...a blog by Richard Flowers

Tuesday, April 21, 2009

Day 3032: Hard Labour offer spending cuts; Conservatories offer spending cuts; Liberal Democrats offer Tax Cuts – spot the difference


Can you afford to cut taxes in a recession?

The REAL question is, surely, can you afford NOT to?

Although the BANKING crisis has derailed a lot of businesses and caused a lot of job losses and repossessions, that's not the WHOLE story of this recession: don't forget that there was a BIG jump in a lot of everyday prices last year, in particular FOOD, and that inflation is still going on hurting more people at a time when their bosses may be telling them they can't have a pay rise or that they have to work fewer hours.

Amid increasing evidence that Mr Frown's VAT cut has not stimulated the economical booty – indeed has mostly gone back to big business (how many shops do YOU know where the price went down for a couple of weeks only to be back up to something pounds and ninety-nine pence again after Christmas?) – it's clear that we need to put money directly into PEOPLE'S POCKETS.

Or, more accurately, stop the nasty taxman dipping in and taking so much out!

That is why Mr Clogg and Mr Cable have today announced that Liberal Democrats will not start charging tax until people earn over TEN THOUSAND pounds!

Right, FAQ time:

How are you going to pay for this?

We're going to make BIG BUSINESS and HIGHER EARNERS pay their fair share by closing LOOPHOLES and getting rid of UNFAIR benefits. We're going to return Capital Gains tax to being charged at the same rate as Income Tax so that the well off can't get round tax by being paid in property. We're going to apply aviation tax to PLANES rather than PASSENGERS so that the airlines have to pay it (and get an incentive for not flying empty planes around) and we'll charge it on non-essential flights WITHIN the UK rather than just flight to ABROAD-LAND.

Will people believe this bit about "closing loopholes"?

We do have a list of specific, costed proposals for which loopholes we will close and how much we think we can realistically make. And the money IS there – even the Government say there are thirty to forty billion pounds of avoided tax to be had. So we COULD tell you. On the other fluffy foot, Chancellor Sooty is still scribbling his budget down on the back of a fag packet (probably sold to him by Conservatory Mr Ken Clarke), so why make things easier for him?

More seriously, there is at least ONE and probably TWO budgets between now and Mr Frown's summary sacking, er, the General Election not to mention the fast-changing events of the recession, so we will be keeping our options as open as possible.

There will be – as there always is – a FULL explanation of ALL the costs of the Liberal Democrat budget when we publish our manifesto for the Election.

Isn't this going to hit pensions… again?

Actually, no. It's true that we're going to make higher rate taxpayers have the SAME pension benefit as everyone else, but the way that the HIGHER rate benefit works is DIFFERENT to the way that the basic rate benefit works.

When you make contributions to your pension, the taxman pays over your BASIC RATE benefit DIRECT to your pension, in proportion to your contributions. (That is, for every seventy-eight pounds YOU pay, he'll give your pension back TWENTY-TWO pounds that you paid to him in tax.)

But the HIGHER RATE taxpayer gets a benefit that is simply a bit off their tax bill, so they get a bit more money in their salary. That's money given straight back to them that they do not have to spend on a pension, and most people don't.

So, unlike when Mr Frown abolished Advance Corporation Tax credits, this change WON'T reduce the money being paid into pension pots.

Why not set the tax-free allowance at the level that would mean NO ONE on the national minimum wage would pay tax?

Honestly? Because we worked out all the MATHS and it was just too expensive. It's another one-and-a-half thousand pounds in allowance, but not JUST for people on minimum wage, for everyone right up to people earning a hundred thousand pounds. That's three hundred pounds of tax back EACH, for the vast majority of taxpayers.

We want to make taxes FAIR, by closing loopholes and stopping tax avoidance, but we also want to be CAREFUL and REALISTIC about the amount of money that we can raise from top earners. We are not out to SQUEEZE the RICH; only to ask them to pay what is their SHARE.

Have you seen "In the Loop" yet?

Yes. The review is in yesterday's diary.

Weren't you going to cut income tax by 4p?

Yes! Now we are going to do this instead – it moves roughly the same amount of money, moving around seventeen BILLION pounds of tax burden OFF the lower to middle earners, but this is EVEN FAIRER and EVEN MORE redistributive, because it takes many people out of tax ALTOGETHER. Many people who are on the minimum wage will pay NO INCOME TAX; many people who are students will pay NO INCOME TAX.

Is everybody happy about this?

Daddy Alex is happy; Ms Mary Reid-my-day is happy; Mr Paul Burblings is happy; Mr Liberal Neil is happy; Wicked Uncle Costigan is almost sure he's happy; Auntie Alix is deliriously happy. Yup, that's everybody!


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