By I apologise in advance but I have to say, Vince was spot on. I assure you, the ‘Cult of Vince’ hasn’t got to me, but I do have to take my hat off to ‘the great sage’ on this occasion; when Cable announced his proposal to raise the threshold at which people start paying tax to £10,000 in Bournemouth this week, I couldn’t help but think that it was about time.
There could not be a cleaner, fairer, more equitable proposal available to any would-be government than this one. By increasing the threshold to £10,000 from the current £6,475, the next government would take four million of our poorest citizens out of paying tax altogether, one of the biggest tax cuts in recent history.
Our current system is an aberration from the historical principle of British taxation; the whole basis of the income tax system, since its inception, was that you would only pay if you were in a position to afford it. When income tax was first introduced, by William Pitt the Younger in 1798, it began at a levy of 2d in the pound on incomes over £60, or in today’s money a massive £47,000. Even until relatively recently, you had to be earning a decent wage to even enter the threshold.
Today, by contrast, we must bear the shame that after twelve years of a Labour government, the poor pay more of their income in tax than the rich do. In 2008, the bottom fifth of earners paid 38.7% of their gross income in total tax, compared to the richest fifth who paid 34.9%. This situation will only get worse when the highly regressive VAT increases to 20% next year.
This is the shocking legacy bequeathed to us by a string of governments of both colours, who have seldom paid sufficient regard to the plight of our poorest. As a result of their inaction and sorry pandering to the now discredited neo-liberal agenda, 13.2 million Britons live in poverty.
Though the moral argument for doing this is overwhelming, it makes great sense economically too. When we talk about cutting tax, far too often we get trapped into thinking about ‘trickle down’ economics; the idea that if you cut taxes for the rich that the economy will be stimulated more than if you cut taxes for any other income group. In fact, all economists would point out that the marginal propensity to spend (i.e. the proportion of money spent for every extra pound earned) is far higher for the poor than for the rich. Many of these people are on the breadline as it is; the last thing they’re likely to do with the extra £50 a week is go put it in an ISA (something the rich by contrast, are far more likely to do with a far higher marginal propensity to save.) Rather, they spend the extra cash in the shops, on essential goods and services that they could otherwise ill-afford. Thus, by cutting taxes by a relatively small amount for the poorest, much needed sectors of our economy receive long-term stimulus.
We’re the sixth biggest economy in the world. Poverty is not inevitable for any member of our society, and yet we blithely condemn millions of our fellow citizens to an existence of dire want. The UK government defines poverty as having an income of 60% or less of the median: by that measure that equates to 22% of the population. Moreover, a 2006 ONS survey showed that in 2005-06 62% of pensioner couples had less than £10,000 in pension income.
We have saved the banks, slavishly followed the neo-liberal hegemony and bailed out the very people who got us into this recession in the first place. Now it’s time to do something for those who need our help more than any of them. The poor didn’t create the housing-market bubble and nor did they create cheap credit. It’s unthinkable that they should continue to pay the price for these things in the form of a greater burden of tax than the richest pay. If they do, Labour doesn’t deserve a single vote come the next election.
In the last parliament, we saw a government who often seemed more interested in peddling the Tory trash of inheritance tax cuts for the richest, coupled with having the indignity to abolish the 10p rate without so much as a thought for its effects on the poorest. What is the point of this party if we continue to sing to this tune of inequality and shameless greed?
Let’s be Labour again, and help those in most need: our old, our young, and our most vulnerable, and make a start by the cessation of tax on their meagre incomes, which in meaningful terms, barely exist.
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I wasn't actually talking to you - I was responding to Thomas - and I was making some factual observations.
As a matter of fact, I don't believe 'Tories eat kittens', or anything like that and I have never (I hope) made a comment to imply that. I also don't believe that there is nothing good to say about Labour in the last twelve years as you so obviously do.
There was a 'starter rate' of 20 per cent in 1997/98 on the first £4,100, and basic rate was 23 per cent on the next £22,000. Higher rate started at £26,100. These rates were set in the November, 1996 pre-budget report.
But you are right - no-one ever remembers that it was Labour that introduced the 10 per cent rate in the first place (April, 1999, on the first £1,500) and no-one ever stops to think that the basic rate has dropped by three percentage points. Having said that, the abolition of the 10 per cent rate was not a pretty sight to behold.
In addition, personal allowances since April, 1997 have increased by more than RPI inflation, and no-one ever thinks about that, either. The Conservatives held the personal allowance at £3,445 for three fiscal years (92/93, 93/94 and 94/95). No-one ever remembers that, these days.
I think we can say it's a non starter.. another spending item in a long list of spending items.
PS : In case you have not noticed, the deficit this year is Around £175 Billion or roughly £3000 per man /woman /child in the UK.
Increase VAT to 22% and you'll just pay for it..
(Vince Cable is not as good as his reputation)
I was just thinking the same , Just because a idea comes from the lib dems or torys doesnt mean its bad , Maybe if we took the blinkers of a bit more often we could get a better tone of politics ?
ricki
I think it needs to be broadened - the tax system has become flatter and flatter and whilst there might be a case for this in terms of simplicity, it has made the system less progressive in consequence
The problem with this type of thin is when you get prople like Brown, you get fiscal drag and after a few years it would be meaningless.
On the same note, okay £1 million seems like a big property now, but give it a few years in the South East and it will become the norm with fiscal drag again. And 0.5% today, 1% next year and 2% on £2+ million homes.
You could, of course, offset the £705 saving for higher threshold earners by reducing that threshold from £37,400 to £35,750, which would make it revenue neutral for those earning more than £35,750, and mean that anyone earning less than that would experience a tax cut.
I have no idea how much that tweak at the higher end would save, but it's a saving nevertheless. You don't need to raise the threshold at the bottom without making a tweak somewhere else.
You have reminded me - it had crossed my mind before that the drawback to increasing the personal allowance is that it feeds its way all the way up through up to high earners, and as you say, the loss to the Exchequer would be around £24 billion. I have always been suspicious of the idea, especially when forwarded by the right - it benefits the wage-earner on a million a year by the same amount as it benefits the wage-earner on £10,000 a year. I had forgotten my previous misgivings in accepting Mr Cable's £4 billion number.
Thanks for reminding me. Strangely, your valid observation wasn't made in either the Times nor the FT this morning, so I guess I'm in half-decent company .... but I'm still kicking myself!
But, Cabel is no sage.
I'm definitely not advocating a flat rate tax on everything and neither was Smith. He was arguing for making a distinction between luxuries and necessities when it comes to taxation.
Raising taxation solely from a persons outgoings rather than income isn't a universal panacea, but it's not an inherently unworkable idea.
A good post , But in the current situation how much would this cost ? and if we can afford it why havent we done it already ?
Lewis well said in last few lines , I do hope someone in the leadership is watching
ricki
I'm not looking for the £4 billion in question, but it can easily be found by a very modest re-distribution of the burden of taxation - and, indeed, from places like the Cayman Islands and Switzerland (come in, OH!) where tax evasion is aided and abetted.
Personally, I would have thought that the answer to tax evasion using foreign accounts could be easily found : no-one may open a bank - or any other - account in a foreign country unless they declare the tax district (that is then passed back by the foreign account holder to the tax district) that deals with their tax affairs.
And then we have the difficulty of defining necessities and luxuries, and these change over time.
Mr Pinfield's contribution did not differentiate between the two - just 'products.' Given that, for poorer people, 'necessities' will be the bulk of expenditure, a flat rate on 'products' will result in the less well-off paying a greater proportion of their income in tax, compared to the much better-off.
Years ago, before VAT, there were different rates of purchase tax, depending on the product, eg the rate of tax was more for a Piaget watch (a 'luxury') than it was for carpet (a 'necessity') for your house.
Do we measure success for this project by the number of delegates expelled/arrested under anti-terror laws for merely vocally expressing an opinion?
(Our local Co-op can at least supply tomatoes. They will have to be left in the sun to go rotten first though. A splash of red might remind a few people what they're meant to be there for.)
RBS alone helped people avoid £1/2bn in recent years and these schemes helped drive the massive securitisation of dodgy mortgages with their demand for products they could use to shift funds around.
He's saying that if you tax the essential things that people need, the rich (superior ranks) will end carry a greater portion of the tax burden than through taxing luxuries.
Richard, as Lewis has pointed out, raising the tax allowance puts a higher percentage of real income into the poorest 22%, plus it is a heck of a lot more cost effective than the present regime of tax credits (aka tax refunds as you pay the tax then the government gives you it back again in penny parcels to make them look 'socialist'). less open to fraud and simpler to administer.
There are two fundamental principles here:
(i) If the minimum wage is the least a person can be expected to live on, how can the Government justify taxing a part of it?
(ii) If government expenditure is 44% of GDP (rising to 49% in 2011), how can it be fair for the rich to pay less than that in tax if everyone else is clearly paying more?
As I have pointed out previously, the latter provides the moral case for adjusting the 40% rate upwards from time to time.
I stand corrected. Mr Cable proposed a set of measures (including the tax on properties > £1,000,000 in value which, he estimated, would be sufficient to raise the income tax threshold to £10,000 :
"So, my priority would be to cut income tax for those on low and middle incomes. Any such tax cut would be paid for by closing tax loopholes and privileges enjoyed by the relatively wealthy: the big differential between top rate income and capital gains tax; the exceptionally generous tax relief on large pension pots; and the blatant abuse of tax haven status including businesses paying stamp duty offshore. A programme due to be screened this evening will expose complicity on a large scale in tax dodging by Lloyds: a bank part owned by the tax payer. This must be stopped, now."
The £4 billion was from memory. It wasn't detached from reality, however : in its Annual Survey of the distribution of total income before and after tax for fiscal 2006/07, HMRC estimated that 6.2 million individuals receiving up to £10,000 pa paid £4.2 billion in tax.
My original point remains, however, in response to Madasa fish : government decides who pays what (what follows is politics, vested interests and so on, seemingly eternal questions that we still cannot answer and, for sure, Mr Fish can't answer because he can't get beyond the front page of the Daily Mail) and his question 'how will we pay for it?' was, in fact, pretty stupid.
Regards
"It must always be remembered, however, that it is the luxurious and not the necessary expense of the inferior ranks that ought ever to be taxed. The final payment of any tax on their necessry expense would fall altogether upon the superior ranks of people ; upon the smaller portion of the annual produce, and not upon the greater.
Such a tax must in all cases either raise the wages of labour, or lessen the demand for it. It could not raise the wages of labour without throwing the final payment of the tax upon the superior ranks of people. It could not lessen the demand for labour without lessening the annual produce of the land and labour of the country, the fund from which all taxes must be paid.
Whatever might be the state to which a tax of this kind reduced the demand for labour, it must always raise wages higher than they otherwise would be in that state, and the final payment of this enhancement of wages must in all cases fall upon the superior ranks of people." ("Wealth of Nations", A Smith, 1776).
Be careful what you wish for .....
The EU would love it. Switzerland would love it more.....
I've read Cable's speech several times
http://www.libdems.org.uk/news_detail.aspx?title=Speech%3A_Vince_Cable’s_speech_to_Liberal_Democrat_Conference&pPK=e3158112-08da-4f2d-89f6-be64f214ab85
Nowhere does he claim £4 billion will be raised by 0.5 per cent on £1m plus properties
In subsequent interviews he reckoned it would affect around 250,000 people who would pay an average of £4,000 a year
That's £1 billion. Not £4 billion.
See you at the Albert Hall
As for the green wall paper I'll bet it is designed Pugin and costs £2,000 a roll; so unless Derry Irvine is a latter day Rasputin it does not appear to work any more.
Do you think the Co-op in Brighton could get 'Dogbert's external give you a spine' kits for the Labour Conference attendees............
I think that St Vincent estimated the cost and the wherewithal to pay for it in his speech to the assembled LibDems in Bournemouth yesterday : cost - £4 billion, paid for by 0.5 per cent tax on properties with a value > £ one million. As someone wrote to the Times today - er, didn't we used to call such a system 'rates?'
How does any government raise taxes? It estimates who should pay how much. The result may (or may not) be politically acceptable, and the result may (or may not) be financially and economically sound. That's where the politics comes in ....
Your ignorance would fill the Albert Hall.
There must be big saving to be made especially as the Tax Credit not only costs a lot to run and administer by according to the audit office awarded £25 million of credits to people who did not qualify last year.
There is also the likelihood of increased Vat revenue..... Masada fish do you know what the level of income tax actually brings the IRS a net benefit? Anyone?
What is the point of a taxation system that costs more to administer than it brings in? Logically the personal taxation system should start at the point where there is a net benefit to the IRS. Otherwise it is like wondering why your shop went bust because you were selling 55% of the goods at 10% less than cost.
Surely you're confusing the holy Tony with an self-centred, megalomanic, warmonger who freely spent the lives of his own and other countries people to selfishly enhance his own reputation...
Maybe they haven't banned green wallpaper in St Helena yet.
Now it can be only considered as merely a desperate defence tactic against serious Lib Dem inroads into the Labour vote at the next election, in the face of the clear lack of moral compasses possessed by various cabinet ministers, ex-cabinet ministers, and other MPs. (Shame Mandy can't be voted out of the Lords as well.)
The stables need to be cleansed first. Better it were seen to be done by (re-)selection committees of horrified party members than the electorate, i.e. the likes of Hazel Blears being backed by her constituency party are monumental own goals.
I still don't understand why Dr Gibson's offence was considered capital and hers merely the irritating antics of a gormless Cheshire cat.
Pity lead and arsenic based paints are now banned, so there will be no point banishing Blair to St Helena.
Let's hope the Irish tell the EU where to stick the Lisbon Treaty for the good of all, especially if it ensures we will not have to put up with Emperor Blair appearing all over the place.
But to your main point - to put into effect your idea would require that Conference has a spine rather than being simply a Nu Labour fashion parade. There in lies your problem.
I don't disagree but your post fails the most basic of tests.
How much will it cost?
How will we pay for it?
Given you have not even attempted to answer either, I consider your effort wasted.