Friday, 5 April 2013

Fairer Taxes: My Article for Lib Dem Voice

Yesterday, I had an article published on Lib Dem Voice.

Here it is. This is the text as submitted, rather than as edited - so you can play spot the difference!:


Earlier this week I saw this tweet from Paul Lewis of BBC Radio 4's Moneybox programme:

This struck me as odd, so I asked Paul how he calculated the £195 figure (I do not know enough about benefits and Universal Credit to make a judgement on the £39 figure). He quickly answered:

As I was busy with other things at the time, I was only able to have a brief look at the document and, initially, slightly mis-interpretted the info:
 
The glaring mis-calculation I made was the percentage increase in the Personal Allowance (PA) which is of course 5.9% rather than 0.6% as I wrote! The underlying analysis however was right - the discrepancy in figures is due to the interaction between the increase to the Personal Allowance and the increase in the Higher Rate Threshold.
 
It stuck in my mind as something worth looking into further - and worth questioning whether this met with our aims of Fairer Taxes.
 
By 2014, the Personal Allowance will have increased by over 54% from its level in 2010. It's something that we're justly proud of, and which we can be reasonably sure neither of the other two parties would have done alone (as I outlined here http://oneexwidow.blogspot.co.uk/2012/12/a-free-ipad-mini-for-everyone.html).
 
Since 2010, the threshold at which Higher Rate Tax become payable has fallen to help offset the rise in the Personal Allowance. This has led to the Basic Rate Limit (earnings between the PA and the Higher Rate Threshold) being squeezed from both ends, and to the upper threshold being reduced from £43,875 to £41,450.
 
Next year, however, the Higher Rate Threshold will rise by 1%, and it is this rise which gives every taxpayer earning above the new limit (but less than £100,000) a tax cut of £195 as opposed to "just" £112.
 
So, the question: is this fair?
 
Now, it could be argued that £112 is worth much more to someone earning £10,000 than £195 is to someone on £41,865 or above - and this is certain to be true in the vast majority of cases. It can also be argued that reducing the Higher Rate Threshold is, effectively, a tax on aspiration - and I am not without sympathy to this view. But at a time of austerity when we are making a big spending commitment on increasing the Personal Allowance, should we be providing greater benefits to Higher Rate Taxpayers?
 
Although the numbers of Higher Rate Taxpayers have increased over the years, it should be noted that the threshold at which 40% becomes payable (£41,865) is still some way above the median gross income (£26,500).
 
It may not be the stuff of popular campaigning, but perhaps we should be pushing behind the scenes for the Higher Rate Threshold to be frozen. Going forward, we should consider how we manage tax bands so that they remain progressive whilst minimising such anomalies.
 
Andrew


4 comments:

Raybeard said...

Not directly what you're talking about here, but when challenged on the cut in the top rate of income tax from 50% to 45% Cameron always trots out the response that the lowered rate will actually be bringing in more revenue for the Treasury than the higher one. That may be true, I don't know. But the timing of the move could hardly be more ill-advised. Individually high-earning tax payers MUST, almost by definition, be getting a walloping big boost in their 'take-home pay' at the same time as others have their, sometimes barely adequate, benefit income reduced. No explanation, even if true can get round that - and it gives me a new major reason why I cannot see myself ever voting Conservative (as though I needed one!). If I vote Lib Dem, as I may, it will be with a heavier heart than heretofore for this same reason, though I do hope that they give us a clear assurance that they would not go into a Tories-led coalition again.

Andrew Brown said...

Hi Ray,

The reduction in the Higher Rate - whether or not it has a genuine economic rationale, was a foolish move.

That said, it is true that for all the carping by Labour, the top rate of tax now is still higher than it was for all but the last month of them being in office - whilst the treshold at the lower lend is now considerable (around 45%) higher. Have I mentioned this latter is a Lib Dem Gain? ;-p

Party Political Broadcast over, though, the Tories are increasingly showing their true colours, especially when it comes to their language on Social Security. This will only get worse as the election approaches and UKIP remain a threat.

As to whether we should make any pre-election promises? I think the last election, and experience since, will have taught us (and the public) a lot about coalitions. It'll be more of an issue in the election.

All parties will have to make it clear what their key policies will be when it comes to any negotiations. As things stand if the 2015 Parliament is to be hung, a Labour led gov looks more likely but two years are a long time in politics...

I don't think we can rule out another T/LD coalition - the policy should remain "We'll talk first to the largest party" if that is the outcome.

Andrew Brown said...

Eek, I meant to say reduction in the "Top Rate" - the Higher Rate has remained the same, of course!

Raybeard said...

I really have a deep-seated fear, Andrew - and it IS a fear - that at the next Gen Election the L.D.s are going to suffer 'by association' in a really big way, and we are going to be back to those days of having just half-a-dozen Lib Dem M.P.s, and most of them representing a few big, sparsely populated areas of Scotland, Wales or the West Country. I just can't see that many voters who previously voted Tory but are now turned off by any aspect of the coalition's policies and actions going to change their blue votes to yellow. I think a far more likely recipient, if not Labour, is much more likely to be (heaven help us!) UKIP than Lib Dem. I'd guess that a number of the older members of the your party have this very same real fear. I only hope I'm proved wrong.