Lib Dem tax policy “fails the fairness test”

Nick Clegg's planned policy of "tax cuts for people and families on low and middle incomes" would be deeply regressive according to a new report.

Lib-Dem-tax-distribution

Nick Clegg’s planned policy of “tax cuts for people and families on low and middle incomes” would be deeply regressive according to a detailed analysis by Tim Horton and Howard Reed for Left Foot Forward.

In December, the Liberal Democrats set out a policy to “raise the threshold at which people start paying income tax from current levels to £10,000”. They have made this policy one of four central “tests” for cooperation with a minority government in the event of a hung parliament and Nick Clegg has said:

“This will be a huge change to our society, to make the tax system fair. Offering real help – and hope – to millions of low income families. A vital step towards delivering real social justice for all.”

But a detailed report, ‘Think again, Nick! Why spending £17 billion to raise tax thresholds would not help the poorest’ (pdf) by Tim Horton and Howard Reed for Left Foot Forward shows that:

• the measure would do nothing to help the very poorest, who don’t have income large enough to pay tax;

only around £1 billion of the £17 billion cost (6 per cent) actually goes toward the stated aim of lifting low-income households out of tax;

• households in the second richest decile would gain on average four times the amount than those in the poorest decile; and

• the policy would increase socially damaging inequalities between the bottom and middle.

Horton and Reed conclude that:

“the Liberal Democrats’ proposed tax cut fails the fairness test.

“Spending £17 billion on increasing the personal allowance is a very poor way to help those on low incomes. It could actually harm the welfare of low-income households by increasing inequality and relative poverty.”

While debates about tax and spend will no doubt be animated at the Lib Dems’ conference in Birmingham, Left Foot Forward hopes that this factual analysis will assist the discussion.

Download the report by clicking here.

135 Responses to “Lib Dem tax policy “fails the fairness test””

  1. Ged Robinson

    @Kopmatt09 not convinced about that http://bit.ly/9KPWKf

  2. New Turn | A progressive consensus? The Lib Dems exposed

    […] on the progressive blogosphere Left Foot Forward, Tim Horton and Howard Reed show quite how regressive Liberal Democrat Tax policy truly is. […]

  3. Andy Sutherland

    Why Nick Clegg is plain wrong on tax. His plans are regressive, and he should know it. For more see-> http://bit.ly/bf6SeD #GE2010 #GE10

  4. Rachael Thorburn

    RT @leftfootfwd: Lib Dem tax policy "fails the fairness test" http://bit.ly/9veG2B

  5. Richard Hall

    @WarrenPearce 10k tax is not redistributive http://bit.ly/9lAsfQ; AV is majoritarian not PR; agreed to Tory cuts; Europe/immigration

  6. Clegg’s 10k tax allowance is no Tory concession; it's a Tory dream | Left Foot Forward

    […] – as we pointed out in our analysis of this tax cut before the election – this claim is totally […]

  7. Clegg’s £10k tax allowance is no Tory concession; it’s a Tory dream « Dnmufc's Blog

    […] – as we pointed out in our analysis of this tax cut before the election – this claim is totally […]

  8. Lindsey Kistler

    The 10K tax threshold rise doesn't help the poorest earners, dissection here: http://www.leftfootforward.org/ and http://bit.ly/9KPWKf

  9. Simon Rogers

    Will the new £10K tax band help the poor? http://bit.ly/9KPWKf

  10. Debbie

    RT @leftfootfwd: Lib Dem tax policy "fails the fairness test" http://bit.ly/9veG2B
    #takeitback #ukvote #condem

  11. Debbie

    RT @leftfootfwd: Lib Dem tax policy "fails the fairness test" http://bit.ly/9veG2B

  12. Daniel

    Will Staw, Have you taken in account the effects of the national insurance rise? The allowance and national insurance seems to create a balance…
    http://www.telegraph.co.uk/news/newstopics/politics/7721618/Coalition-government-tax-cuts-of-140-for-workers-on-basic-rate.html

  13. Jack Graham

    RT @leftfootfwd: Lib Dem tax policy "fails the fairness test" http://bit.ly/9veG2B

  14. >>Nostalgia For Infinity - Linkfest: May 10th – May 19th

    […] Lib Dem tax policy “fails the fairness test” – Nick Clegg’s planned policy of “tax cuts for people and families on low and middle incomes” would be deeply regressive according to a detailed analysis by Tim Horton and Howard Reed for Left Foot Forward. Tags: economics liberaldemocrats coalition electoralpolitics […]

  15. IS THIS A COALITION ? | Shoah

    […] Tory original, though even superficially laudable ideas such as a higher tax threshold are actually regressive in their impact. More importantly, when it comes to the big fiscal issue, the tax changes are small […]

  16. Capital gains tax could be Cameron's first big failure | Left Foot Forward

    […] tax system, by initially increasing personal allowances to £10,000 (a highly regressive policy, as explained in detail by Left Foot Forward), funded through departmental cuts on ‘waste’ and raising CGT […]

  17. Can the Coalition be trusted on families? | Left Foot Forward

    […] March, Left Foot Forward published a report – “Think Again Nick – Why spending £17 billion to raise tax thresholds […]

  18. Politics Summary: Tuesday, June 22nd | Left Foot Forward

    […] economic future are not sacrificed in his attempt to balance the books.” A report for Left Foot Forward earlier this year showed that raising the tax threshold in this manner would do nothing for some 3 […]

  19. It’s not progressive to cut income tax while raising VAT | Liberal Conspiracy

    […] IFS analysis on who gains from raising income tax thresholds was very similar to the earlier critique published by Left Foot Forward and the […]

  20. Nicolas Redfern

    @asilbs2 "Some pros of this budget include the elimination of tax for 850,000 of the poorest of the poor" http://bit.ly/a3LkNb

  21. It’s not progressive to cut income tax while raising VAT « Swinton South Liberal ————

    […] IFS analysis on who gains from raising income tax thresholds was very similar to the earlier critique published by Left Foot Forward and the […]

  22. Osborne's false "trade-off" | Left Foot Forward

    […] Second, he could change the ratio of tax rises to spending cuts so that they reflect the 2:1 ratio favoured by Labour or the 1:1 ratio favoured by Norman Lamont and Ken Clarke in the 1990s and by a number of countries embarking on similar deficit reductions. The Chancellor opted against this route in order to announce tax cuts for big businesses including the banks; cuts to employers’ national insurance; and for the Lib Dems’ regressive tax threshold rise. […]

  23. Andy Sutherland

    Just in case there are any starry eyed LibDems out there. Tax threshold proposal IS regressive too http://j.mp/bf6SeD

  24. Lib Dem tax policy “fails the fairness test”: IFS says so too | Left Foot Forward

    […] month, Left Foot Forward posted a blog highlighting research by the two of us, which argued that the Liberal Democrats’ manifesto pledge […]

  25. Winning the argument on taxation is the key to reviving the left | Left Foot Forward

    […] it must be progressive. This means seriously re-considering the merits of personal allowances. Analysis conducted by Left Foot Forward has demonstrated the regressive nature of income allowances, which […]

  26. The Coalition’s misleading austerity rhetoric « Gregg McClymont

    […] reducing the size of the public sector. The likely dividend of a balanced budget will be poorly targeted tax cuts like the rise in personal allowances, not increased spending on redistribution or improved public […]

  27. The graph that shames Nick Clegg | Left Foot Forward

    […] is a very poor way of helping low-income households – see our earlier posts on this policy from March, April, May and June 2010. Nor are any of these regressive effects unknown to the Lib Dems, whose […]

  28. Winning the argument on taxation is the key to reviving the left | rayhanhaque

    […] it must be progressive. This means seriously re-considering the merits of personal allowances. Analysis conducted by Left Foot Forward has demonstrated the regressive nature of income allowances, which […]

  29. Will Straw

    @faisalislam And it's a very expensive (and regressive) way to target support for the low paid: http://bit.ly/9KPWKf

  30. Tom McTague

    RT @wdjstraw [taking the poor out of tax] a v expensive way to target support (http://bit.ly/9KPWKf ) >but simpler/more popular than credits

  31. Lib Dems' tax threshold policy robs Peter to pay Paul | Left Foot Forward

    […] cost the average family £389 per year – more than double. The policy is also – as Left Foot Forward has previously shown – an expensive and regressive way to target help at the lowest paid. Share | Permalink | […]

  32. Tom Yates

    @DrEvanHarris @edballsmp Ok! Could start by stopping £17bn give away to everyone except the poorest in society – http://tinyurl.com/6ho83pp

  33. Osborne's tax cut is not as big or fair as you think | Left Foot Forward

    […] Left Foot Forward has repeatedly pointed out, raising the tax threshold – a key plank of the Liberal Democrats’ […]

  34. Would raising the tax threshold actually help the poorest? | Liberal Conspiracy

    […] the allowance is usually talked of by Nick Clegg has a way to help the low paid and struggling, but as analysis by Howard Reed and Tim Horton pointed out in 2010, the distributional gains are hardly progressive. • the measure would do […]

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