Nick Clegg has proposed increasing the income tax personal allowance, again.
The argument is always the same: it's said that this 'takes the poorest out of tax'.
There's a flaw with this argument: as this graph shows the bottom 30% of taxpayers hardly pay any income tax already:
In fact, the bottom 25% of earners pay just 2.3% of all income tax between them right now, and the bottom 10% just 0.4%. However it's looked at, you can't cut that by much and the result is that this policy blindingly obviously does not do what Clegg claims: it does not take the poorest out of tax as they are already not paying income tax. That is, therefore, just a ruse for a tax cut for others higher up the income order.
Now that may be what Clegg wants to deliver, but if so say it.
Otherwise cut the taxes that impact the poorest more, like national insurance and VAT; the latter especially.
And in the meantime drop the anti-tax rhetoric which suggests that government is a a bad thing when very obviously it is not.
This is lousy politics, poor tax management and real misrepresentation. I resent all three.
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Hard to decide whether he is being stupid, dishonest, or just possibly both.
Every time the personal allowance has gone up the Lib Dems have boasted about how many of the poorest have just been taken out of tax. (I wonder just how many?) None of these can be taken out of tax by another PA rise. They all have lower incomes than the people who will gain.
Those who are least well of would benefit more from a VAT cut or an increase in public spending.
I understand your analysis and do not dispute it, but try looking at this from the perspective of the people affected.
In the document you refer to, it also tells us that someone on £15k has an average effective tax rate of c.8% in 2013/14.
So taking them out of income tax would be an 8% increase in disposable income. I agreed that its not enough to transform Govt finances, But that’s quite a lot of money for people affected I would have thought.
And no one is suggesting they will be taken out of tax so irrelevant to the discussion here
Sorry I must have misunderstood.
When the BBC piece you link to says “while taking around half a million people out of income tax altogether” I thought that meant they were suggesting that people would be taken out of tax. But obviously not.
When you say in your piece here “The argument is always the same: it’s said that this ‘takes the poorest out of tax’ I thought that meant they were suggesting that people would be taken out of tax. But obviously not.
I see now that no one is suggesting they will be taken out of tax.
If it is “a ruse for a tax cut for others higher up the income order” it isn’t a very good one for those much further up the income order.
Every time the personal allowance has increased the basic rate band has been reduced in size to ensure that no higher rate tax payer benefits. In fact whilst the tax bill may have remained the same it has made more people higher rate taxpayers.
Looking higher up the scale those with a taxable income of £100,000 or more now pay more income tax because their personal allowances start to be phased out above that level which means they have less income in the basic rate tax bracket, but don’t benefit from the increased personal allowance either.
Of course I don’t know how much “higher up the income order” you are looking, it may be that you are thinking of people on average incomes.
Not correct – the HRT is rising by 1 per cent this year and next. Yes the basic rate band is shrinking but not by an amount equivalent to the rise in the personal allowance – higher rate taxpayers are benefiting.
There is so few earning over 100k that they shouldn’t really factor into the discussion.
I stand corrected the higher rate taxpayer gained 42GBP between 2012/13 and 2013/14, although I note this is still a rather smaller amount than the 267GBP received by basic rate taxpayers.
Perhaps a better argument would be to say that the change in bands has also reduced the NICs payable by the higher rate taxpayer by up to £102.50 compared to the basic rate taxpayer.
Of course this is another “smoke and mirrors” exercise. Before we move on to the main agenda, which is to cut income tax for the 1%, the high income “earners” ….
Housing is the main issue for the low paid-the costs must be got down by LVT and a complete cessation of speculation. Clegg is a buffoon, ignoramus, in thrall to the neo-libs-or all three.
Clegg and Cable are members of ALTER, which is the LibDem campaign for LVT. But you would never guess it, would you? Political cowards, all of them.
I was thinking about this some more and it occurs to me that when you say “the bottom 25% of earners pay just 2.3% of all income tax”, it should really read “the bottom 25% of earners who pay income tax pay just 2.3% of all income tax” because non-taxpayers are excluded.
There are roughly 30 million taxpayers in the UK out of 63 million people, of whom about 15 million are children so probably don’t need to be considered. That would appear to suggest that there are 48 million adults of whom 18 million don’t pay income tax, which is 37.5% of the adult population. 25% of the remaining 62.5% (16%) pay just 2.3% So it appears to me that a more accurate statment would be:
“the bottom 53% of the population pay just 2.3% of all income tax”
Of course it also means that the top 10% is actually the top 6%.
I am not entirely convinced that a VAT cut is particularly well targetted because ultimately anybody that pays VAT receives the benefit of it and individuals with greater spending power will receive more. If the desire is to target the poor then a better strategy may actually be a credit paid to those that aren’t using the whole of their personal allowance and consequently aren’t benefiting from increases to it.
Those of us engaged in promoting civil society and social justice must be careful when broaching this subject. While, as you point out, the bottom 30% pay, basically, no income tax, this information can be used by neoliberals to show an inequality in who is shouldering the burden of society. Think of it, if you will, as the inverse of the income inequality debate. We, rightfully, rail against the disparity in income being distributed to those at the top, railing which is both powerful and compelling. Neoliberals could develop an equally powerful and compelling narrative on the fairness of who pays the freight for society. While, as pointed out above, this narrative has the benefit of being true, it is socially unjust and a topic we best not let see the light of day.
But if we apply the marginal utility to the tax low people pay then the picture is very different -it is this that needs emphasising.
Simon you are playing into the neolib agenda here. Diminishing marginal utility is one of their key concepts, and applying it takes you down the road of abolishing income tax for the lowest paid altogether (cos they get the highest utility even from a small cut). See how you just ended up agreeing with a libdumb policy there?
Easy done my friend.
We must keep the neo-feudal apologists away from that data. It also shows the top 10% earn 35% of all income but pay 53% of all tax. Dangerous information I agree stella.
I’m not a big fan of censorship in general but the really inconvenient truths like this need to be more controlled don’t you think- HMRC put these facts *on the same page*. Why do they have to be so obvious? Unless they are in on it too…
What’s wrong with that data?
They should pay that much
Richard,
I didn’t say they shouldn’t. Stella and I were discussing the Social Justice Narrative.
Let’s put it this way – imagine Mori asked 1,000 people a question: “the top 10% of people in this country are unequally rich; they earn one-third of all the income in the UK. How much of all the income tax do you think they actually pay?”
My guess is you will get answers ranging from nil (“I read some headlines about tax dodgers never paying anything”) through to one-third (“if they get paid one-third they must be paying one-third”) through to 45% (“cos that the top rate of tax innit”). That’s a simple average of 25%. It’s my guess. I dont have data and neither do you.
But that’s the power of the current Social Justice Narrative, which has left the public with the misimpression that the rich pay far less than they actually do. Not less than they *should* do necessarily, but less than they *do* do. If the UK population woke up tomorrow and collectively understood that the rich pay in far more than they earn, and they are the only group in the country who do that, momentum behind the social justice movement could fade fast.
That’s the point stella was making (I think) and the point I was amplifying. I don’t expect you to compromise in any way, but here’s a simple test – Unite could commission that question for c.£1k. Or you could publish a surveymonkey with the Guardian and publish the results (compared to the actual). Cheap and easy, but instinctively you wont because stella is right. The facts undermine the story.
That is what is wrong with the data. Most people agree with you that the rich should pay the majority of all tax in this country, and most people would be shocked to hear that they already do.
The rich do not pay in far more than they earn
They pay in a great deal less than they earn and still have a great deal over
And you assume in the process that the rich being rich is a fact independent of the remaining income distribution but it is not
And so they should pay much more as a result as they enjoy the rent generated by other’s work
I think that’s right. The social justice narrative should keep well clear of the facts and focus on the need for more as you have done in your reply.
That’s probably the best template for how Stella can continue to promote social justice.
Sorry I should have been clearer. When I say that’s right what I think you have right is the approach to addressing the issue. Not the facts obviously.
With a 20% vat rate on most goods there is not much scope for a cut. It can only drop to 15% anyway.
Come 2015 it may be hard work to hold onto the 5% rate, and also the 0% on childrens clothes and shoes.
Nick Clegg and his “Fib Dems” operate on the same political principle as Goebbels: the bigger the lie, the more likely people will believe it. On issue after issue they have sold out their voters and the British public – the pretence that the UK was going to become Greece unless we signed up for Osborne’s Slashernomics; the promise to abolish tuition fees; and now this idea that poor people have been “taken out of tax”. Whereas in fact their VAT bill has been massively increased and the poorest see little or no of the gain from raising the PA – but they feel most of the pain of lower benefits. I hate these liars so much I really can’t convey it on a computer screen. Sorry.
To be fair, Nick Clegg doesn’t say that the poor have been “taken out of tax”. He says his goal is to “make sure no one pays any income tax on the equivalent of the minimum wage, which is around £12,500”. Therefore VAT is not relevant to what he’s saying on this issue. Whether VAT should be paid by people with a household income that is less than the national average is altogether a different question. Whether people have been left worse off as a result of the tax cuts in combination with benefits cuts is also another issue, which should be discussed. I can understand criticising Nick Clegg for not talking about that. This blog has a simple, neat view on these issues (that we should not be taxing people on low incomes and then using taxpayer money to give them benefits; rather we should ensure that people are paid a decent wage and not taxed on it, plus that their cost of living doesn’t spiral out of control.)
http://blogs.telegraph.co.uk/news/edwest/100209967/the-poor-shouldnt-be-paying-any-tax/
I’m not keen on the fact that the poor should be taken out of tax, because of the twist that can be applied to the “no taxation without representation argument” so that this becomes the “no repesentation and no interest in reprsentation as there is no taxation”! I’ll freely admit that I might be over cynical in this respect!
I would much prefer wages to be higher, so that all can contribute to the common good and have an interest in doing so!
I share your concern
But that argument can be turned just as quickly on the other hand to “people who get handouts from the state are scroungers” in the alternative scenario. I haven’t ever found it a particularly convincing argument to be honest. Most people accept that there is a point at which people should start paying tax, below which point people need to retain all of their earnings to maintain a decent standard of living. That seems to me much more sensible (and efficient) than the idea that we take away part of someone’s salary with one hand and give them back an amount so they have enough to live on with the other hand.
I agree
I’m sorry but you’re wrong – Nick Clegg and Danny Alexander have said repeatedly that they have “taken the poor out of tax.” I can find dozens of examples where they’ve said this. VAT is absolutely relevant because one of the ways they funded the income tax PA rise was to raise VAT by 2.5 percentage points. Therefore it makes absolutely no sense to discuss the Personal Allowance rise without also discussing the VAT increase at the same time.
Quite right Howard
I don’t know if my comment was deleted (it looks as though it has been, and I can’t figure out why). Howard, you are wrong. I include your second point in my original comment. Clegg does not make any such statement on the issue currently being discussed, which is the most recent income tax rise. I’d be surprised if he’d said it at all, to be honest – what seems far more likely is that newspapers incorrectly state it in their headlines.
Your comment was deleted for being rude to another commentator
And Howard was 100% right and you were 100% wrong in your comments
So let me get this right:
– when I say “taking them out of income tax would be an 8% increase in disposable income” You say “no one is suggesting they will be taken out of tax so irrelevant to the discussion here”.
– When Howard says “Nick Clegg and Danny Alexander have said repeatedly that they have “taken the poor out of tax.” You say “Quite right Howard”.
You guys are working at a rarefied level of logic here. Let me try to put this into a simple binary: Is there or is there not the suggestion that the poor will be taken out of tax?
There are many taxes
Maybe you have missed that point?
The comments are reconcilable
Clegg uses the term incorrectly referring only to one tax – income tax
I meant all taxes
Yes. That’s it. I didn’t realise there were other taxes. That does it. I guess that’s why you are the tax expert and I’m not.
You meant all taxes and so did Howard. Neither of you said it but everyone just knows. Except me. And that makes you right. Whereas when I specifically restrict myself to Income Tax everyone also just knows that I didn’t mean that and I really meant all taxes and so I was wrong.
That works.
If you really cannot take part on debate without reducing everything to the level of the pedant please do not bother
You are applying total double standards. I am not “100% wrong” and nor am I being rude – certainly not as rude as you are to your commenters – and then you don’t even allow them to respond to you. “Courageous” indeed.
I am sorry: I disagree
And ultimately, I’ m the editor