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.

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. 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 […]

  2. 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. […]

  3. Andy Sutherland

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

  4. 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 […]

  5. 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 […]

Comments are closed.