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.
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””
Alix
“a flat payment across everybody which would be worth proportionately more at the bottom”
But…but…hang on! This is what a tax cut does! It’s just that it does it with earners. So why do you not admit the significance of proportionality in the case of a tax cut if you admit it in the case of a flat payment?
John77
Sunder Katwala,
I suggest that you sit down and read the data published by HMRC and ONS before slagging off the LibDems and then use some correct numbers. Your 70:30 split in benefit between the the top half and the bottom half (of those outside the top decile) is incompatible with ONS data – and is pretty obviously wrong anyhow. If the bottom quintile of household paid no tax at all (NOT so, according to HMRC and ONS) the split of benefit would be 50:30 not 70:30. The claim that richer households are more likely to have two (or three) earners while superficially plausible is not – except in the case of single pensioner households who make up a large proportion of the bottom quintile – supported by the data, in fact the top quintile of households has a disproportionately large number of single adults.
A proper debate should use accurate data
Politics Summary: Monday, March 15th « Scott LaPlant
[…] his speech, Clegg mentioned his policy to raise the personal tax threshold to £10,000 three times. Left Foot Forward published analysis on Saturday of how only 6 per cent of the £17 billion would go to helping the […]
Peter Kunzmann
I am sorry to say that the Left Foot Forward analysis is inadequate (it totally ignores key aspects of Lib Dem tax and beneift policy) and the graphs you use are EXTREMELY misleading.
However, before I go on with my critique, I do acknowledge that your article makes SOME good points about Lib Dem tax policy – namely it is not as redistributive or as many of us on the Lib Dem left would like. I, for example, would like to see a far more redistributive package that helped people right at the very bottom – perhaps through a Citizen’s Income policy for example.
However, although I belive Lib Dem tax policy could be better (MUCH better) – I will attempt to explain why you are wrong to condemn it in full.
Concerning the graphs – you only analyse the effect of the raising of the threshold and the changes to the 40p rate. You do not include graphs which show the effect of the tax changes at the top (changes to Capital Gains Tax, Pension Relief and Mansion Tax). If you did, it would show clearly lower and middle deciles benefiting, at the expense of the very top. This would give the casual reader a very different impression of what Lib Dem tax policy implies.
Now, I recognise you do mention this in the text – though you still choose not to put a large emphasis on it. It remains the case that lower income earners DO benefit at the expense of high income earners. This is redistributive and progressive.
However, more worryingly, you miss some of Lib Dem tax/benefit policies entirely – both from your graphs and your text. Many of these address your concerns that Lib Dem policy is biased towards the middle.
Key aspects of this are:
– The Local Income Tax: Which I believe benefits the lower deciles at the expense of the middle and the top.
– The removal/reduction of tax credits from middle income earners. (Lets leave aside the debate over long vs short tapers for the moment and just focus on the pure, immediate distributive consequences)
– The introduction of higher rate child benefit. (Party policy, which will hopefully still be in the manifesto)
As you said in your text it is stupid to look at income figures before all tax/benefit policies have been applied – yet that is exactly what your own analysis does.
Taking these factors into consideration would show very different (and far more progressive) distributive consequences. It would show the poor benefiting more, the middle benefiting less and the rich really getting even more of a hit!
I hope that you can accept these points… then go back any redo your pamphlet showing the the effect of Lib Dem tax/benefit policy as a whole.
Leaving your article as it is can only mislead voters and lead to a seepage of votes away from what are actually the most progressive tax/benefit policies of any of the 3 major parties.
We can all say the policies could be better but don’t condemn everything wholesale on a partial and misleading analysis.
Peter Kunzmann
Liberal Neil
Picking up some of the other comments – this ‘analysis’ only looks at half of the policy package. It looks at the savings to high earners from raising the basic threshold but ignores the extra taxes they will pay. It is therefore simply not credible.