Tax cuts for the millions, not for millionaires
A few weeks ago I was joshing with Lib Dem Party President Tim Farron and other party members on Twitter that the party should be talking about how it is for tax cuts for the millions, not for millionaires – highlighting the difference in Liberal Democrat enthusiasm for cutting taxes for those on the basic rate, compared to the Conservative enthusiasm for cutting taxes for the very richest.
So it has indeed come to pass with an email today from deputy prime minister Nick Clegg, no less, using that same form of words and heralding the largest ever increase in the standard income tax allowance.
It is an important message for the party to get out because, as Ed Miliband demonstrated in his Budget speech today, some people will try to concentrate all the attention on the ending of the 50p rate.
The heat that it generates is curious if you put the 50p rate in context. Labour were in power for 13 years and only had a 50p rate for 36 days. What is more, the government’s estimate – supported by the independent Office for Budget Responsibility – is that dropping the 50p rate will only just £100m. One tenth of one billion when the government taxes and spends hundreds of billions is not a large figure.
However, that is almost always the way with Budgets and autumn statements. Huge attention and heat is generated by changes that make up only a small part of the fiscal cake.
Crucially from a Liberal Democrat perspective, the £100m will be more than counter-balanced by other tax changes. The richest may benefit from £100m in tax cuts, but they lose all that and more in £500m of extra taxes. For every pound given to the riches, five will be taken away at the same time as millions of others get a tax cut through the big increase in the income tax allowance.
If you are on more than £150,000, you will pay an extra £1,300 a year in tax on average as a result of this Budget, primarily courtesy of the stamp duty changes and the cap on the maximum you can claim in tax reliefs. George Osborne may not have used Nick Clegg’s phrase “tycoon tax”, but the substance of it was there, as was the introduction of a General Anti-Avoidance Rule to put, and keep, the tax system ahead of ingenious tax accountants looking for loopholes.
But if you are working full time on the minimum wage, the latest cuts will halve your income tax bill compared to what it was under Labour. Twenty-one million basic rate taxpayers are getting an extra £220 tax cut, making them £45 a month better off than they would have been under Labour. Two million people will be taken out of income tax completely.
What’s more, the way in which the richest will be paying more reflects a long-standing Liberal Democrat push to tax property more fairly compared to people’s salaries. The new 7% stamp duty on properties worth over £2m is a son-of-Mansion-Tax. Unlike the Mansion Tax, it does not require any new systems to levy, simply being an increase of an existing charge. That makes it quick, easy and cheap to introduce – important considerations.
Overall the updated economic forecasts in the 2012 Budget showed small moves in the right direction; the tax changes show a much bigger move in the right direction.
As Nick Clegg said in an email to party members today, “This is a coalition Budget and we did not get our own way on everything. Conservative priorities are not ours. But as on so many other issues, we have made sure that there is a real Liberal Democrat stamp on this Budget.”