer and not just

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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.

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