The tax U-turn (with cute puppy pictures)

We’ve all crunched numbers wrongly and had to backtrack. Embarrassing as it is, sometimes there is nothing to be done but bite the bullet, hold your hands up, make a clean breast of it, turn over a new leaf, dust yourself off and wake up and smell the backbench rebellion.

So when it emerged that our rash promise of a puppy for every new reader had seriously alienated our core “traditional” readership, we knew what we had to do. Yes, we had to lift cute puppy pictures from all over the internet and use them as a bribe, even though those who already have cute puppy pictures will derive extra benefit from the exercise over the puppy-deprived. It’s a tough decision, but someone had to make it.

Simplicity itself?

It is interesting (to within an order of magnitude; when you’re at work; and it’s a slow Facebook day) to consider the professional response to Labour’s 10p blunder. Suggestions on this forum ranged from “restoring the 10p band and cutting benefits” to the solution eventually adopted.

Professional opinion is pretty much universal that the whole move was daft, a disgrace etc. In particular, there is a healthy scorn for the notion which Darling, darling! has successful palmed off on laypeople (ooh, you weirdos), that losing the 10p rate is somehow a giant leap forward in “simplification”. Any adviser will tell you that a single, immobile universal tax band on income with no exceptions or optional extras ranks as one of the simplest tax measures imaginable (then they’ll charge you £550+VAT).

Particularly galling to me was Darling, darling!‘s repeated weaselly insistence that one “cannot just unpick” a Budget when it is precisely as unpickable as any other bill on its Third Reading (which I concede may not be very unpickable at all; the point is there’s nothing special about tax legislation). Again, he’s relying on lay unfamiliarity here. The bit of legislation that says the personal allowance shall be £x, the starting rate shall be 10p, the basic rate shall be 22p, the higher rate shall be 40p etc etc says… well, pretty much that. And every month thousands and thousands of payroll agents up and down the country go into their payroll software and implement what the legislation says.

Pay As You Earn tax is a system which is, on the whole, foolproof and immune to abuse. There’s really nothing mystical about changing the rates, nor is there anything profoundly simplifying in doing so. It’s the work of five minutes and one crazed junior treasury minister with a blank piece of Statutory Instrument headed notepaper and a pen, and after that they never have to think about it again.

It’s not the income tax bands that make tax complicated. Not even near. It’s the reliefs, the exceptions, the oddballs, the (nasty word approaching) loopholes, most commonly found in capital gains tax, corporation tax and inheritance tax and rarely sighted anywhere near your common or garden PAYE income tax, that make up the complications.

However, it was clearly in Darling, darling!‘s interest to suggest that the whole process was vastly more complicated than it actually is, because that bought him time to negotiate the borrowing of the £2.7bn. What he really meant by claiming that it’s difficult to unpick a budget is that he can’t just palm off the cost on another group of taxpayers after the main budget debate has been and gone; he has to get more funding from outside instead. Good to know that Labour still shrinks from that much open tyranny.

In fact, never mind the complication, it’s still in his interest to pretend the whole thing was just a ghastly mistake (it was a Big Fat Lie; there is no way it could have been anything else; a junior tax assistant could have spotted the problem, given the figures on earnings and tax credit take-up). He’s not just blinking with terror like a rabbit in the glare of The Great Jon Snow because he’s had to make a U-turn. He’s blinking because he’s still trying to hide just how disgraceful the whole thing is. We’re treating this as the crisis point for Labour over the 10p tax affair when in fact this is the home straight. They’ve nearly got away with a shocking piece of straightforward deception.

That goldarned two-party consensus again

Sadly for the British people (not a phrase I care to use very often because it makes me queasy, as if I’ve eaten a big lardy slice of Tory Pie) the official opposition are in cahoots with Darling, darling! on this. It’s in Gorgeous Georgina Osbourne’s interest to make the whole thing sound far more complicated than it is as well, because he doesn’t understand a single bloody word of it.

This is why he keeps uttering mystical pronouncements such as “The cupboard is bare” and “They didn’t mend the roof when the sun was shining” like some exceptionally mundane sybil. I’m listening out for when he starts saying “They didn’t tie the giraffe up in time and now the hamster’s mother has outgrown the chocolate undergarments” because then we’ll know he’s getting overconfident.

And of course, even if Gorgeous Georgina wasn’t the dunce of the Tory front bench, the Tories still need to maintain the illusion of complexity because they don’t want to commit themselves to any spending plans. One of the easiest ways to avoid this is to pretend that taxing and spending is a great alternative universe of Mystic Numbers Whose Wot We Cannot Possibly Know Until You Have Voted Us Back Into Power Where We Deserve To Be AHAHAHAHAHAHA!!!!! ahem, ahem, sorry, and that it would be totally impossible to, say, assemble the basic toolkit of a calculator and the back of an envelope and start jotting some possibilities down.

This is politically clever because everyone believes them – I’ve even heard this touted as a Tory strength. I’ve heard it seriously suggested that they can’t do anything until they’ve “got in and seen exactly what kind of mess everything is in”, as if the economy is run out of a bunch of A5 cashbooks that Gordon Brown keeps locked in his kitchen drawer rather than a national system open to constant public scrutiny. So, politically clever, but economically and democratically grossly irresponsible, and underlines their sheer unashamed power lust.

The alternative, should any total cretin enquiring mind think I’m being a bit harsh on the Tories, is that Gorgeous Georgina really is that stupid. I am indebted to Daddy Richard for the knowledge that GG receives, every week, a Treasury Briefing. This briefing would enable him, at the whirl of a spreadsheet, to build a whole new quantified tax package, and know where every pound of revenue was coming from, and in what proportion. Tomorrow.

It wouldn’t tell him about outcomes of course; all the precautionary impact studies would remain to be taken. But the groundwork is there any time he cares to pluck it out of the air. Maybe he’s been guiltily stuffing his weekly Treasury Briefing down the back of the sofa for the last few years. Come to think of it, isn’t his little patch of the Tory front bench looking a bit… bulky?

The solution

Bad news if you’ve been mollified by Darling, darling!‘s announcement, because here’s the dirty little truth: he’s pulled the same trick on you again. Essentially, Gordon Brown’s great miscalculation in his last budget as Chancellor, which may yet be the undoing of him in his first election as Prime Minister, was to think that middle earners would be so chuffed with their 2p basic rate cut that they would ignore the fact that it was stripped off the backs of the low earners.

Well, rather than spending his extra borrowing on, say, reinstating the 10p band, Darling, darling! has now spent £2.7bn on a rise in the personal allowance which still leaves earners of between £6,000 and £12,500 worse off if they’re not on tax credits and also has the rather neat effect of benefitting those middle income net gainers from the Budget still further. £120 further, as he didn’t tire of saying on R4 this morning.

I’m not saying raising the personal allowance isn’t a totally admirable goal, but his emphasis on helping middle income hardworking families facing rising fuel and food bills blah-blah-please-love-me is so strong that it’s perfectly obvious that helping NMW workers isn’t the main agenda.

As the Low Incomes Tax Reform Group unhappily puts it,

We welcome the Chancellor’s announcement that he will aim to compensate some 10% losers by raising the basic personal allowance for the under-65s. Nevertheless, we have significant reservations.

Although it is churlish to be unhappy about a strategy (raising personal allowances) that we would normally welcome, we cannot let pass the fact that it is some of the very poorest who still lose out.

Yes, this is another middle class bribe, I’m afraid. As is this:

82 Comments

  1. Once again, more pandering to middle class voters; and at such a high cost. a real Labour government would and should be looking to remove the lower paid members of society from the tax system – for example, those earning under £15,000.

  2. I don’t agree, Tim Phillips-White. By all means reduce taxes on low earners, and generally encourage people into work at entry level. But so long as there is a burden of taxation, everyone should bear some of it. That is the moral principle.

    There is also the practical fact that those on low incomes are more likely to be in receipt of state education, social housing, health care and what have you, so their natural tendency is towards statism. If they are outside the tax system, this will only get even worse.

    I know I’ve made myself look like a cunt there. But I myself earn less than £20,000 a year, so I’m speaking about myself.

  3. asquith – the logical conclusion to what you’re suggesting here is the introduction of a poll tax. I don’t accept there is a moral principle in getting everyone to pay tax. Low income earners, objectively speaking, got very little out of their state-funded education. The high income earner, by contrast, does very well out of the system and thus should surely be the one making the greater contribution.

    Anyway, even if personal allowance was raised to £50,000, everyone would still be paying tax, plenty of it, in the form of VAT and excise duties.

    Ultimately all income taxes are a deadweight cost on the economy, but income taxes on low wages are particularly pernicious. If we want to encourage job creation, why do we provide disincentives? Taking people on low incomes out of taxation would reduce the burden on the state, not increase it.

  4. I agree with James and Tim broadly. A graduated tax system is the fairest for society. It is ridiculous to tax low earners and end up with complex and costly systems for giving some of it back. The advantage of VAT and excise taxes which do affect us all equally is that they are capable of being avoided at the lower end (eg on fresh uncooked food) and it is a personal choice to spend on items that are heavily taxed, eg alcohol.

    There is an obvious exception here in fuel costs of course which are heavily taxed and often essential in rural and suburban locations, so the balance has to be drawn on reducing congestion and dealing with carbon issues here.

  5. @Sanbik,

    Yes indeed, minister – sorry, my last para wasn’t very clear. Like the LITRG, I’m happy the personal allowance has been bumped up (though with what long-term follow-through remains to be seen) but I’m less than happy that the prime motive for doing this is pretty obviously yet another middle class bribe.

    We can offer a sort of abstract well done for raising the PA, but since the problem at hand was the fact that 5m people were going to be worse off, and now 1m people will still be worse off, we’re entitled to point out that this probably wasn’t the correct solution, even if that is a little churlish.

    I’m with Peter/James/Tim on low earning taxes (and I do recommend that anyone interested takes a look at LITRG’s website; they’re a great organisation, and we might do well to try and forge a few links with them as a party if they’d have us) but I’m also interested in Asquith’s link between not paying income tax and statist dependency. So does this mean you’d be against the idea of a Citizen’s Basic Income, for example?

  6. James Graham wrote:

    The high income earner, by contrast, does very well out of the system and thus should surely be the one making the greater contribution.

    This assumes that the main factor in determining success in life is the amount of help one has received from the state. I’m willing to go along with a variant of that argument as it relates to land values but I’m not at all sure that it extends to the value of labour. Yes, a good education makes a huge difference, but we already charge people for access to university. Do we not, at some point, have to recognise that what people do with their talents is down to their own choices and that those who succeed do so because they actually deserve it?

    That’s not to say that there is no justification for higher taxes on higher earners, but the ‘we made you into a success so we want a cut of your earnings’ argument is a particularly bad one, in my opinion.

  7. It is pointless in a supposedly progressive and caring society to continue to inflict an unfair tax system upon those in society who need a greater percentage of their income just to survive and make ends meet. Especially to those individuals and families, where just a few extra pounds a week can make a massive difference.

    I don’t agree with the statist argument – from my rose tinted view, it’s about providing those worse off in our society with an opportunity to fulfil their aspirations and to be able to improve on a life of financial struggle and hardship.

    Perhaps it is a little idealistic to suggest that all low earners should be taken out of the tax system altogether, but we must surely do all we can to close the ever increasing gap between low and middle income earners.

  8. I agree that there should be a progressive tax system and those on low incomes should pay less than they do now, I just don’t think it’s good for a citizen & user of public services to pay no tax whatsoever. I’m prepared for radical changes to the tax system, if I agree with them, but such a policy would be unhealthy for the whole political/social culture in this country.

  9. Removing income tax from people is certainly not the same as ‘taking people out of tax entirely’, although we’re quite guilty as a party of using that phrase. It simply amounts to saying ‘you can earn up to this much in a year before we will tax your income’. You still pay VAT, council tax, BBC license fee and everything else.

    The point about maintaining some taxation on everyone is a reasonable point though. I dimly recall reading that Gladstone was concerned about this when he was proposing the abolition of income tax, but used the fact that people would still pay duties on items like tea as a counter-argument.

    It’s also a live issue in US politics; I recently read (can’t find the link unfortunately) that Republican strategists are worried that the lower-middle-class now pay so little in income tax that they see no benefit in the idea of tax cuts – the rich now contribute such a huge percentage of the funds for government spending that only they are so concerned about the levels of spending to want to restrain them in any way.

  10. I almost wrote “nice puppies” but thought that might not be quite apprpriate for a lib dem blog.

  11. Yes, Rob Knight. I read some quotes from America re: people who pay next to no tax and thought about them. Perhaps I read the same sources as you. That was a real head-turner for me. It shows why we should be careful!🙂

  12. Oh, and about a CBI, I really like the idea. People should certainly be encouraged to work, even if it is in low-paid jobs. I think we are all worried about high marginal tax rates, and want to make sure that work pays, which is the most obvious way to raise employment rates.

  13. But I haven’t yet done much research into the pracitcalities. I’m aware of my staggering ignorance, so I’m trying to inform/educate myself. Bear with me🙂

  14. Good points raised – the whole point however, is not to give tax breaks to the middle class / middle earners. We need to do much more to encourage people back into work by making the tax system work in their favour. What we dont want is for a situation to continue where certain groups feel that they are better off staying on benefits.

  15. “What we dont want is for a situation to continue where certain groups feel that they are better off staying on benefits.”

    Yes, exactly. That requires not only economic incentives, but also a smashing of the whole culture in which people in deprived areas are looked down on by society and recieve inferior services, which leads to low expectations, low self-esteem and all the poison we can see under Labour and Conservative governments.

    This is, in my humble opinion, something only a Lib Dem government can achieve. The full integration of the sink estates like the one I live on into society on equal terms.

  16. Exactly…..For most of my adult life I voted Labour. However, it breaks my heart to see how the working class and low paid in this country have been betrayed and lied to. I work in local government – working with young people, and what gets to me most is the complete lack of hope that they have for the future. This isn’t something thats happened overnight – this has been going on for bloody years, however, there is little hope when Labour seem happy enough to continue pandering to Tory middle England.

  17. CBI is an interesting idea for the long-term, though I’d like to see some more discussion of how it can be introduced as part of a comprehensive package of reforms.

    Taxation has become such a minefield of halfway houses and interim transitional measures that taking a consistent approach is virtually impossible nowadays, and means everything is reduced to a relativistic battle for the favours of winners and losers.
    I mean, with all the credits and allowances, banding and taper-relief systems, who could reasonably complete their own return? It’s so complicated that the Chancellor got his sums so completely and easily wrong!

    Labour’s 10p debacle has exposed the lie that taxation is no longer a symbolic area of political debate. And while the Conservatives refuse to make guarantees about any ‘tax-cutting’ agenda the opportunity has arisen for LibDems to stake out this territory.

    Taxation is the single most direct method of creating economic and social change, so it would be great for the LibDems to be clearer about what and why they think can and should be achieved by their proposed changes, rather than just getting everybody lost in the specific details.

    Fairer? Yes, how? – Less loopholes?
    More effective? Yes how? – Less distortions?
    More efficient? Yes, how? – Less waste?
    More opportunities? Yes, how? – Less favoritism?
    More incentivisation? Yes, how? – clearer reward structures?

    etc.

  18. I agree with all the people that said the puppies are darling.I have a dog he is 4 not a puppy any more.Ruddy(my dog)he eats any thing but his new dog food so we got him somemore and he eats it on and off.During the heat wave in Washington 103-107 some poeple like that but i don’t back too my point he wouln’t eat anything or drink we got woried we had to put the bole right on his bed for him too drink it.He loves barcking the neghibors are out in the back yard,so he goes back there and then barck the neghibors leave and go in there house then they go back out in the front yard.He ate my shoe and half of my sock.So know you have a idea of what he is like.His tail has been brocken twise😥 sad .Well i gtg walk him and then give him a bath in a couple hours ,but i love him soo much he is so cute!!!!!!!!!!!1

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  20. SO LOVELY DARLING MY PUPPIES. wow i love Puppies , I like Puppies , Puppies are my best friends. My daughter Ammu like Puppies so much that we bought 5 puppies. Our puppies names are William , James , Rodrigo , Wolfiey and Honey. William the Eldest and Honey is the youngest.

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