The debate about tax
The Budget is just three weeks away and the dividing lines are now clear on tax. I have always believed that tax should fall lightly on the low paid and heavily on unearned wealth. Entrepreneurs should be rewarded but speculators profiting from capital gains should not.
At the last election the number one Lib Dem manifesto commitment was to raise the income tax threshold (or the zero rate band, to put it more simply) to £10,000 a year. It was the main demand made of both Labour and the Conservatives in the coalition negotiations. It is now being implemented by the Lib-Con Coalition Government.
Since entering government we have raised the threshold from £6,435 to £7,435. This has lifted over 800,000 people out of paying income tax altogether. It’s been a great benefit to those working part time. Students working in the local shop and parents balancing a part time job with child care have been helped by this policy. The rise in the threshold has also meant a tax cut of £200 for basic rate tax payers – that’s everyone on salaries of up to about £42,500. The government has already announced that from April the threshold will rise again to £8,105. This means that 1.1 million part time workers will have been lifted out of tax.
Now I want the Coalition to go further and faster towards the goal of £10,000 tax free pay.
The Deputy Prime Minister has said raising the threshold will help ease the pressure on family budgets. As co-chair of the Lib Dem Parliamentary Committee on Treasury and Business I have spoken on many occasions of the benefits of this policy. It makes it clear that it pays to be in work, keeping more of your hard earned money. Putting extra money in the pockets of those on low and middle incomes is a direct stimulus to the economy. It puts spending power in the hands of people that can be spent in local shops and with local businesses. The Liberal Democrats made exactly the same argument last November when we pressed for a generous increase in pensions and out of work benefits. They went up by 5.3%, with pensioners getting the biggest cash increase in the history of the state pension.
The Liberal Democrats in government believe that £10,000 tax free pay is the best way of delivering tax fairness in these difficult times. It was right that the Coalition Agreement binned the Conservative election promise to cut inheritance tax. The Chancellor’s first Budget actually increased the ludicrously low rates of capital gains tax left behind by Gordon Brown. In the first two years of the Coalition Government I have been pleased to hear many Conservative MPs supporting these decisions. Many of them can see the real benefit of £10,000 tax free pay to their constituents.
Some Conservatives are now pressing the case for a tax break for married couples. I support marriage and want it extended to gay partners. But I think all relationships are surely founded on love, not the tax system. It is also not immediately clear to me why single people should be made to pay more tax. I want the Coalition to support marriage and families through its social policies, not its tax decisions. It is interesting to note that some MPs who back tax breaks for marriage are the same people who resist appropriate sex and relationships education.
And what of the third most interesting party in British politics? Well the Scottish National Party want to break up the Union and set their own taxes. Of course the Scottish Parliament already has the power to vary the rate of income tax. The SNP has a majority in Edinburgh but I don’t recall them using the tax powers they already possess.
As for Labour, they’ve been all over the place under the two Eds. They say they oppose the rise in VAT but failed three times to vote against it. Now they say they want to cut VAT – which would cost over £12billion, loading the country up with even more debt. Balls even had the cheek to say that the government should speed up the rise in the tax threshold, when he and his colleagues have rubbished the policy for the last two years.
The 2012 Budget is to be delivered in really tough economic times, with turmoil on our doorstep in the Euro Zone. But I believe the Chancellor has a real opportunity to give hope to millions of working people that the age of austerity is not for ever. Raising the income tax threshold is a way of giving people back some of their own money to spend as they choose. It is the Liberal Democrat priority for the Coalition Government and it makes economic sense for the nation.