Is Clegg’s tax threshold plan the best way to reduce income inequality?

Nick Clegg’s tax threshold plans go half way to addressing the problem of working poverty, but it goes no way towards addressing the cause.

 

Shelly Asquith – is a campaigns assistant at One Society

Nick Clegg’s call today to speed up the process of raising the tax threshold to £10,000 will lift one million people out of income tax. Clegg aims to reduce the UK’s excessive levels of income inequality, which should be welcomed, but there has always been controversy about whether this proposal is the best way to achieve that aim.

For example, as research (pdf) by Tim Horton and Howard Reed, published by Left Foot Forward before the general election found, of the £16.5 billion this policy is expected to cost, 94 per cent would go to those on middle to higher incomes – not those at the bottom.

Since then, the deputy prime minister has explored ways of reducing the extent to which the policy provides accidental benefits to those who least need it.

But some issues remain. While Clegg claims his move to push up the threshold will aid “alarm clock Britain” – his alias for Ed Miliband’s “squeezed middle” – it does little to address the hardship faced by those already earning less than the current threshold.

Overall, according to Horton and Reed, three million households in the poorest quartile of the income distribution would not benefit from this policy at all.

Another problem is that for many people, much of the positive impact of lower taxes will be clawed back (pdf) by reduced benefits. Many will see a reduction in their Income Support, Child Tax Credit and basic State pension allowances as a result of being lifted out of income tax.

Clegg’s proposal would increase the take-home incomes of a substantial number of families, but there may be more cost-efficient ways of achieving similar goals, which should also be considered.

Encouraging employers to pay a living wage, (or raising the national minimum wage), would lift many out of poverty. The government could also seek promote accessible training for, and incentives for employers to create, more skilled and semi-skilled jobs.

This would address the so-called ‘hollowing out of the labour market’ as well as mobilising many of those who find themselves stuck in unskilled, service sector jobs propped up by benefits.

Clegg’s solution goes half way to addressing the problem of working poverty, but it goes no way towards addressing the cause.

See also:

Lib Dems’ tax threshold policy robs Peter to pay PaulWill Straw, January 10th 2011

A Thatcherite horror sequelKen Livingstone, June 21st 2010

Clegg’s £10k tax allowance is no Tory concession; it’s a Tory dreamTim Horton and Howard Reed, May 12th 2010

Lib Dem tax policy “fails the fairness test”: IFS says so tooTim Horton and Howard Reed, April 29th 2010

Lib Dems: Our tax plans are fair and progressiveDanny Alexander, March 29th 2010

Lib Dem tax policy: Our response to your responsesTim Horton and Howard Reed, March 20th 2010

Lib Dem tax policy “fails the fairness test”Will Straw, March 13th 2010

Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today. 

40 Responses to “Is Clegg’s tax threshold plan the best way to reduce income inequality?”

  1. Stewart Owadally

    Good article on @leftfootfwd by @shellyasquith http://t.co/29pixPsd

  2. Political Planet

    Is Clegg’s tax threshold plan the best way to reduce income inequality?: Nick Clegg’s tax threshold plans go hal… http://t.co/ZUfiCYSx

  3. Patron Press - #P2

    #UK : Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/eOMu4tYG

  4. BevR

    RT @leftfootfwd: Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/wKd4gfQh #spartacusreport

  5. leftlinks

    Left Foot Forward – Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/kBfXa8OR

  6. BevR

    Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/iHKsztJ4 by @One_Society’s @ShellyAsquith

  7. Anonymous

    Encouraging employers to pay a living wage, (or raising the national minimum wage), would lift many out of poverty. The government could also seek promote accessible training for, and incentives for employers to create, more skilled and semi-skilled jobs.

    ==============

    Unless, that new wage means they don’t generate enough profit to make it economical to employ them. That means they just get the axe as the company goes under.

    Given that the largest cost for poor people is taxation, it does make sense to remove that cost.

    However, the problem remains. Deficit is still here. Debt is still here. Government needs to tax people to pay for the mess left.

    Given that the Condems have increased spending, its not going to happen.

  8. Alan Valentine

    Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/iHKsztJ4 by @One_Society’s @ShellyAsquith

  9. Guido Fawkes

    It isn’t designed to reduce income inequality. It is designed to take the lowest paid out of taxation.

  10. Jonathan Taylor

    Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/iHKsztJ4 by @One_Society’s @ShellyAsquith

  11. Shelly Asquith

    Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/iHKsztJ4 by @One_Society’s @ShellyAsquith

  12. Robert CP

    Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/iHKsztJ4 by @One_Society’s @ShellyAsquith

  13. Mr. Sensible

    The devel will be in the detail, I think.

  14. Timnich0ls

    Indeed Mr Sensible. The detail is the lowest paid only get to keep 15p per pound, whilst those who are better off get to keep the whole lot.

  15. Timbo

    About 700,000 of the lowest paid households get both Housing Benefit and Council Tax Benefit. This are both calculated using net earning. HB has a taper rate of 65% and CTB has a taper rate of 20%. So the lowest paid only keep 15p of every pound from raising the threshold. It’s a very badly thought out policy and very poorly targeted money if the intention is to help the lowest paid.

  16. Shelly Asquith

    As I said, this raising of the threshold disproportionately advantages those on higher incomes, and does nothing to help people on the very lowest incomes – those already under the current threshold of approx £7k. Everyone benefits from this tax cut, not just the poor.

  17. Guido Fawkes

    It doesn’t, it is as proportion of income most advantageous to the those on lower earnings. Everyone needs help including the squeezed middle classes.

    http://order-order.com/2012/01/26/cleggs-progressive-10000-threshold-hike-benefits-low-income-earners-most/

  18. The Equality Trust

    Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/iHKsztJ4 by @One_Society’s @ShellyAsquith

  19. HullRePublic

    Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/iHKsztJ4 by @One_Society’s @ShellyAsquith

  20. Jasmine Sharma

    Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/iHKsztJ4 by @One_Society’s @ShellyAsquith

  21. NeilCB1

    RT @leftfootfwd: Is Clegg’s tax threshold plan the best way to reduce income inequality? http://t.co/PfVTn5jm

  22. Ed's Talking Balls

    Even if I were to accept your analysis (which I don’t), the line ‘everyone benefits from this tax cut, not just the poor’ is objectionable, in my view. What of Miliband’s ‘squeezed middle’? Maybe they could do with some more cash in their pockets too in these times of high unemployment, stagnant wages and relatively high inflation.

  23. Newsbot9

    The lowest paid are already out of taxation.

    As usual, you’re after a tax break for the middle class and to screw over the poor.

  24. Newsbot9

    And when it’s funded (11+ billion cost!) from ALL tax payers, including the lowest paid, how precisely is hurting the poorer people going to increase spending? Oh wait, it’s not.

  25. Newsbot9

    The largest cost? Nope, the largest cost is rent. You don’t have the slightest concept of what being poor IS, let alone how people cope with it.

    And the ConDems have increased spending because of many of their ill-advised cuts, yes, which COST money.

  26. Newsbot9

    I can make up lies as well.

    Let’s see, you’re a Libertarian. There’s one right there, oh champion of the 1%.

  27. Anonymous

    Unless you’re one of the comrades like Bob Crow. You can get cheap housing when you are on 150K, because its showing solidarity with the poor.

    I’ve a solution. Lets cut gold plated public sector pensions like yours, and use that to raise the tax threshold. 30% cut should see that solved.

  28. Anonymous

    The lowest paid are already out of taxation.

    ==========

    Bollocks.

    Those on minimum wage pay income tax and national insurance.

  29. dsugg

    94% of the benefit from raising the tax threshold to £10K would go to those with middle and higher incomes: http://t.co/WoNdtIeN #PMQs

  30. Pen

    94% of the benefit from raising the tax threshold to £10K would go to those with middle and higher incomes: http://t.co/WoNdtIeN #PMQs

  31. Shamik Das

    94% of the benefit from raising the tax threshold to £10K would go to those with middle and higher incomes: http://t.co/WoNdtIeN #PMQs

  32. Shamik Das

    Cam may say he favours marriage but welfare bill incentives family break up http://t.co/WoNdtIeN #pmqs

  33. ♡Jay☺ ♡

    94% of the benefit from raising the tax threshold to £10K would go to those with middle and higher incomes: http://t.co/WoNdtIeN #PMQs

  34. Martin Steel

    94% of the benefit from raising the tax threshold to £10K would go to those with middle and higher incomes: http://t.co/WoNdtIeN #PMQs

  35. Shelly Asquith

    I'm sure today's @leftfootfwd article http://t.co/owLr0UNa is very similar to the one I wrote for them last month! http://t.co/0pEQBFf7

  36. Karen Buck MP

    94% of the benefit from raising the tax threshold to £10K would go to those with middle and higher incomes: http://t.co/WoNdtIeN #PMQs

  37. Anonymous

    Not those earning under the threshold, dimwit!

  38. Anonymous

    If you don’t, then provide some in-depth analysis of your own instead of talking out of your distended arsehole.

  39. Anonymous

    Well, given that min wage is still above the threshold, that doesn’t apply unless its part time work.

    Back to remedial maths for you.

    Taxing people in poverty is immoral.

    Taxing poor people working, who are in poverty to pay people to live a better lifestyle than the poor worker, is particularly repugnant.

    Add up all the benefits, and people were being paid 172K a year to live on benefits in Kensington. That’s tax free. That’s is totally wrong.

  40. Anonymous

    “unless its part time work.”

    Well done Sherlock, you eventually engaged a few neurones.

Leave a Reply