New research by the IFS outlines that "income tax cuts are not well targeted to help the poorest in society". It corroborates research last month by Left Foot Forward.
Our guest writers are Tim Horton of the Fabian Society and Howard Reed of Landman Economics
Last month, Left Foot Forward posted a blog highlighting research by the two of us, which argued that the Liberal Democrats’ manifesto pledge to spend £17 billion increasing the income tax personal allowance to £10,000 “fails the fairness test”. Among other reasons, we argued that:
• It would do nothing to help the very poorest, who don’t have incomes large enough to pay income tax;
• Only around £1 billion of the £17 billion cost of the policy actually goes toward the stated aim of lifting low-income households of the tax;
• Households in the second-richest decile would gain on average four times the amount that those in the poorest decile gain; and
• The policy would increase socially damaging inequalities between the bottom and middle of the income distribution.
The well-respected Institute for Fiscal Studies published its assessment of the parties’ spending plans on Tuesday. Their distributional analysis reaches similar conclusions to ours. As the IFS puts it, “these figures are a reminder that income tax cuts are not well targeted to help the poorest in society… in isolation, this giveaway could not be described as progressive.”
As we pointed out in our earlier publication, the Liberal Democrat manifesto also contains a number of revenue-raising measures that are progressive and welcome – for example, the ‘mansion tax’ on domestic property values above £2 million, and measures to tackle tax avoidance measures. Many have criticised using some of these measures to fund a permanent tax cut on the grounds that the revenue is either unidentified (in the case of the anti-avoidance measures) or potentially variable (in the case of the green taxes or restricting pensions tax relief, where revenue is dependent on behaviour not changing). And it should be said that other parties are also seeking to raise revenue from sources like high-value property and tackling tax avoidance. Nevertheless, these measures are in theory highly progressive.
But this in no way changes the fact that there are much better ways of spending £17 billion than delivering a tax cut that fails completely in its stated aim of “offering real help – and hope – to millions of low income families”.
The IFS notes:
“Broadly speaking, the Liberal Democrat package would redistribute from the well-off to middle-income families – augmenting the progressive pattern of Labour’s pre-announced measures but doing little for the poorest households. This latter feature might appear odd given the Liberal Democrats’ often-expressed anger at the relatively high rate of tax paid on the gross income of the poorest households.”
Our own report had described the irony of the Lib Dems justifying their tax cut by using the fact that the poorest in society pay a higher share of their gross income in tax than everyone else. Not only does this tax cut do nothing for the poorest, but because on average it gives more proportionally to richer households than to poorer ones, it would increase the differential between what the poorest pay and what everyone else pays.
So we renew our call on the Lib Dems to replace this proposal with a fairer alternative – or, at least to stop selling it in terms of ‘fairness’. We note that some Lib Dem election leaflets during this campaign have inaccurately described this proposal as being worth “£100 to pensioners”. But, of course, it is only worth £100 to pensioners who pay income tax – roughly, the richest 40 per cent of pensioners. This policy would give some support to the richest 40 per cent of pensioners and nothing to the poorest 60 per cent.
That’s not fairness.
You can download “Think Again, Nick! Why spending £17 billion to raise tax thresholds would not help the poorest” here.
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42 Responses to “Lib Dem tax policy “fails the fairness test”: IFS says so too”
Sam Knight
RT @leftfootfwd: Lib Dem tax policy “fails the fairness test”: IFS says so too http://bit.ly/anrnps
Peter Mallett
RT @HouseofTwits: RT @leftfootfwd Lib Dem tax policy “fails the fairness test”: IFS says so too http://bit.ly/anrnps
Alistair Strathern
RT @leftfootfwd: Lib Dem tax policy “fails the fairness test”: IFS says so too http://bit.ly/anrnps
Vanessa Morriss
RT @leftfootfwd: Lib Dem tax policy “fails the fairness test”: IFS says so too http://bit.ly/anrnps <<NOT surprised 🙁
Lee Griffin
Why this continues to irk me, by the way, is the continued shifting of the goalposts.
This policy by the Lib Dems is about a fairer tax system. Not a fairer redistribution of wealth, not a fairer benefit system. It is about saying that if you earn roughly less than relative poverty then you shouldn’t have to go through to rigmarole of paying tax only to get it back. Ironically of course Lib Dems aren’t yet proposing a cut to tax credits so not only will these people not pay tax, but they’ll also still get benefits. Nick Clegg and Vince Cable have repeatedly said this isn’t about those not paying tax. Yet here you are trying to cherry pick what kind of fairness is being talked about. Lib Dems have never talked about this in any other terms than fairness in the taking of taxes, why exactly do the IFS and LFF feel the need to drag it in to an area that isn’t relevant to the policy intention?
But of course it is to a degree slightly relevant for those not on an income, because it’s also about breaking down the situation with marginal tax, a subject you choose not to cover despite moving the goalposts in to an area that the policy isn’t really about. Convenient.
You still choose to use graphs that are only detailing half of the effects of the Lib Dem policy, you are willfully misleading people on the subject.
And all of this would be slightly less annoying if you weren’t such terrible hypocrites. Take Lib Dem policy to remove child trust fund’s and put the money towards pupil premiums. That is a whole policy which takes money away from well off families that are more likely to use the free lump sum from government funds and targets it at the poor…yet you champion…ironically…the pumping of money into a system that is entirely disproportionate to need.
But I’m not going to sit here and call the CTF regressive as you have idiotically done about this LD policy in the past. You see I can recognise that a lump sum paid to a person that happens to be poor when they’re 18 means more, even if it hasn’t been topped up as much and is a slightly lesser value than one maintained by a middle-income family, will represent a greater value than to that middle-income child/now adult.
Like I’ve said on Twitter, you don’t say giving a burger to a starving man is unfair just because you give a couple that are over-nourished one each as well…especially when that couple have had to pay for all three burgers. Clearly I have to clarify because LFF is about constantly being petulant and pick arseholes over things that the starving guy represents someone earning £10k.
I think I’ll leave you with this comment from LibCon that details why your campaign against this policy is redundant and ridiculous. http://j.mp/aV6G1B