In his first budget in 2010 George Osborne, as Chancellor of the Exchequer, raised the personal allowance for liability to pay income tax by £1000, thus putting £200 per year into the pockets of those people lucky enough both to have a job and to have a wage sufficient to make them liable to tax. However, he also raised VAT, an indirect tax that impinges more on the poor than the comfortably-of, from 17.5% to 20%
In the same budget Osborne:
- switched the link for benefits payments form the Retail Price Index (RPI) to the lower Consumer Price Index (CPI);
- froze child benefit for three years;
- capped housing benefit:
- introduced a new and more rigorous method of assessment for entitlement to the Disability Living Allowance.
In his resignation letter to the Prime Minister last week Iain Duncan Smith, Secretary of State responsible for the social security system then and for the whole of the next six years, wrote:
[Welfare cuts in the present budget] are not defensible in the way they are placed within a budget that benefits higher earning taxpayers.
and:
I am unable to watch passively whilst certain policies are enacted in order to meet the fiscal self-imposed restraints which I believe are more and more perceived as distinctly political rather than in the national economic interest.
and:
There has been too much emphasis on money-saving exercises and not enough awareness from the Treasury, in particular, that the government's vision of a new welfare-to-work system could not be repeatedly salami-sliced.
IDS concludes his letter by wondering "if enough has been done to ensure we are all in this together. "
What took him so long?.
Well, going specifically on the bits you've quoted and mentioned, in the first budget, raising the personal allowance doesn't benefit 'higher earning taxpayers', it benefits all taxpayers, including (I assume) you and me.
ReplyDeleteThat's very different from something which benefits higher-earning taxpayers, a far smaller group who are, by definition, pretty well-off.
Sorry; obviously that should read 'doesn't just benefit higher-earning taxpayers'.
DeleteIt does benefit them, obviously, but it also benefits, say, people earning the minimum wage because, crazily, if you are working full-time on the minimum wage, you have to pay income tax — how mad is that? Logically, the personal allowance should be at least the salary of a full-time minimum-wage job, wouldn't you agree?
You're quite right, but if you look again that is what I wrote:
Delete". . . raised the personal allowance for liability to pay income tax by £1000, thus putting £200 per year into the pockets of those people lucky enough both to have a job and to have a wage sufficient to make them liable to tax."
(How do you manage to put quotations in italics? I seem to have no such facility.)
The reference to "higher earning taxpayers" comes from IDS's resignation letter.
My point is that if, under the present system, you have a job and earn enough to be liable to pay tax you're in a fortunate position. I've thought all along that a fairer and more effective way of both cutting taxes and stimulating the economy would have been to put VAT back to 15% (which Alistair Darling had done) as that would benefit both the poor and the economy to a greater extent..
As for an ideal situation, I'd like to see a universal citizen's income as of right, and all earned income taxed progressively - no allowances, personal or otherwise, at all.
My point is that if, under the present system, you have a job and earn enough to be liable to pay tax you're in a fortunate position
ReplyDeleteAnd my point is that that is not necessarily true: having a minimum-wage job could hardly be considered 'a fortunate position', yet in that situation you would still, with the current personal allowances, be paying tax!
Therefore, going just on the bits you quoted, neither Ian nor Duncan Smith's positions between the two budgets are inconsistent. It is perfectly consistent to think that cuts in the welfare budget while raising the personal allowance are one thing, because that benefits those less fortunate, eg, those on minimum-wage jobs who for some crazy reason are still taxed (did you know that the difference between the minimum wage, and the living wage, at least outside London, is pretty much the same as the income tax on a minimum-wage salary?); while cuts in the welfare budget while making tax changes which benefit only those who are already fortunate enoguh to be earnign enough to pay higher-rate tax, are presentationally problematic.
(Italics: use HTML tags).
Re HTML tags, thanks for your hint. I've looked this up and seem to need to be able to write ^i^, but ^ sideways. Advice on how to do that would be appreciated.
ReplyDeleteRe your last point, it is true that liability to income tax currently starts at too low a point, but your attitude towards it depends on your perspective. The father of a friend of mine often declared that he's just love to have an income sufficient to make him liable to super-tax. (That was in the days when it was 97% or so).
Similarly I suspect that many people on zero-hour contract, those with part-time jobs who really want full-time work, would feel themselves fortunate if they could secure employment sufficiently regular and well-enough paid to make them liable to income tax.