Yet they are doing so as part of a government whose programme is centred rather on regressive redistribution; a government that wants to take money away from disability and housing benefit claimants and public sector pension funds in order to propitiate financial markets; a government that exists essentially to ensure that the wealthiest in society stay that way, even if they do have to hand over fractionally more of their vast incomes to the Inland Revenue.

They’re doing so as junior partner in a government whose etc., which is marginally better than New Labour which were doing all this on their own initiative.

The best argument Labour seems to have against the LibDems at the moment is that they are putting up little resistance to a Tory Government carrying on what New Labour began, and the attacks on unions by the Human Millipede don’t suggest Labour have rediscovered their vaguely Socialist roots.

“Nick Clegg entirely correctly advocates taking the low paid out of the income tax system altogether… Yet they are doing so as part of a government whose programme is centred rather on regressive redistribution”

Left Foot Forward, the IFS and the IPPR have been joining the dots between these two for the past eighteen months. However counterintuitive this may be, there is no way around the fact that raising the personal tax threshold from £6,500 to £12,500 is regressive in terms of who it benefits: households with two earners earning more than £12,500 each see the largest boost in their incomes, with the benefit tailing off as you head down the income distribution until the very poorest households, in which no-one is earning more than £6,500, see no benefit at all. And of course, most households with two earners earning more than £12,500 have joint incomes much higher than the minimum £25,000: they’re on incomes of £40,000, £60,000, £80,000. Each and every one of those households gets the maximum income boost from that rise in the tax threshold, meaning that around 70% of the £20 billion or so this policy costs ends up in the pockets of households in the top half of the income distribution.

And how is across-the-board cut in direct taxation being funded? By a rise in VAT, and cuts in benefits and tax credits paid to low and middle income households.

That is a model of regressive redistribution, and precisely what you’d expect from a Tory Government.

It makes perfect sense to ensure that the low paid make no net contribution to the tax system; but if the only way to take them out of that system altogether is to raise the tax threshold, at a cost of £20 billion and with the perverse effects detailed above, you have to conclude that that’s the wrong way to do things. The tax credits system is much better suited to achieving that aim at a much lower cost.

“Nick Clegg entirely correctly advocates taking the low paid out of the income tax system altogether.”

Instead of working for a system which rewards workers with reasonable pay for their work, and reverses the accumulation of wealth, which has flowed back to the top 1% of society since the 1970′s?

Removing the “poor” from tax is a stopgap papering over of the issues. And it doesn’t help those earning the very least, under the threshold, for that matter…those only able to find part-time minimum wage jobs…

Germany, in my view, does show what that kind of short term thinking does to a party. (And I applaud)

They’re doing so as junior partner in a government whose

‘Vote for us, and it is constitutionally guaranteed that none of what you vote for will be implemented’ could be a pretty strong slogan. Sort of like signing up for an annual gym membership in January: you have ticked the box marked ‘do something about getting fit’, and don’t have to ever risk getting hot and sweaty.

In this country, the government’s deficit reduction plan still commands public significant support, a factor the left should not forget.

Worth quoting these results from a recent YouGov survey (via David Blanchflower at the NS blog).

Question 1 Do you approve or disapprove of the government’s record to date? (per cent)

Approve 30; Disapprove 55; Don’t know 15.

Question 2 Thinking about the way the government is cutting spending to reduce the government’s deficit, do you think this is . . . (per cent)

a) Good for the economy 35; Bad for the economy 49; Don’t know 16.
b) Being done fairly 27; Being done unfairly 59; Don’t know 14.
c) Necessary 57; Unnecessary 31; Don’t know 12.
d) Too deep 47; Too shallow 9; About right 27; Don’t know 17.
e) Being done too quickly 52, Too slowly 8; About right 28; Don’t know 12.
f) Having an impact on my life 68; Not having an impact on my life 23; Don’t know 9.

http://www.newstatesman.com/blogs/david-blanchflower/2011/09/british-public-worried-economy

People support deficit reduction. They don’t support the government’s approach. And yes, as you rightly say, Dave, there is much more pain to come. Both the LibDems and the Tories have cause to be very worried indeed.

Bear with me. This tax threshold issue is a real bugbear of mine; it’s just excruciatng to see people with progressive instincts acting as cheerleaders for regressive, right-wing policies that have been successfully dressed up as being about “common sense” and “fairness”.

Consider ten people at different points on the income distribution: A earns £7,500, B earns £10,000, C earns £12,500, D earns £15,000, and so on, with J earning £30,000. Each of them is taxed at 20% on income above a £7,500 threshold.

Say you decide, quite reasonably, that it’s ridiculous for anyone earning £12,500 or less to be making any net contribution to the tax system. What to do about it?

Option 1: raise the tax threshold from £7,500 to £12,500.

B and C are ‘lifted out of tax’. A’s net income stays at £7,500; B’s rises by £500, from £9,500 to £10,000; C’s rises by £1000, from £11,500 to £12,500; and the incomes of D, E, F, G, H, I and J also rise by £1,000 each.

Cost in lost revenue: £8,500, more than half of which – £5,000 – has gone to the richest 50% of beneficaries.

Option 2: use tax credits (rebates, benefits, whatever) to boost the incomes of low and middle earners, with the ‘benchmark’ being that the net contribution to the tax system of someone on £12,500 should be nil.

C receives a tax credit of £1,000, boosting his net income to £12,500. A gets a tax credit of £1,500, raising his net income to £9,000; B gets a £1,250 boost to £10,750; D gets £500, E £250, and the rest get nothing.

Cost in lost revenue: £4,500, all going to low and middle earners, with the poorest benefitting most.

Seriously – which is the more progressive option? Especially if the cost of whichever policy you choose has to be borne by spending cuts and rises in indirect taxation?

The Lib-Dems are totally in denial – they are currently peddling some terrible and illogical arguments to try and justify their existence – we analyse those arguments:
http://www.allthatsleft.co.uk/2011/09/lib-dem-conference-special-amazingly-theyre-still-in-denial/

G.O. @ 6

This is something I have noticed as well and believe that many on ‘the Left’ or at least those on the more progressive wing of politics have been thoroughly conned into supporting. I cannot fathom why so few fail to see it.

I believe this is down to the fact that the Left have gave up any ideological battle and basically adopt Tory ideology as the default.

As your scenario clearly points out, most of the money is spent on the rich. From what I remember, £3.6 billion quid is the cost of upping the tax threshold to its current threshold. Surely, those of us on the Left should be advocating that money being diverted to regressive taxation? If you want to take the poor ‘out of tax’, then you do it via Council tax, because Council tax is highly regressive. If we have £3.6 billion quid sloshing around, why not divert that into cutting the lower bands of council tax or even exempting people on the lowest incomes from council tax all together? Isn’t that more sensible than reducing the one progressive tax whilst simultaneously raising VAT to twenty percent?

@G.O.

“Left Foot Forward, the IFS and the IPPR have been joining the dots between these two for the past eighteen months.”

And for just as long, everyone else has been pointing out that a graph that demonstrates that people who don’t pay much tax won’t benefit from a tax reduction as much as people who pay more tax really does not tell you much. Calling it “regressive” is like saying that public transport spending is regressive because rich people use public transport. You can state it on a graph, to be sure, and for certain elements of the transport network (let’s say, the Waterloo and City line) I’m sure you could demonstrate that public spending on it is extremely “regressive”. But it doesn’t tell you anything useful or meaningful about what to do next. Do you want a transport network or not? Do you want people on minimum wage to pay tax or not?

Essentially this is an ideological argument about whether we should spend money on higher benefits or lower (progressive) taxes – not a case of “proving” that removing tax on the low-paid is a regressive measure. To be fair I think you entirely recognise the ideological nature of this, which is more than Left Foot Forward do most of the time. I do worry that with the skeptic movement etc we’ve successfully taught everyone on the internet to believe any post that contains a graph, without also teaching them to question what the graph is actually telling them.

@ Alix

“And for just as long, everyone else has been pointing out that a graph that demonstrates that people who don’t pay much tax won’t benefit from a tax reduction as much as people who pay more tax really does not tell you much.”

Well – it *ought* not to tell you much, if you’ve put two and two together. But many people clearly *haven’t* put two and two together; they’ve heard the Lib Dems saying that the sole or main purpose of raising the tax threshold is to reduce the tax burden on the low paid, and inferred that the sole or main effect of raising the tax threshold is to reduce the tax burden on the low paid. If it takes a graph to show them what they should have been able to work out for themselves – that the main effect of raising the tax threshold is in fact to reduce the tax burden on mid-to-high earners – then so be it.

If that graph also draws their attention to another seemingly obvious but easily-overlooked fact – that while raising the tax threshold puts billions upon billions of pounds into the pockets of households in the top 50% of the income distribution, it does absolutely nothing to help those whose incomes are below the present threshold – so much the better.

“Essentially this is an ideological argument about whether we should spend money on higher benefits or lower (progressive) taxes”

I don’t really see that you have to bring that sort of general ideological question into it. If your policy objective is to reduce the net tax burden to nil for people earning £12,500 or under, it’s a plain fact that it’s cheaper to do that by making payments direct to those people than by cutting taxes across the board. (I suppose you get into more ideological territory when you start to ask who gets what, because of course there’s a certain tension between boosting the incomes of low earners and ‘making work pay’ if they start working more hours etc.)

@6 – Or, again, push for a living wage, letting A and B earn more.

Incidentally, not only did the Liberal Democrat vote collapse in Berlin, but the biggest vote share increase was by the the Pirates, who got 9% of the vote. I aim to stand as a Pirate candidate in Edinburgh in May next year, hoping to emulate the Berlin Pirates’ performance.

Alix @ 9

And for just as long, everyone else has been pointing out that a graph that demonstrates that people who don’t pay much tax won’t benefit from a tax reduction as much as people who pay more tax really does not tell you much.

But what it *does* tell us is that a policy that is being sold to us as designed to help ‘the poor’ does nothing of the sort, in fact, it does the opposite, most of the money goes to people who are not ‘poor’ by the very definition we use to define that group (lowest earners). It looks like an ideological policy is being smuggled in via a completely spurious premise.

Essentially this is an ideological argument about whether we should spend money on higher benefits or lower (progressive) taxes

If that is the argumenrt you want, then by all means make it. Stand on a chair and shout it out, some of us think that pretending you want to cut a specific tax, income tax, using the term ‘take the poor out of tax’ is dishonest.

To be fair though, you could be forgiven for believing that, because I have said earlier on previous threads once the Right have spoken on a subject, it become part of political lore, and is taken as read.

Note to Sunny: I think the nature of tax cuts designed to ‘take the poor out of tax’ is very interesting and worth closer inspection. Perhaps you could invite G.O. to expand his theories further into a full blown blogg entry? Surely there are enough figures in the public domain to be able to get some kind of rational debate going?

@ Alix et al.:

Maybe it’s worth pointing out that even if you have pragmatic or ideological objections to using tax credits (or something similar) to eliminate the net tax burden on the low paid, and prefer the simpler model of raising the tax threshold in order to ‘lift people out of tax’, there are *still* ways of doing that more cheaply and more progressively.

For instance, you could raise the tax threshold to £12,500 but also raise the basic rate of tax from 20p to 25p.

That still would reduce taxes for everyone in my example @ 6 (including relatively high earners), and it would still mean you had a regressive pattern among low earners (with B, on £10,000, getting a smaller income boost than C, on £12,500). But at least you’d see a progressive pattern as you went up the income scale: a £1,000 tax cut for C, on £12,500; an £875 tax cut for D, on £15,000; and so on until J, on £30,000, only gets a £125 tax cut.

Cost in lost revenue: £5,000. Not as cheap or as progressive as the tax credits option, but far better than what the Lib Dems are pushing through.

“…the government’s deficit reduction plan still commands public significant support.”

Which particular public support would this be then? The low incomed, students, the unemployed, union members, NHS workers, teachers, Police Officers, Local Government workers..etc?

The only support this government has is from vested financial/business interests and the incompetents such as the IMF and OECD who failed to prevent the financial crisis in the first place and whose growth predictions have been on par with crystal ball gazing.

Off topic, I know; but I loved this from Nick Clegg:

“‘I think, clearly, with the benefit of hindsight, you can say it would have been a huge, huge error,” Mr Clegg replied.

”I don’t think anyone could have predicted at the time the euro was created that the rules which were supposed to be in place to ensure that everybody looked after their own financial affairs properly would be so spectacularly ignored and broken.”

An amazing claim. Numerous people across the political spectrum who were not blinded by the ideology of Europhilia could see that the Euro was a deeply flawed project. Thank God, Gordon Brown kept the UK out of it.

@14 – And you’ve managed to hammer the people with mortgages and kids.

Again, what’s the objection to paying a living wage in the first place?

Leon -

No objection; of course you’re right that if people’s earnings were higher in the first place, there’d be less need to figure out ways for the government to boost their incomes.

Not sure how cutting their taxes ‘hammers’ anyone though. (Especially if you tweak my dummy figures a bit, so that tax cuts would apply to all basic rate taxpayers.)

Incidentally, I think ‘hammering people with kids’ is one of the big stories of this government. For any given level of income, it’s people on that income *with* children who are bearing pretty much the full burden of deficit reduction in terms of lost income. Lower down the income scale you have families losing thousands of pounds in benefits, tax credits (including childcare tax credits) and EMA, and higher up you have them losing thousands of pounds in child benefit. Meanwhile people on those same incomes who *don’t* have dependent children – whose disposable incomes are much higher, of course – aren’t taking anything like the same hit.

To me this just illustrates the perversity of dogmatically insisting on spending cuts rather than tax rises. When a family’s income falls, it makes no difference either to that family or to the economy whether that fall is due to a rise in taxes or to a fall in spending. If you want higher rate taxpayers to contribute £1.5 billion to deficit reduction, put their taxes up so that they’re paying a few hundred pounds each; don’t take a few *thousand* pounds off those with children and leave the rest untouched.

There is another element to this that no-one’s mentioned, ie that the higher personal tax threshold argument is now used to rebut the charges that cuts to local/public services reduce quality of life, especially at the bottom of the ladder.

Of course, any fule no that a couple of hundred extra in the wage packet per year does not compensate for the loss of vital local services, including such social amenities as libraries, swimming pools, bus services etc etc. The Libdem leadership seems blithely unaware of the damage being caused to the lives of ordinary people.

They will not be employing one extra person to fill these tax inspector jobs – they intend to fill them all internally. So people will presumably be taken off other productive work and put on to theis new tax avoidance work. Deck chairs and Titanic come to mind.

“They’re doing so as junior partner in a government”

A justification that is not, and has never been, good enough to fool the electorate. The few minor policy victories scored by the LibDems is overwhelmingly outweighed by the support given to regressive Tory policies.

Being in the Coalition means collective responsibility and collective responsibility means it’s the LibDems fault too. Something voters will not forget come local and national elections.