The Lib Dems have made raising the personal tax allowance (what you can get paid without paying income tax) one of their flagship policies. So when George Osborne says at the Budget in two days’ time that he will raise that allowance beyond inflation, it should be a major victory for the junior coalition party.
It is interesting therefore, to take note of a piece of research published today by CentreForum, a think tank with close ties to the Lib Dems, showing that raising the tax threshold* to £10,000 (the eventual aim), would not be especially progressive. It fares especially badly when compared to an alternative proposal, to lift tax credits instead, which would cost the same amount of money.
The think tank produced the following table detailing who benefits from either move, which paints the difference in stark terms: Read more
Unless there is a last minute U-turn in Whitehall tonight, one of the ways which George Osborne will pay for the various jobs and infrastructure schemes in Tuesday’s growth review will be to squeeze tax credits.
This is a result of protracted bargaining – Osborne wanted to freeze benefits, but the combined efforts of the Lib Dems and Iain Duncan Smith put a stop to that. Eventually the compromise was made that credits would come under the axeman’s blade instead.
So who suffers if these are frozen or cut? Read more
No one can question the decency of Iain Duncan Smith’s vision for overhauling the welfare state. His message of “making work pay” is winning plenty of disciples. It is a revolution to simplify a fiendishly complex system and make the benefits of employment clear. To some, it is the only way of ending the welfare dependency blighting British cities.
But conservatives should be on guard. Grand schemes are intoxicating. The allure of sweeping change can overpower. The IDS reforms require real, unavoidable sacrifices, even if George Osborne pays billions of pounds upfront. This is not a case of hidebound Treasury bureaucrats blocking change to keep the poor tethered to the state. If the overhaul goes ahead, the risks and trade-offs are considerable.
Here are some of the hurdles that I’ve identified from speaking to people in Whitehall and Ian Mulheirn, an expert on this area at the Social Market Foundation. They prompt two questions. Is it worth it? And is there a simpler way?
Winners and losers Without additional funding, the IDS plan involves raising the tax rate on millions of workers. To “make work pay” for the few he will need to make work pay less for the many. Read more
“We are fighting to save tax credits”; seven words that sum up everything that has gone wrong for Gordon Brown in both this election and his premiership. I first noticed this, or a variation of it, in a radio news clip on Friday night; I then heard it again on Saturday and today. I’m fairly sure he’s said it in the debates but for some reason it only struck me this weekend.
You don’t fight for tax credits – you fight for hard-working families, you fight for the less privileged. Tax credits aren’t something you fight for, they are a mechanism. Only Mr Brown can elevate them into something worth fighting for in their own right. Tony Blair would never have made such a basic mistake.
One imagines a Brown variation on Winston Churchill: “We shall fight them to maintain a consistent quality of sand on the beaches, especially near the volleyball nets; we shall fight them on the landing grounds where they might seek to park in the bays otherwise reserved for the disabled and mothers with young children”. Read more