Cameron urged to cut taxes for the poor

In a leader that welcomes David Cameron's commitment to social justice The Spectator calls on the Tory leader to recognise the damage that Gordon Brown's stealth taxes have done to the poorest Britons:

"When Labour is attacked for its numerous tax rises over the past nine years, it is often taken for granted that it is the well-off who are paying the extra tax. Yet this is not so. The Chancellor has tended to raise money from spending taxes, which fall disproportionately upon the poor: fuel, alcohol and tobacco duties. At the same time he has failed to raise the thresholds for income tax in line with average earnings, with the result that many more low-earners have been brought into the tax system. True, Mr Brown has tried to compensate for this by handing money back to the poor in the form of ‘tax credits’: i.e., handouts. Yet these benefits have been poorly taken up for the simple reason that in order to claim them, it is invariably necessary to fill in very complicated forms. This is an especially difficult task for the poorly educated, and so Gordon Brown’s model of wealth redistribution discriminates against them."

The leader also goes on to say that hi-regulation also imposes an unfair ceiling on the would-be upwardly mobile:

"If we want to help the poor to help themselves, it must be easy for them to start their own microbusinesses. Yet those who do so often find themselves embroiled in regulation designed with huge companies in mind."

It's not just regulation designed with huge companies in mind - huge companies and their lobbyists help create those regulations as barriers to entry.  Adam Smith's warning that "people of the same trade seldom meet together [without concocting] a conspiracy against the public" is a principal reason why David Cameron is right to say that Conservatives should stand up to big business.

If David Cameron is right about big business it is disappointing that he is silent about tax.  It is not just low income families that need to be rescued from Gordon Brown's tax bombshell - the whole British economy needs tax relief.  This week's most important fact came from last Sunday's Business (see graph on right):

BRITISH TAX LEVELS ARE ABOUT TO EXCEED GERMAN TAX LEVELS FOR THE FIRST TIME IN A GENERATION.

It is the duty of the Conservative Party to lead public debate on this issue.  The excellent Taxpayers' Alliance can't do all of the campaigning.  Gordon Brown's tax burden has deadly consequences for wealth creation and social justice.  Without tax relief and tax simplification the British economy will become uncompetitive and the progress of the Thatcher years will be slowly undone. 

One of the key insights of David Davis' leadership bid was that we needed to use a whole parliament to make the public case for difficult policy priorities.  The public are not yet persuaded of the need for economy-boosting tax relief.  The Conservatives need to start persuading soon...

Comments

[Matthew Oxley]

Yes, this is exactly the kind of thing I was referring to with my brief appearance on Newsnight earlier in the week.

We need to take some (conservative) viewpoints and really make the case to the nation for them, Ideally those which are not currently populist beliefs but are gathering momentum.

It's all well and good taking lots of positions which already have popular support (i.e the NHS) and what people wan't but all we're likely to achieve is at best simular credability to Labour/Lib dems in an election system which favours them.

By making the case for a position unique to us (allbeit with a degree of support elsewhere in the commons) and win the nation's support so that we have a platform to stand on in future elections.

[lambo]

I totally agree with the above. The impact of Labour's tax policies is to hinder growth. Since 1997 4.5m more people have become taxpayers and most of these are likely to be at the bottom end of the salary scale. Approx 1.5m more are higher rate taxpayers.

Corporate tax also needs cutting - the government hasn't met its revenue targets since at least 2000. Google and Yahoo have set up their European HQs in Dublin, decisions that are likely to have been tax driven. Before 97 they would almost certainly have set up in the UK.

The impact of these however is unlikely to cut tax revenues, its likely to increase them which is exactly what has happened in places such as Ireland and Slovakia (and happened in the UK in the 80s). If anyone doesn't believe this then go to an independent source such as Eurostat and dig out the revenue figures for the EU states taxes since 1997 and you will be able to see for yourself.

[EU Serf]

This is where the issue of flatter, simpler taxes are needed.

Gordon Imprudence Brown talks often of the need for greater productivity. Masses of regulations and complicated taxes are a major factor.

We Conservatives should talk about tax reform, rather than tax cuts. Labour is far more vunerable here.

[Andrew Woodman]

I very much agree with this. It is crazy that someone working part time on the minimum wage is paying income tax. They then fill out a large form and 100000 civil servants later, get the money back. We desperatly need tax reform in this country to get away from Browns micro managing and intrusion into peoples lives. Taking the lower paid out of the income tax system must be priority as well as reducing tax and regulation on small business. We might reverse the perception that we're only interesting in the rich if we do this.

[Frank Young]

This is the iconic tory policy of the moment, and has been for some time. That's not to say it's the best but the one which most easily can be understood by the public and gives an easy resonance for the party's commitment to social justice and compassioante Conservatism

[Frank Young]

This is the iconic tory policy of the moment, and has been for some time. That's not to say it's the best but the one which most easily can be understood by the public and gives an easy resonance for the party's commitment to social justice and compassioante Conservatism

[James M]

I am getting the impression a reduction in taxes for the poorest in society is also a plan for the Lib Dems, certainly the way Campbell is talking.

[Ted]

We need to make a big effort on tax reform - looking at removing the massive inefficiencies of tax collection & distribution. Flat tax proposals are easily attacked and only concern income tax - the multiplicity of sales (VAT & duties), property (including local taxation), "social insurance" (NI), capital and corporate taxes result in inequalities of marginal rates of taxation particularly affecting the poorer members of our society.

Without resultant efficiencies in state spending though any rejig of taxation does mean moving the burden more onto the better off - unless it removes a considerable layer of tax avoidance & drives up income growth. There is likely to be a lag though in increased growth providing revenue which means a jump in the deficit. With Gordon Brown already managing massive increases in deficit production during a period of relative economic health I'm unsure what space there is for more deficit / government borrowing.

It may be this is a two stage process - a revenue neutral re-organisation of the structure (with inherent income re-distribution) followed by tax reductions as efficiencies are driven through the system (fewer, clearer taxes are easier to collect & need less people in the revenue agencies to collect them). The aim must be a fairer and simplified tax system with lower overall state spending and taxes.

[Peter Franklin]

Conventional tax cuts are an ineffective of helping the poor.

For a start the poor pay little in income tax. Even those who do are simultaneously caught up in the tax credit system, and anything they gained from higher thresholds they'd probably lose in lower credits (unless of course we decided to tackle the welfare system alongside the tax system, of which more later).

We could reduce consumption taxes -- but would cheaper booze and fags serve the common good? I don't think so. Also no one has to smoke or drink, it is matter of taxation by choice.

As for fuel duty etc, we need to remember that the cost of motoring has gone down relative to household income while that of public transport has gone up. Given that the poor are more dependent on the latter than the rich, what would really benefit the poor is higher taxation on motoring to pay for cheaper public transport. Of course, this is not true of the rural poor, which is why we need to shift from fuel duties to (urban) congestion charging.

The Spectator describes tax credits as a 'handout'. But are tax cuts so very different? It is still a matter of the poor as passive beneficiaries of a top-down central government decision. Conservatives should concentrate on enabling the non-working poor into work, and the low-paid poor into higher-paid work. In this respect, it is the benefit and tax credit system that should be the priority -- not conventional taxation. Any reform to the latter would be swamped by the means testing factors associated with the former. But, of course, it is left to folk such as Frank Field and David Willetts to engage with welfare reform -- the hard men of the right seem to consider social policy to be beneath them.

And that's why the whole tax-cuts-for-the-poor thing is such a political non-starter. It's exactly the sort of rhetorical trick that the voters would expect from the freemarket fundamentalists. "Since when were you interested in the poor?" they will say. And they will have a point. What's more the whole pack of cards will collapse with the first IFS report showing how ineffective tax cuts would be as a way of helping the poor.

So what do we do instead? First of all we need to concentrate on welfare reform. Gordon Brown may have been able to crush Frank Field while the Conservative Party stood by wittering on about tax cut guarantees. But now we have a chance to rejoin the battle and we should declare all out war on the Chancellor's means-testing empire.

The second thing we should do is devote our entire tax cutting budget to job creation in the employment deserts of the urban north. Just as the Irish released the celtic tiger, so should we release a northern tiger. We keep on claiming that tax cuts will actually 'grow the cake' well let's show the country that we actually mean it.

[Jonathan Sheppard]

The debate on tax is interesting. Lets take an example out today. I have harped on about how it is easier to be environmentally friendly if you are comfortable or well off. The example of "green" light bulbs is one I have used regularly. People like my 84 year old Nana will never buy them as she would see it as a luxury she can't afford on her state pension.

So what is the solution advocated by the Chair of the All Party Climate change group to encourage use of "green" light bulbs.

No - its not to find ways of making them cheaper, its to consider taxing oridinary less efficientlight bulbs, using the tax to subsidise other energy saving for the poor.

Im not sure this is the right way to encourage environmentalism - but its another tax to look forward to.

[Albrecht Hardman]

Peter Franklin:
Conservatives should concentrate on enabling the non-working poor into work, and the low-paid poor into higher-paid work....the hard men of the right seem to consider social policy to be beneath them.

Untrue. I have long advocated sending children back up chimneys.
* empowers youth to enter the adult world early
* instils entrepreneurial flair
* redistributes wealth from the chimney-owning to the non-chimney owning classes
* taller chimneys provide higher paid-work

and best of all:
* leads to cleaner chimneys

[True Blue]

I think we should come clean on conservative instincts about taxation and expenditure instead of pussy-footing around. We want lower tax, and a much, much lower proportion of GDP going to the public sector as our stated aim. Of course this means cuts - but cuts in public expenditure mean more money for people to spend themselves on the things they want (including charities). The state interferes massively in areas that are not its concern. To call the elimination of this waste "cuts" is a misnomer. I think of it as an exercise and diet regime for the state - a little pain, then a leaner, fitter more efficient athelete capable of taking on all comers. The whole Rover debacle demonstrates this.

Means-tested benefits should be eliminated whereever possible - they are incredibly expensive to administer.

The tax on earned income should go way down, with a higher non-taxable threshold, and then a flat rate of tax.

So-called national insurance should be abolished. It's just income tax. The money should be paid into private funds with a guaranteed minimum pension contribution paid out of taxation.

This will increase GDP, which will fund yet more tax cuts in a virtuous circle.

The second thing we should do is devote our entire tax cutting budget to job creation in the employment deserts of the urban north.

Most of the civil service positions in London could be moved up north. This would save money on rent (sell up any public sector buildings affected), wages (no London weighting) and free up housing stock in London.

[James Hellyer]

"... So what do we do instead?"

Set the personal allowance at £10,000 and make it transferrable between spouses. That way households can earn up to £20,000 before entering the income tax system.

Just as the Irish released the celtic tiger, so should we release a northern tiger. We keep on claiming that tax cuts will actually 'grow the cake' well let's show the country that we actually mean it.

The North doesn't have its own tax system. Ireland does. Once can therefore adjust its tax rates to attract investement, the other can't. So unless you cut corporation taxes nationally, you're left with the option of bribing companies with government grants to move where the unemployment is, and the track record of such schemes is poor.

What we need to do, is cut corporation tax rates nationally to restore our competitve advantage against the eurozone, cut income taxes, and remember that individuals and companies create jobs - not governments.

[James Hellyer]

"Most of the civil service positions in London could be moved up north. This would save money on rent (sell up any public sector buildings affected), wages (no London weighting) and free up housing stock in London."

It's as if people have never seen "Yes Minister"!

[libertorian]

The second thing we should do is devote our entire tax cutting budget to job creation in the employment deserts of the urban north

Said like a true Tory.

*Bangs head against wall*

[True Blue]

"Most of the civil service positions in London could be moved up north. This would save money on rent (sell up any public sector buildings affected), wages (no London weighting) and free up housing stock in London."

It's as if people have never seen "Yes Minister"!

It's worked for the tax office. Other than citing comedy programmes, do you actually have an argument against it?

[James Hellyer]

"It's worked for the tax office. Other than citing comedy programmes, do you actually have an argument against it?"

Sense of humour, True Blue. True Blue, sense of humour. I don't think you two are aquainted.

Anyway, you're not actually creating jobs - all you're doing is moving them (at great expense). The focus should be on weening out non-essential personnel, not pricing the poor up North out of their property market.

We need to creat circumstances that lead to job creation, not merely shuffle the pack.

[a-tracy]

James I agree we need to create circumstances that lead to job creation but 'Up North' all we hear is that London and the South East has plenty of jobs but no-one to fill them, thus requiring more immigration, and yet there are great pockets of unemployment in the North with people who can't afford to make the move South because of house price differentials and family ties.

[Mark Fulford]

I have never understood how cutting waste and cutting services are so easily conflated by the media and the left. These small minds see harm in profit because it's deliberately made - but no harm in waste.

The government wastes 16% of its spending on achieving absolutely nothing. Compared to France, the NHS pays 20% more for the same drugs. We can cut the NHS drugs budget massively, without taking a single aspirin off the shelf. Every government department is riddled with similar examples of waste and poorly negotiated contracts.

It's about time that the left woke up to the harm their waste is doing to the country, and particularly to the low-waged who they supposedly protect.

[True Blue]

"It's worked for the tax office. Other than citing comedy programmes, do you actually have an argument against it?"

Sense of humour, True Blue. True Blue, sense of humour. I don't think you two are aquainted.

I'm happy to play the straight man to a man of your obvious comedic talent.

Anyway, you're not actually creating jobs - all you're doing is moving them (at great expense). The focus should be on weening out non-essential personnel, not pricing the poor up North out of their property market

Seriously.

To the extent that we need civil servants, it makes sense to employ them in regions of high unemployment and urban deprivation rather than wealthly areas. This will help a little to equal out the north-south divide. Do you disagree with this?

If anyone is interested, the detailed breakdown of civil service employment (including locations) can be found here:

It's scary reading. It also shows the distribution of the employees.

[Sam Coates]

True Blue, I hyperlinked that URL for you as it "rolled off the blog table" (see the recent commenting guidelines on hyperlinking etc!)

[Mark Fulford]

Shall we think about the costs of this amusing relocation suggestion? Redundancy payments to thousands of civil servants, the cost of new buildings, the cost of training new staff, the running costs for two sets of staff and buildings in the bridging period, and the cost of the inevitable cock-ups. All those costs to save exactly zero jobs, and to be covered by selling assets and a bit of London weighting.

The other problem with this argument is that it paints civil servants as evil. That’s not the case. The issue is Secretaries of State running bloated or unnecessary departments. On day one, a conservative government should shut down the ODPM and the DTI. After that, the only sensible thing to do is put a freeze on employing new people.

[Peter Franklin]

James Hellyer: The North doesn't have its own tax system. Ireland does. Once can therefore adjust its tax rates to attract investement, the other can't.

There is no reason why we can't have geographical variations in tax rates. They exist in respect to Stamp Duty and, obviously, in regard to Council Tax. Scotland also has the option of varying income tax rates. There is even more variation in other countries.

Imagination, Mr Hellyer. Mr Hellyer, imagination. I don't think you two are aquainted.

So unless you cut corporation taxes nationally...

Thereby effecting a disproportionate transfer of resources to those areas that least need the help but which are under the heaviest development pressures.

...you're left with the option of bribing companies with government grants to move where the unemployment is, and the track record of such schemes is poor.

Which is why we need targetted tax cuts instead -- no nasty quangos dishing out grants, just a set of objective criteria to define the low tax zones.

[James Hellyer]

"There is even more variation in other countries."

That variation is linked to local and state governments, it is not exercised by cntral government - just as in the UK, tax varying powers rest with local authorities and devolved powers. That has accountability.

Quite frankly your idea is political stupidity - why should a low paid person in Devon pay a higher rate of tax than someone in "the North"?

"Thereby effecting a disproportionate transfer of resources to those areas that least need the help but which are under the heaviest development pressures."

And that's just wrong. Although the South earns more, it's infrastructure is underfunded relative to Scotland and the North due the funding structures that are in place.

You want people to continue paying more for less. That's not equitable.

"Imagination, Mr Hellyer. Mr Hellyer, imagination. I don't think you two are aquainted."

There is a difference between imagination and delusion that you fail to appreciate.

[James Hellyer]

"They exist in respect to Stamp Duty"

No they don't!

[Rob G]

Peter: regional variations in income tax would almost certainly be impossibly expensive to administer - for both employers and Revenue & Customs. How would you base it - on where the employee lived, or where they worked (what about people who worked in two locations with different rates) or where the employer had their payroll office? If you base it on residence, pity the poor employer who has employees around the country and has to operate PAYE (which, incidentally, strikes me as one of the main arguments against the Lib Dem's local income tax).

Regionally based corporation tax would be just as problematical - how do you define where a large organisation is actually based or making its profits? Too much scope for unproductive arguments between tax planners and officials.

I don't think it is any surprise that the Scots have not so far exercised their right to vary income tax rates.

[Sean Fear]

Setting different tax rates in different regions certainly would be an administrative nightmare, and would certainly be used as a tax dodge by individuals and companies (particularly those on the border of a low tax region).

It would in any case be hard to justify tax reductions for rich people in poor reasons, while keeping tax rates relatively high for poor people in rich regions.

[True Blue]

Shall we think about the costs of this amusing relocation suggestion? Redundancy payments to thousands of civil servants, the cost of new buildings, the cost of training new staff, the running costs for two sets of staff and buildings in the bridging period, and the cost of the inevitable cock-ups. All those costs to save exactly zero jobs, and to be covered by selling assets and a bit of London weighting.

This suggestion has already been implemented across many departments, but it just hasn't gone far enough. In the long term it saves money, or certainly has done where it has been implemented. Large firms relocate all the time - I'm sure they take the costs of moving into account. They move to areas where the labour is and costs of doing business do not apply. The same discipline should apply to the public sector.

To your second point, you appear to have mixed up two arguments here, and aren't actually disagreeing with me. The relocation argument is relevant whether or not you think the civil service is bloated.

I think that the civil service, and certain other departments are too large. You agree with me. Their work is either unecessary or should be done by the private sector.

For example, take the prison service. We've got about 3500 murderers locked up at the moment, and the are costing the state £142m a year to look after. If we bought back hanging...

See, I can be funny!

[Mike Christie]

Regionally based corporation tax would be just as problematical - how do you define where a large organisation is actually based or making its profits?

I was just thinking about this, imagining all the companies with a 'head office' in a serviced office in Toxteth.

Moss Side - the new Guernsey?

[Rob G]

Going back to the editor's orignal piece (and one or two subsequent comments). I agree that high overall tax levels are a problem that needs to be addressed - the graph of German and UK tax burdens illustrates that only too clearly. And the added cost inherent in all the complexity that Gordon Brown has added to the tax system also needs urgent action. But I am not worried by David Cameron's current relative silence on the issue.

The Values on the Conservative Party website have been revamped in line with DC's leadership campaign documents. The relevant bit now says "We believe in lower taxes. But not in fostering greed or favouring the rich". The trouble is that so many people seem to equate lower taxes with "favouring the rich" and/or "cutting essential public services". So I think the current priority is to dispel those illusions by saying what we would do with public services and how we would reduce taxes.

On the former, I agree with Mark Fulford that we need to highlight examples of public sector watse that we would eliminate without damaging services that are valued by the general public. Why has so little been made of the James Report?

On reducing taxes, I agree with the editor and David Davis to the extent that I think we need to get the debate going well before the next election. But I don't see any need to worry that DC hasn't started it in his first two months. I think DD was wrong on two points. First he wanted to commit to specific figures for tax reductions nine years ahead (by the end of the Government that follows the next election). And he failed to be specific about how he would cut tax, leaving open the suspicion that cuts would favour the rich. I think we need to talk well ahead of the next election about our priorities for reducing the tax burden (but leave precise figures until later).

My priorities would be tax reductions that also reduce complexity, particularly for employers. Raising the threshold also seems highly worthwhile - it is fair because it is proportionally more beneficial to those on lower incomes. [Peter: I accept that it doesn't help those too poor to pay tax at all, but it would certainly help a lot of people who are in work and on low income.] Raising the threshold also reduces bureaucracy.

I also liked the idea we put forward at the last election - of increasing the tax relief for pension contributions by people whose marginal rate of tax was below 40%. That seemed to kill two birds with one stone - helping to alleviate the pensions crisis and dispelling the myth that tax cuts help only the wealthy.

Fianlly, I don't see cutting tax rates as a priority. Most of the main rates are lower than when Baroness Thatcher left office - basic rate 22% not 25%, main CT rate 30% not 33%, small companies rate 19% not 25%, rate of CGT on business assets effectively 10% not (in most cases) 40%

[Richard Bailey]

Sorry I'm late. Been working!!
Declaration of interest - was a civil servant, now no longer. Hated myself when I was!! Hate many of them now that I am not!

The author states that the long complicated forms required for tax credits discriminates against the less educated poor. True but it has another result - that of creating civil service jobs required to help people fill them in and administrate the laborious system. (It is so Communist it is unreal.) So now you have lots of people dependent on state credits and lots of other people dependent on the state provision of state credits!
Furthermore, many of these jobs are co-located with the people who need them, thus crreating a little employment in hard hit areas.
Now try and undo it all and see what merry hell lets loose.

It is all so devious, incidious and deliberate.

[Guido Fawkes]

Ming is promising to raise the income tax threshold to £10,000.*

Grrreeeat. Can't Cameron promise more tax cuts? Is there a chance of bidding war on tax cuts. The Adam Smith institute proposed a £12,000 threshold and a flat rate.

*Also a load of rubbish about green taxes and capital gains taxes.

[Sean Fear]

In fact, a good deal of what central and local government does is expensive and pointless (corporate performance management, best value, submitting plans for the same to DEFRA for approval, monitoring hundreds of different performance indicators, diversity etc.) At the same time, any piece of employment legislation increases the costs of employing people in the public sector. Then think of the way that public sector wage rises have outpaced those in the private sector over the past 7 years, and add on the growing cost of public sector pensions - and you can see there's an awful lot of fat that could be cut out of the public sector without affecting front line services at all.

Perhaps we should first make the case for cutting that fat out of the public sector - and only after that make the case for the tax cuts that flow naturally from it.

[Esbonio]

I entirely agree with the sentiments regarding a simpler and less burdensome tax system.

I particularly agree with James Hellyer's suggestion of a £10k personal allowance which is transferable between spouses. I seem to recall we used to be able to transfer all or part of the personal allowance between spouses but the Tories ditched that in the pc belief that husbands and wives should be treated separately, a rule which does not universally apply (otherwise you would for example be able to avoid CGT on second homes and I am sure James could tell us other ways in which the revenue clobbers married couples.

As for the tax credit system, it is an inefficient system and a burden on enterprise.

[a-tracy]

HM Revenue & Customs will be paying working tax credit direct to all claimants by 31 March 2006.

I hope they set up the brand new administration centre for this and trained the staff in the North.

[Rob Largan]

If Cameron was to commit to increasing the personnal allowance to £10,000 or higher, that could be a real flagship policy. I like the idea of Campaigning, telling people on doors that the first 10k they earn, under a Conservative government, wouldnt be taxed. So compelling an argument and vote winner such a policy would be, you would probably see Labour and the Lib Dems following suit.

[Rob G]

It would be interesting to know how much it would cost to raise the personal allowance to £10,000. My rough (and possibly flawed) calculations suggest that the allowance would go up by about £5,000, which would be worth £2,000 to a 40% payer and and £1,100 to a basic rate payer. I don't know how many there are of each but the total cost must be tens of billions. It looks very difficult to achieve that at our first Budget just by shedding non-essential public sector jobs.

Making the allowance transferable would add to the cost (and require civil servants to administer it).

So not a policy to be adopted overnight but I hope George Osborne's team are giving some serious thought to the level of personal allowance that would be sustainable.

[Peter Franklin]

Chaps, I wasn't actually advocating regional differences in income tax. It was job creation I wanted to incentivise -- therefore variations in corporation tax or employers national insurance is what I was thinking of.

As for those people who seem to think that the implementation of such a system is beyond the wit of man, one might wish to consider the fact that neighbouring European countries many of which are smaller or equal in size to English regions are capable of operating different tax systems.

As for making sure that lower tax rates only applied to company activities taking place in the relevant area -- the concessions could be linked to national insurance and would therefore be job and address specific.

Alternatively one could just dismiss the whole idea and carry on subsidising the north through sky high levels of incapacity benefit and public sector expansion. I however believe in enterprise-led recovery and consider that targetted tax cuts are a good place to start.

By the way, James, I wasn't for a moment suggesting that the fine county of Devon should be in any way disadvantaged. Indeed, I believe that some individuals living there need all the help they can get. ;-)

[Mike Christie]

If Cameron was to commit to increasing the personnal allowance to £10,000 or higher, that could be a real flagship policy. I like the idea of Campaigning, telling people on doors that the first 10k they earn, under a Conservative government, wouldnt be taxed. So compelling an argument and vote winner such a policy would be, you would probably see Labour and the Lib Dems following suit.

Rob, I agree its a great policy, but until we lose the 'robbing the poor to pay the rich' image we have been given proposing tax cuts is always going to be tricky.

Talking about tax is concentrating on the means, not the end. Let's concentrate on how we reduce the need for benefits, get the economy moving again, make services more efficient and make the country a better place to live through reducing crime and improving social cohesion.

The fact is that our intended solutions for these issues don't involve big government spraying money around will inevitably lead to lower expenditure and therefore lower tax.

In some cases tax cuts are a direct means to an end in themself. With regards to low-earners, the aim is to help them live indepenently, with dignity and freedom. One way to move towards this is to end the ludicrous mechanism of taking their money off them and making them beg for some back.

As long as we harp on about tax cuts as a desirable end in themselves without concentrating on why they are necessary we will always be viewed with suspicion.

Instead of saying 'We want to raise tax thresholds because it will help bring people out of poverty' We should be saying 'We want to bring people out of poverty by not taking their money off them.' This puts the emphasis on the goal, not the mechanism. I'm sure there are all sorts of studies that talk about people switching off if sentences are above a certain length, so lets make sure we put across the right message.

[Andrew]

To the extent that we need civil servants, it makes sense to employ them in regions of high unemployment and urban deprivation rather than wealthly areas.

Utter madness. Do you not think it likely that areas of high unemployment and areas with low skilled residents are likely to be one and the same? So how will you staff these civil agencies, and what will you do with the newly unemployed legions of relatively high skilled Londoners you've just created?

[Mike Christie]

"My rough (and possibly flawed) calculations suggest that the allowance would go up by about £5,000, which would be worth £2,000 to a 40% payer and and £1,100 to a basic rate payer."

The 40% part isn't relevant is it? As higher rate tax is only paid on earnings above the threshold. But the idea of £1000 less tax per tax payer is a sobering thought. Tens of billions less tax seems the order of magnitude we are talking about. Although the hidden benefits of doing away with the entire tax credit scheme and other benefits designed to boost the pay of low-earners coupled with people who currently don't work because they are financially better off on benefits finding the situation reversed could cushion that somewhat.

[a-tracy]

The highly skilled in London will be able to create their own enterprises in 'high road' careers, they could fill some of the many vacancies that we need to import personnel to fill.

The lower skilled workers in the areas of unemployed can be trained into work and those from high unemployment areas that do improve their lot, get a university education and a decent degree no longer would have to move to London to get a decent job - sorted.

[James Hellyer]

My rough (and possibly flawed) calculations suggest that the allowance would go up by about £5,000, which would be worth £2,000 to a 40% payer and and £1,100 to a basic rate payer.

Actually, it would be worth the same to everyone. The higher rate of tax is only charged on the top slice of income. All this would do is increase the bottom untaxed slice.

[Graeme Archer]

Whoever said tax reform not tax cuts is onto something. Tax has become absurdly complicated since 97. I think it's a moral obscenity that the poorest are taxed so much and then required to ask for their money back through Brown's unpleasant means-testing empire (with all the other bad societal consequences of means-testing). I hope we campaign hard on this, not just talking about tax reduction(though yes making that moral case) but emphasising the links with our commitment to social justice and to ending means-testing hell.

[johnC]

It must be particularly galling for the elderly to have to apply for tax credits and be means tested often for the first time in their lives because of the rapacious increases in council tax by profligate local authorities and Gordon Brown's daylight robbery of British pension funds.

[Esbonio]

I could not agree more with Graeme Archer's sentiment that "it's a moral obscenity that the poorest are taxed so much".

I am afraid to say that our own party kicked a lot of this off by raising indirect taxes under John Major, something which Labour turned into an art. At least the Tories unlike Labour kept indexation going. The paradox is that Labour of all the parties has let the super rich (however you define it) continue to get disproportionately richer through changes to taxation on share options, Venture Capital Trusts, and other schemes etc etc while those way down the income/wealth curve are hit more heavily.

As for the £10K personal allowance, if we cannot aford £10K let's get as close as we can. And as for transferring the allowance all it appeareed to require in the old days was a tick and a sigmnature. I'm sure they would emply more people to handle this if they could but that is different from saying they have to. It certainly strikes me as obscene that low income households are so heavily taxed through income and expenditure just so that socialists can hand it back to them as part of an inefficient scheme.

[Mike Christie]

"... because of the rapacious increases in council tax by profligate local authorities "

Can we get away from this myth that large council tax rises are the fault of the councils. The vast majority of council funding, (around 75% iirc) comes from central government. Councils only raise around 25% of their own revenue. Blair and Brown are dab hands at giving councils extra responsibilites without extra resources, take the new licensing laws for example.

The result is that councils are forced to put huge %age increases on their council tax in order to raise a small %age increase in their revenue.

Put the blame where it belongs!

[Sean Fear]

That's quite correct, Mike.

[a-tracy]

That's partly correct Mike, however, some Councils have horrendous employment practises, promoting just before retirement (in some cases just a year or two before) increases the pensions bill, the sickness pay bill at the local Councils makes my hair stand on end, and the extra £400,000 they needed this year to top up pensions when I have to top up my own just as a few examples.

[Mark Fulford]

"Actually, it would be worth the same to everyone."

James, I could be about to make a great big fool out of myself, but I'm going to stick my neck out... you're wrong.

£40,000 on today's £5,000 allowance pays 10% on £2,000, 22% on £29,400 and 40% on £3,600. Total income tax £200 + £6,468 + £1,440 = £8,108.

£40,000 at £10,000 allowance pays 10% on £2,000 and 22% on £28,000. Total tax = £6,360.

The £40k earner pays £1,748 less tax.

£20,000 at today's rates pays 10% on £2,000 and 22% on £13,000. Total tax = £3,060

£20,000 at £10,000 allowance pays 10% on £2,000 and 22% on £8,000. Total tax = £1960.

The £20k earner pays £1,100 less tax.

I'm going to take Rob's figures over yours!

[Frank Young]

I must confess to some naivety here, but it's always struck me as peculiar that local councils do not raise their entire income from local taxation or instead just receive their entire income from government.

Could some of the councillors or councillors to be on this site explain some of the issues here?

It's clear that there would be an equity issue here regarding rich and poor areas of the country if councils were self funding. But beyond that, surely a party committed to genuine "localism" would be in favour of councils funding themselves independently. However, as I said I suspect I’m being overly simplistic here...

[James Hellyer]

"James, I could be about to make a great big fool out of myself, but I'm going to stick my neck out... you're wrong."

I've not been clear - Rob was assuming that the personal allowance would save a top rate tax payer the top rate value of that allowance, and a basic rate tax payer less. That's wrong because the 40% is only payable on the top slice of income.

It would be worth the same to everyone, because everyone would receive the same tax free amount. Everyone would be £5,000 better of.

What you're talking about is the effect it would have on their effective marginal rate of tax and any saving that would cause for their tax bill. They're different things.

[a-tracy]

Mark do your maths again

[Mark Fulford]

a-tracy - I showed you all my calculations. Where have I gone wrong?

[a-tracy]

as no-one suggested removing the 2nd break at £29,400. Everyone then saves the same amount of money.

(sorry I deleted this bit off)

[True Blue]

Mark Fulford is correct that a 40% taxpayer gains more in absolute terms out of an increased personal allowance than a lower rate taxpayer

[James Hellyer]

"Mark Fulford is correct that a 40% taxpayer gains more in absolute terms out of an increased personal allowance than a lower rate taxpayer"

Although the more they earn, the less this becomes as a per centage of their revenue. Even at £40,000 - assuming all tax bands are the same as they are now - it means athe top rate tax payer saves an extra £486.90.

Woo.

Of course, if the personal allowances are transferrable, then the married £20,000 earner can get all £20,000 tax free, while the spouse stays at home. At present the only people who can do that are rich people who can swap shareholdings and savings so that the non-working spouse's allowance covers them.

[a-tracy]

James it's been a really long day at the office and I think I'm being a little thick so please tell me how the top rate tay payer on £40,000 (assuming the same tax bands + a new 10,000 break) save an extra £486.90.

[libertorian]

Surely the increased allowance would mean the basic rate would be narrowed (by £5000 for a £10000 allowance), so everybody would benefit equally?

[Sean Fear]

Mark, I suppose the calculation would depend in part on whether you kept the 10% rate on the first £2,000 earned over and above the allowance, and at what level you implemented the 40% rate, but generally I think you're calculation is correct.

[Sean Fear]

Rich, Mark's assumption is that all of the tax bands over and above the allowance are uprated by £5,000. Hence, the £40,000 pa taxpayer would no longer see any of his income subjected to 40% tax.

[James Hellyer]

Yes, but any increase in the allowance will lead to a greater tax saving for high earners as they have more income to be pulled out of the top bands.

But, even on that example the difference using the actual rates is only £486. I don't see someone else benefitting by £486 more, as a valid reason not to introduce a cost efficient way of allowing low earners to keep far more of their income.

[Rob G]

Just got back. Whether an increase in personal allowance is worth the same for everyone does depend on exactly how you implement it. But, at present, you pay tax at 40% on taxable income over £32,400. That means on actual income over £37,295 (given a personal allowance of £4,895). I was assuming that the £10,000 personal allowance would be coupled with a higher rate threshhold of £32,400 so that 40% tax would be paid only on actual income above £42,400. But you could reduce the £32,400 to £27,400

[libertorian]

Yes, thanks I was aware of Marks assumption, I was trying to explain what (I think) James meant ie. The basic rate being narrowed rather than all the rates being pushed up by £5000.

[Esbonio]

We should not be coy and use excuses to avoid reforming this country's taxation system. It's breadth, depth and complexity is absolutely crazy and has done nothing but grow under Labour. Simplifying the tax system should stimulate the economy and reduce avoidance as well as ensuring that the less well off have more in real terms to dispose of as they see fit. They may well be valid short term objections to reform but that should not deter us from righting injustice. If there is a short term gap to be bridged then perhaps we should find a way to do this. After all on the expenditure side the government literally wastes billions of pounds a year and why should the poorest have to pay for it. On the revenue side as mentioned the goverment should benefit from simplification. Perhaps it should also consider taxing global earnings like the US does.

[Rob G]

James H:I don't see someone else benefitting by £486 more, as a valid reason not to introduce a cost efficient way of allowing low earners to keep far more of their income

I wasn't using the 40% rate as an argument for not increasing the personal allowance. I was just trying to get a handle on the cost so that we had an idea of how much public expenditure we would need to eliminate in order to fund the change without even more borrowing.

[Mike Christie]

a-tracy, you are right of course, and I did realise after making my post that there are of course some councils who are responsible for wasting money. However given that there are many efficient Tory councils having to raise Council Tax by 4% for every extra 1% of revenue they need in order to meet the costs of the latest madcap Whitehall schemes of Blown and Briar, we should be very sure to lay blame where it belongs.

[Rob G]

Rich: Yes, thanks I was aware of Marks assumption, I was trying to explain what (I think) James meant

Too many posts. I wasn't responding to yours but to the comments from James on others on my original post at 15:36

[Richard]

I will be interested to see if Cameron is prepared to abolish all the non-jobs advertised in the Guardian's Society section. I greatly dislike seeing my money going towards funding these parasites.

[James Hellyer]

You'd need a personal allowance of £9,700 per annum to lift minimum wage earners out of the income tax system.

Using the IFS Ready Reckoner, this gives us a reduced tax take of £30 billion.

[libertorian]

Rob G. I was responding to Sean Fear!

Editor/Sam Could we have numbered posts as they do on PoliticalBetting.com?

[James Hellyer]

"I greatly dislike seeing my money going towards funding these parasites."

And The Guardian!

Judging by the unsold copies in every newsagent, it must be the adverts that keep it going.

[Rob G]

James: You'd need a personal allowance of £9,700 per annum to lift minimum wage earners out of the income tax system.

Using the IFS Ready Reckoner, this gives us a reduced tax take of £30 billion.

Thanks for this. Relieved to know that my orginal "tens of billions" estimate was correct.

The hyperlink didn't work for me - I get a "page not found" error. Is the Ready Reckoner available to the general public or do you need to be an IFS member?

[James Hellyer]

I must have copied the link incorrectly:

I'll try again!

And no, you don't need to be a member. It's not an actual calcualtor, simply some modelling formulae!

[William Norton]

For those having trouble finding the IFS calculator, the Treasury's Green Book Ready Reckoner gives an estimate of slightly over £26 billion for a rise of the personal allowance to £10,000 for tax year 2005/6. Not sure if James Hellyer is quoting an estimate for 2004/5, but the Treasury Ready Reckoner figures tend to be unreliable for more significant tax changes.

To put this in perspective, the James Review estimated anti-waste savings were available for the 2005-10 parliament of around £35 billion (although an element of under-counting was involved to provide a margin of error, and not every plan made it to the published slides - the real figure would have been closer to £46 billion).

The Tax Payers Alliance estimates "waste" to be £81 billion, but they take a more ruthless view of what constitutes waste and don't have to worry about political reaction.

[Rob G]

William: the James Review estimated anti-waste savings were available for the 2005-10 parliament of around £35 billion

Does that mean £35 bn per annum by the end of the Parliament or a Gordon Brown-style total of £35bn over five years?

And do you know why so little has been made of the James Review (see my post at 14:43)? I agree with Sean Fear (at 15:01) that we should first make the case for cutting that fat out of the public sector. Any views on why that isn't happening?

[Sam]

Editor/Sam Could we have numbered posts as they do on PoliticalBetting.com?
Wouldn't rule it out Rich, but I don't think it's a feature on with typepad.

We will at some point move to a more advanced commenting system, particularly for security. Would people prefer a more forum-like thing with basic features like colour, avatars, post count etc? If so, we'd need to do it externally.

[libertorian]

Would people prefer a more forum-like thing with basic features like colour, avatars, post count etc?

Personally speaking, no. I quite like the current format, rather than a forum type thing with gimmicks like avatars and post counts.

Numbered posts would avoid alot of confusion.

[Sean Fear]

Nothing has been made of the James review since Howard Flight was deselected.

We could (if we had the will) cut £26 bn out of public expenditure without anybody noticing the difference.

[Sam Coates]

Yeah I do agree about that Rich, avatars etc aren't really in the spirit of CH somehow.
I think there may be a niche for an open message board although I wouldn't want it to detract from the blogs too much.

[libertorian]

There's a message board on Rightlinks which probably serves that purpose well, though it hasn't really got up and running in terms of posters yet.

[Sam Coates]

Yeah I've seen it, it's hard to get things going like that. Do we have a proper equivalent of libdemblogs.co.uk ? Right Links again is half way there