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Politicians and income tax: 10p or not 10p - that is the irrelevant question Politicians and income tax: 10p or not 10p - that is the irrelevant question
(7 months later)
Gordon invented the 10p tax rate to prove he wasn't like Neil. A little later he axed it to fund a different income tax cut and thereby prove that he wasn't the Gordon that people thought, but was instead more like Tony. Then – last week – Ed reheated the 10p band, to demonstrate that he was nothing like Gordon.Gordon invented the 10p tax rate to prove he wasn't like Neil. A little later he axed it to fund a different income tax cut and thereby prove that he wasn't the Gordon that people thought, but was instead more like Tony. Then – last week – Ed reheated the 10p band, to demonstrate that he was nothing like Gordon.
It is all very neurotic, but the impulse to use the income tax system to send silly signals is not an exclusive Labour preserve. And the signals are reliably silly because – with income tax bringing in only 26p in every pound of government revenue – what is given with one hand is invariably taken away with the other. Tory chancellor Nigel Lawson, for example, bragged about cutting top tax rates, but was quieter about scrapping the cap on employers' national insurance, something economists say undid much of the effect. Both the Major and Blair governments made moves to cut basic-rate tax and hike NI contributions within a couple of years of each other, with the result that the claimed tax cut might as well never have happened for anybody with a job.It is all very neurotic, but the impulse to use the income tax system to send silly signals is not an exclusive Labour preserve. And the signals are reliably silly because – with income tax bringing in only 26p in every pound of government revenue – what is given with one hand is invariably taken away with the other. Tory chancellor Nigel Lawson, for example, bragged about cutting top tax rates, but was quieter about scrapping the cap on employers' national insurance, something economists say undid much of the effect. Both the Major and Blair governments made moves to cut basic-rate tax and hike NI contributions within a couple of years of each other, with the result that the claimed tax cut might as well never have happened for anybody with a job.
In more recent times, it has been the Liberal Democrats who have taken the income tax fetish to new heights; their costly fixation with raising the allowance is supposed to justify every anti-poor horror committed by the coalition. Always described as "lifting the poorest out of tax", the case for the higher threshold seems unanswerable – until you consider that the very lowest earners get less of the gain, and that those without work get nothing at all. Because the move comes coupled to higher VAT, the cash put back into pay packets disappears the moment one tries to spend it. The supposed effect of making low-wage work pay is also for the most part an illusion, since poor families find that income-tax cuts are clawed back through reduced benefits and tax credits. And for low-paid workers who fill up their cars with highly taxed petrol and pay national insurance on the same low wage as before, to be constantly told – as if the other 74p in the pound of government revenue were an irrelevance – that they "have been lifted out of tax" must be galling.In more recent times, it has been the Liberal Democrats who have taken the income tax fetish to new heights; their costly fixation with raising the allowance is supposed to justify every anti-poor horror committed by the coalition. Always described as "lifting the poorest out of tax", the case for the higher threshold seems unanswerable – until you consider that the very lowest earners get less of the gain, and that those without work get nothing at all. Because the move comes coupled to higher VAT, the cash put back into pay packets disappears the moment one tries to spend it. The supposed effect of making low-wage work pay is also for the most part an illusion, since poor families find that income-tax cuts are clawed back through reduced benefits and tax credits. And for low-paid workers who fill up their cars with highly taxed petrol and pay national insurance on the same low wage as before, to be constantly told – as if the other 74p in the pound of government revenue were an irrelevance – that they "have been lifted out of tax" must be galling.
All these shortcomings of Nick Clegg's personal allowance policy also apply to Ed Miliband's 10p band, which is a somewhat more complicated means of achieving the same thing, or – to be blunt – of achieving not very much. The shame is that the 10p scheme was unveiled in an otherwise impressive speech, which contained useful specific ideas, such as the mansion tax, as well as an impressive general analysis of how the wealth gap has deepened the slump. But no income-tax cut is going to address this root problem. It is high time for avowedly progressive politicians to come up with a smarter idea than cutting the most progressive big tax of the lot.All these shortcomings of Nick Clegg's personal allowance policy also apply to Ed Miliband's 10p band, which is a somewhat more complicated means of achieving the same thing, or – to be blunt – of achieving not very much. The shame is that the 10p scheme was unveiled in an otherwise impressive speech, which contained useful specific ideas, such as the mansion tax, as well as an impressive general analysis of how the wealth gap has deepened the slump. But no income-tax cut is going to address this root problem. It is high time for avowedly progressive politicians to come up with a smarter idea than cutting the most progressive big tax of the lot.
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