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””
Evidence based, Left Foot Forward? Not if you’re ignoring the actual evidence
[…] seems to be the only explanation for their slanted weekend posting that Lib Dem tax policy “fails the fairness test”, which appears to rest on two points: 1) that people who don’t pay tax won’t benefit […]
Mark
Surely according to the reasoning of this piece, the starting rate 10p tax band would “fail the fairness test” – and more so. It did exactly the same thing, except that:
1. It was much lower, and so anything over £7455 was taxed at 22%.
2. It still taxed anything from £5225 to £7455 at 10%. Someone earning £50,000 would get more back from it than someone earning £6,000.
This really does strike me as fairly naked partisanship.
According to the Lib Dem proposals:
1. Almost everyone* earning £10,000 or more will (automatically) receive £705 from the increase in the PA from £6475 to £10000. There’s no problem with form-filling, bureaucracy, take-up rates, or the horrendous repayments that many people have to pay when HMRC (frequently) makes mistakes on tax credits.
2. People earning £6475-10,000 will receive less, but they’ll certainly still benefit, and will end up much better off than they were when the 10p tax band existed. They will also benefit from greater positive incentives to move from benefits to work (rather than the negative path taken by, for example, the Welfare Reform Bill).
3. It’s an extra 7% of income for someone earning £10,000.
4. For someone earning £50,000 it’s about 1.4% of income.
5. This is being paid for by tax increases at the top, but overall is revenue-neutral.
6. How is that regressive?
* excluding pensioners, who already have a higher PA, but they’ll still be about £100 better off
Press release: In some alternate universe … « Freethinking Economist
[…] types choose regressive policies at the drop of a hat’. They fail the test of fairness, says a blog, and will stop at nothing in their mad quest to get the Gini coefficient up to 1. Or even […]
Mark Wright
I think expecting a fair critique of any Lid Dem policy from a Labour-based organisation just a few weeks before a General Election was always going to be a Bridge too Far. This analysis is little more than looking at one half of an equation and saying “The sum is unbalanced”.
As has been pointed out, a more honest way of critiquing it would be to argue that the £17bn raised in the other half of the equation should simply be spent on public services. Then a serious discussion could have ensued. But the headline “Labour to raise taxes by £17bn” wouldnt have made very good attack material, compared to “Regressive Lib Dem tax-cut.”
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