I have been asked to explain why I oppose the Lib Dem policy of increasing the personal allowance to £12,500 a year from its current level of £10,500 per annum, so I will.
There are numerous reasons for objecting to this policy. This first is that it's simply misguided, mislabelled, or both. The Lib Dems insist that it is their intention to take people out of tax. They do nothing of the sort by increasing the personal allowance. Income tax is, for the record, about 27% of all tax paid in the UK. For those on lower income it is a much smaller part of their overall tax bill than that. To say that removing a person's income tax bill takes them out of tax is just plain straightforwardly wrong or deliberately and blatantly misleading. It does nothing of the sort, most particularly when the National Insurance threshold which will affect many of the people involved kicks in at £7,956 a year. Since NI at 12% is in the income bands we're talking about a bigger liability overall for many than income tax the suggestion made is even more inaccurate. This reveals this policy move for what it is - which is gesture politics.
Now I am not unaware of the appeal of gesture politics. Symbolism is important. But this is a very poor symbol: when it is so obviously not true anyone can see that this is not a gesture but is instead a lie then symbolism definitely fails.
But is this good tax policy anyway? Clearly not if the aim is to take the lowest paid out of tax. The benefit of this change does in theory go right across the range of taxable income. This is why the Institute for Fiscal Studies has, I gather, suggested it may cost £12.2 billion a year. This is not the result of rcket science on their part. This is a saving of £400 a person (the £2,000 band increase at 20%) for 30.5 million taxpayers. That figure is not quite right of course. Those earning over 100,000 do not have the benefit of a personal allowance (although I think they should, but at basic rate only) and there will also be those with taxable income between £10,500 and £12,500, (who numerically are likely to exceed fivefold those earning over £100,000 a year), who will not get the benefit of the full 400. What that makes clear are two things. The first, is that this change is only of marginal benefit to those it is supposedly most intended to help, who are on low pay, and secondly, it helps many others a lot more. This is a scatter gun approach to tax policy at a time when money is supposed to be scarce. That makes it an extraordinarily poor policy instrument.
Third, if the intention is to restrict the benefit of this change to those who are on basic rate tax then, inevitably, the threshold at which higher rates of tax must come into play has to be reduced so that more of the population then pays tax at 40%. This is politically unpopular, and as a consequence much of the gain that the policy supposedly delivers is lost.
But, most important of all, this policy will have no impact at all upon the approximate 10% of the population who earn less than £10,500 a year, and only marginal impact upon the further approximate 10% of the population who earn between £10,500 and £12,500 a year. The 20% of the population who are, therefore, supposedly most intended to benefit from it, simply do not, or only do so to limited degree. What this then means is that this policy will, inevitably, not help those on the lowest income at all, but will help those on higher incomes, and that can only increase inequality in this country. That makes this an absurd tax policy at this time.
Is there a better and more useful way to spend approximately £12 billion of money in that case? The obvious answer to that is yes. First of all, this sum could prevent all further cuts in social security spending. It could also, at present, help alleviate some of the most egregious changes to existing policies in this area, such as the bedroom tax and the wholly unnecessary delays in paying benefit plus the policy of sanctioning far too many people who are making benefit applications which are entirely unreasonably withheld from them.
If the Lib Dems want to help those on low incomes they should design policies targeted at this group. What they are instead doing is saying that they are helping the low paid when they are in fact doing nothing of the sort and the benefit of this cut will go to those on higher levels of income. That may be their aim, but it is not what they are saying, and it is that lack of transparency about the policy that I find particularly offensive.
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Totally agree with everything you say.
As a matter of interest, would you be in favour of abolishing the personal allowance and replacing it with a flat rate tax credit of say £2,500 for all (except perhaps for those with income in excess of £100,000)?
This would prevent higher rate taxpayers disproportionately benefitting from any increase in the tax credit unlike with increases in the personal allowance.
I would give it for all
Yes
Richard
I don’t think I share your analysis.
I think it best, certainly shorter, not to debate whether this rise in personal allowance would be the best way for this cost to the Treasury to help alleviate relative poverty. I think anyway I would agree with you that there are better, more targeted ways. You quite rightly go straight to the NI threshold and you could have mentioned VAT levels.
Where I would take issue with you is in your general underlying intentions. When I suggested you set out your reasonings in your blog I thought they would be based around those other methods, other tax reductions. Instead what you appear to be proposing is to keep taxing the low paid (and I repeat; you haven’t suggested reducing any taxes in this post) but to give more benefits.
I have two objections to this, one of which I had believed you would share. The first derives from my Christian faith and concerns the dignity of the person. it is surely far better to allow a man (or woman of course; I’ll use the masculine form) to keep his own earnings first before we look to ask him to subsist on benefits. Benefits are of course an economically important part of any modern economy and a sign of a decent society. However, surely they should be for those who are for whatever reason unable to provide for themselves rather than a supplement given to people who have actually already had their income taken from them.
My second objection is simply that tax, simply by defintion, increases marginal rates of tax on the low paid. We know in reality that benefits largely will be means tested – society simply cannot have sompletely universal benefits. However, as you yourself have written, means testing increases marginal rates of tax on the low paid and this is a very bad thing – hence your post on the subject.
So, all-in-all, I am very surprised that you do not appear interested in reducing the tax burden on the low paid. Am I mistaken?
There is no faith based reason at all for arguing on this issue. Sorry, but very politely, God, Jesus and the Bible have nothing to add here. And I have looked. And I consider my self a Christian. You may have faith – but it’s in neoliberalism and not God if it drives you this conclusion
Second, I was looking at a very narrow issue here
For a broader consideration read http://classonline.org.uk/docs/2013_Policy_Paper_-_Richard_Murphy__Howard_Reed_(Social_State_-_Idleness.pdf
I did feel a little as though you missed the point ‘Objector’. Those on low pay (and yes we do exist) already don’t pay tax.
Whilst a tax reduction would be very nice, for those with stagnating wages, those who have had their wages and / or hours cut, I am not exactly sure which burden we would be released from. Especially if this is going to cost £12.2 billion.
Absolutely right
Very good point Sarah – although I would point out that anybody on low pay who isn’t restricting their expenditure entirely to VAT-exempt or zero rated items such as food, books and magazines, and children’s clothing, already does pay tax – in the form of VAT, which the Coalition govt raised from 17.5% to 20% – partly so it could fund the increase in the personal allowance for income tax, which mainly benefits families on middle-to-high incomes anyway.
Precisely
Objector – a great post, consistent with my views and one which I think is very consistent with the Christian philosophy that I share.
Unfortunately, as it is his blog, Richard often feels the need to misrepresent those that don’t have the same views as him – economically or spiritually – particularly when those point out the inconsistencies and fallacies in his opinions.
A pair of trolls agree with each other and claim Christian faith as a defence
Amazing
‘Inconvenient truth’, you have blue-tinted spectacles fixed in place, and need to have them removed before you will be able to see the truth. Until then, what you say is not the inconvenient truth, but the all-too-convenient lie, which serves the interests of the rich and powerful at the expense of the poor, the weak and the vulnerable. Being on the side of the proud, the monarchs (‘_dynastas_’ in the Greek) and the rich is not Christianity, as a reading of Luke 1:46-55 will tell you. ‘It is easier for a camel to pass through the eye of a needle, than for a rich man to enter the Kingdom of God’ (Matt. 19:24//Mark 10:25). May God enable you to see the truth of this.
From the replies from The Inconvenient Truth I have read on this blog over the last couple of years I do not recognise any Christian philosophy in them. I would be very heartened to hear him say he is in favour of overturning the tables of the money lenders though.
He does not like me getting righteously angry
It’s another quality he does not seem to recognise in a Chap from Nazareth
I’m glad you don’t try & quote authority.
Since when did a man’s dignity depend on his ability to make money? I can assure you that that idea comes from Mrs Thatcher, not from Jesus. I appreciate you may have lost the ability to differentiate but I haven’t !
Please, someone save us from these sanctimonious “Fib Dems” and their continual lies about taking people “out of tax”. This ConDem govt has presided over a massive redistribution from working age benefit and tax credit claimants to people on middle and upper incomes while hiking up VAT. And it has spent around £20bn on income tax and corporation tax cuts while pretending to be trying to close the deficit. Utterly contemptible dissembling and dishonesty.
Nicely put
Oh my word!
I think a quick comparison betwen the tone of my comment and the appalling tone of your response would lead people to wonder just what sort of blog they had stumbled upon here. Is that really how you wish to respond to soembody who said nothing more than “I don’t think I share your analysis”?
I’m sorry but once you claim a Christian faith you cannot possibly say something like: “There is no faith based reason at all for arguing on this issue. Sorry, but very politely, God, Jesus and the Bible have nothing to add here”
I note you didn’t say “making your argument”; you said “…for arguing on this issue”. That means no no Christian perspective, no Christian literature, no Christian philosphical tradition to be brought to bear. I’m sorry, I will never agree with that and I don’t believe any Christian would ever accept that “God, Jesus (Jesus not God?) and the Bible have nothing to add here.” I can’t accept that you believe that either because you recently quoted Romans 13 on a matter of tax and only yesterday were invoking St Benedict!!!!
As for “You may have faith — but it’s in neoliberalism and not God…” Who are you to question my faith? Indeed who are you to question anybody’s faith? Do you really believe you can see into other mens’ souls? I’ll have you know that my view on the dignity of the person derives from reading papal encyclicals stretching back a century!
I hope those who read my comment will think that this is a a site and I am a person who will not accept bullshit from people claiming that their Christian view of the sanctity of the person means that their income should not be taxed because that is the sort of nonsense used by the religious right to suggest that those on low income are in that situation because of their sin and that money is a sign of God’s reward for virtue and that inequality is natural and to be applauded as a consequence and that tax upsets this and so is to be abhorred
Sure faith has a bearing on issues – I never denied it but when the over-riding message of Christianity was a duty to the poor then your argument has no relationship to it and I am quite happy to say that is my view
What is more – if you really believed you wouldn’t hide behind a mask
I make no apology because I most definitely object
Objector
& what is your “view” on dignity of the person?
I can’t see that you’ve quoted any authority at all.
to be boringly fair, they have also indicated a desire to raise the NI thresholds in line. Council tax and VAT would still apply, but little else. And to be entirely pedantic, then their only chance of getting this would be one of a) electoral maths that delivers a chance of another coalition, or b) other parties nicking the idea (which is actually quite likely in principle, given that it will be a vote winner).
No way this could be afforded either
And then those on low pay also have no NI contribution record and so lose out on pensions and benefits
Cynical, or what?
People on low incomes could be taken out of NI, but have NI credited to them _as if_ they paid it, so that they would still get their pensions & contributory benefits, if they needed them. It would be a good idea to raise the present starting point from the absurdly low level of £7,956 p.a. to something like £17,956 p.a., rather closer to national mean/median household pre-tax income. That very regressive tax VAT should also quite definitely be cut. To be ‘tax neutral’, other taxes would be need to be increased, and if taxation is to be fairer, more equitable, and to reduce inequality, it needs to be far more progressive. It needs to be more progressive if disincentives to work are to be removed, as there is little point in people getting full- or even part-time jobs if all the extra money they earn is cut from their benefits and/or lost in tax and NI.
Council Tax is just about the most regressive tax we have. A property tax paid by those who don’t own the property – I believe this is unique to Britain and an absolute disgrace.
agree entirely.
taking the low payed out of tax also insinuates that these people don’t contribute to society. and that will just add to the fallacy that it’s the middle and high incomes that have to foot the bill for everything and so we should all bow to and be grateful for the rich.
Vital point I did not make
I should have done
This is why a low starting rate is better
I think you misrepresent something important. Not earning enough to pay income tax means lots of things, but it does not disenfranchise and nor should it – be that the vote, access to the NHS, or provision of a pension in retirement. But then I have never, ever heard anyone call for any of that. A big challenge our society faces is the benefit trap that keeps able people from working – a trap that has been made worse by the muddleheaded socialism of Blair and Brown. And a trap that is sprung when income tax rates start low.
There have been articles in the Telegraph saying those who do not pay income tax should not vote
This is entirely consistent with the logic of those who think those without work need to be penalised for that situatin arising and call them things like shirkers
The benefits trap can be beaten by a citizen’s income
Alistair- it is YOU that is being muddle-headed by a long way. Why do think that people need benefits in work? The answer is simple:
between 1995 and 2007 there was a 370% increase in bank lending for mortgages creating one almighty asset bubble-the bubble collapsed (a bit!) but has since been re-inflated. The 12 billion of ‘Help to Buy (bubble) went largely to people with an income of over £80,000 a year. Speculation was on the move again.
We now have a situation where AVERAGE percentage of disposable income on housing is 37%, in some areas it is over 60%.
So now have a think about why people are in a benefit trap and what might be the cause of that! Go on…have a think about it…go on….
“that is the sort of nonsense used by the religious right to suggest that those on low income are in that situation because of their sin and that money is a sign of God’s reward for virtue and that inequality is natural and to be applauded as a consequence and that tax upsets this and so is to be abhorred”
Except I never said that or implied that in any way and I simply don’t believe that. To attribute that view to me is a plain lie Richard. That doesn’t indicate faith to me!
Finally, Christian faith requires us to stand up for that faith. You make liberal use of the delete button and the comfort of your editor status. Given the subject of this post, why don’t you break with your usual habit and actually respond instead of delting when your rudeness is pointed out to you?
I have responded
What more is there to add?
I have made my position very clear
You clearly have no faith in yours
Are you like this in the flesh, Richard?
With those I think are proposing what I consider abusive I can be
I am also usually charming, humorous and good fun
your the one who has said that the bible implies this is a good idea.
Richard has called that out as nonsense.
so why not just tell us where in the bible it implies that for every £400 tax cut we give to the poor, we should also give a £400 tax cut to the rich (which is what this policy adds up to.)?
and as for the liberal use of the delete button, did you read the bit about throwing pearls to pigs?
Since faith is whatguides your life, you will appreciate this analysis of taxation and Judeo-Christian Moral Obligations https://www.law.ua.edu/misc/hamill/An%20Evaluation%20of%20Federal%20Tax%20Policy%20Based%20on%20Judeo-Christian%20Ethics.pdf
Thanks
I am familiar with it and whilst not agreeing with it all think it s useful contribution to debate
crikey! 94 pages! surely we can sum it all up with Matthew 19:21…
Jesus said to him, “If you wish to be complete, go and sell your possessions and give to the poor, and you will have treasure in heaven; and come, follow Me.”
so aspire to give everything you get to the poor. seems fair enough to me.
Richard
Did you do the maths on Neil Edwards’ proposal before you endorsed it and went further? I ask because anyone warning over £12,500 is is exactly the same position as with the Libdem proposal.
Of course I did the maths
It’s a flat rate personal allowance
I’d pay it to those not earning £12,500 too
But that would have to be part of a bigger deal
As a direction of travel I think it has merit
But an express criticism of the Libdem proposal was that it was “scatter gun” and benefited the wrong people as much as seen intended. There was no mention of your ‘direction of travel’. Well this proposal has exactly the same feature and the same quantum. And Neil’s post made no mention of other complementary measures. Could you explain the differences a bit more please.
Someone made a suggestion
I happen to think that it is an appropriate way to view things: implication of a flat rate £2500 allowances that everyone gets it. You can call that scattergun if you like, but in practice I think that the tax system does have to respect each individual, whether they are earning or not.
This then would give this allowance to those on the highest rate, but I would also then expect that it should be paid to everyone even if they have no income. that begins to take as in the direction of a citizen’s income.
I would welcome that
So, sure, I did not explain every nuance of everything I implied in that comment. My time is finite and I do not think I have to justify every word I write
Sorry, but that’s just because I’m human, after all
Actually I didn’t introduce the term scatter gun; you did. You also introduced the idea of making it universal, thereby giving it exactly the same effect on high earners as the Libdem proposal. That is high earners except those earning more than £110,000, who would benefit more under your proposal than the Libdems’. I’m not trying to be awkward for the sake of it; these are the sort of tests to which all proposals need to be put. You have after all been been extremely critical of a proposal that has much the same outcomes as your own.
And you have ignored all the conditions I suggested
Why the deeply selective reading?
I offer explanation and you ignore it.
And if you do not realise the outcome is utterly different – then you’re no beancounter
Why so rude? I haven’t been to you! Do you not think people would be more responsive if you were more pen to constructive input?
I enjoy constructive input
I have not a lot of time to waste on time wasters
the basic problem is that Britain is a low wage and very high living cost country. a personal allowance of £12.5k a year does not seem excessive to me although I would not dispute that the cost could be better spent.
new labour sought to address the issue of low wage/very high living cost with non-contributory welfare benefits for low paid workers and non-workers. undoubtedly this did some good, but it fundamentally undermined the welfare state by taking from young single workers and giving non-contributory benefits to non-workers.
I cannot get bothered about a £12.5k personal allowance when the elephant in the room is a low wage economy for those in work, a relatively generous non-contributory benefits system for those that aren’t working, and high living costs for everyone.
better to improve wages and state pensions so nearly all workers and state pensioners are taxpayers even if the personal allowance is £12.5k, encourage saving and target social security spending on those who have paid NIC.
Interesting article, but for what’s it’s worth I would be not be in favour of taking low income workers out of the tax net completely. I think government/politicians and tax advisers have a duty to inform people of the direct correlation between the taxes they pay the the benefits they get. I’m writing this from Ireland and it’s the low paid workers who are been removed from the tax net and a greater burden has been placed on the middle income earners. Yet it is the lower wage income workers who benefit the most with most of the social welfare entitlements and if a middle income earner loses a job they are hit the hardest. And for what’s it worth in Ireland we have a tax credit of €1620.00(which is taken from tax payable amount).
I think yin are looking through blinkered eyes
Many middle income earners enjoy considerable stats subsidies
You also assume that there is no movement between the groups. That, I think, is naive
Think of the role that Housing costs play in this Justin and then think about what caused that! After doing that think about whether it is justified to blame the poorest for it.
The Lib Dems have quickly come around to thinking that they have a rightful place in government, even though, at very best, they will come third in a General Election. That contempt for democracy is arrogance.
I don’t care what they say or promise – I want them out.
Tim-the contempt for Democracy comes from having to choose between Parties ,between which you cannot get a cigarette paper!
The real contempt for democracy comes from allowing an out of control financial system to control the money supply and the direction of economic resources -none of us can vote about THAT and none of the parties (including UKIP!) give a damn about changing it. It’s not just the Lib Dems who are cringing cowards. The lot of ’em are.