Taxes can be cut in such a way as to tie into David Cameron's desire to show the Tories are being pro-family and compassionate. If the nil rate band were to be raised to, say, £10,000 each and every taxpayer would benefit - but the greatest benefit would be felt by the lowest paid. It would therefore be socially just as well as electorally popular. It would also be philosophically the right thing to do.
I know there's a number of very clever tax people who read this blog. Anyone care to enlighten us as to how much that would cost to achieve?
44 comments:
Why don't they just say they won't raise taxes for a year? That would go down better with me at least.
Labour have proved that more money doesn't make better public services, just better paid public servants.
I have no idea , but overall it would not be massive as those on low incomes would likely be on benefit of some sort, so there would be an offset of cost in tax relief versus savings on benefits paid out.
Well Blaney is wrong about the poorest benefitting the most, and he is a tax lawyer so he probably knows he is pulling a fast one. If the tax free allowance is raised, but all the other rates of tax are kept the same, the biggest winners would be those tax payers with the highest marginal rate.
The way the tax system works is that you are taxed on all of your taxable income and gains after deducting all your allowances, the first X at the lower rate and any remainder at the higher rate. If everybody gets a step up in allowances those paying tax at the higher rate will save the most, those on a marginal rate of 20% will not save as much, while those not paying any tax will see no difference no better off.
Iain, I quite agree. You can get the income deciles from the ONS website and also the number of people in each decile. Assuming that everyone in each decile earns the same (a reasonable assumption I think) then these deciles range from £7,450pa for the lowest to £93,223pa for the highest. With the current tax regime about to come in next month this would suggest that income tax would raise £87.8bn.
Raising the personal allowance to £10,850, reducing the 40% threshold to an income of £37,850 and increasing the basic rate to 25% would then be tax neutral and would see the following
lowest decile (salary £7,450pa) 6% tax saving (£445)
2nd (£14,784) 6.3% saving (£928)
3rd (£20,315) 3.2% saving (£652)
4th (£25,011) 1.7% saving (£417)
5th (£31,629) 0.3% saving(£86)
6th (£34,113) 0.1% loss (£38)
7th (£41,237) 1.5% loss (£620)
8th (46,935) 1.3% loss (£620)
9th (£57,344) 1.1% loss (£620)
10th (£93,223) 0.7% loss (£620)
£10,000.
Ha ha hhahahahhhahahahhahhhhahaaaaaa
Has Andy Caulson lost his marbles
If you combined this idea with a new tax band of 50% for those on six-figure salaries, it wouldn't cost anything.
Abolishing the 10p band (i.e. doubling it) raised £8.63bn (http://www.ifs.org.uk/budgets/gb2008/08chap14.pdf, table 14.1). It covered £2150 of income, so the cost of creating a £0 band would be around £18bn.
The actual cost might be more or less than that for all sorts of behavioural reasons.
Note that this figure assumes that it applies to labour incomes only - if you want it to cover savings as well, it would be higher.
Indeed, http://www.hm-treasury.gov.uk/media/1/F/pbr_csr07_taxreadyreckoner.pdf, table 4, page 9 states that raising the personal allowance by £100 costs £660m, making the cost of the £10k tax band £30bn. In reality the cost is less than that, since some people earn less than £10k, so the cost of raising it from (say) £4.5k to £4.6k exceeds the cost of raising it from £9.9 to £10k.
Overall then, it is not a question to which a precise answer is possible, but a number just over £20bn would be right enough for policy making purposes.
Tim Leunig, LSE and IFS member
In neither your post nor Donal's is there a single reference to what area of spending would be cut (or grow at a slower rat) to support this or, indeed, even how much it would actually cost. Just excitement at the prospect of a cut...
When are the Tories going to understand campaigning basics like pitching calls for cuts in the right context? It should be simple:
(1) Identify SPECIFIC waste / unnecessary spend
(2) Make commitment to cut same
(3) Explain resultant tax change to hand money back to taxpayer OR
(4) Alternative spend.
Time and again the Tories start at (3) and then scrabble about looking for (1) when challenged in the media or by Labour...
Until they get this right (and I firmly believe it can be done - ID cards, SureStart, ASBO co-ordinators etc.) they'll neither deserve nor get power.
I must say I think it's inadvisable to cut taxes in this way. If you take lots of people out of tax altogether, they don't have any incentive to support lowering tax for others. Indeed, a disincentive, given that they consume more than their fair share of the government services that might be affected by such a cut. Far better to cut the basic rate by 1% at a time.
By the way, my hal
Surely, tax should be used to discourage activity we want people to do less of - drink, smoke, drive 4x4s etc.
So, since we want to encourage people to work, then why are we continuing to disincetivise it by ever increasing the amount of tax taken from the pay packet?
We should be looking at seriously reducing the amount of income tax we pay, moving the burden onto non-income taxes.
We should also look at scraping the family credits system which takes money from your wallett, and then gives it back to you, minus a bureaocrats salary!
People earning under £15,000 or so should pay zero rates of income tax.
I bet there is a Brussels based reason why that cannot happen though?
Cassilis, you clearly have a different definition of the word excitement to mine! I merely asked a question!
But doesn't pre-announcing a tax cut just mean that it is factored into the public consciousness and therefore they won't get credit for it when it is delivered ??
Surely Cameron's approach of managing expectations downwards, and promising only 'jam tomorrow' will mean far more kudos, praise and votes when the tax cuts are finally implemented ??
£10,000 tax allowance ?
ask UKIP
"We will take 4.5 million people out of tax with a simple Flat Tax (with National Insurance) starting at £10,000........"
Alex: I'm not a tax lawyer and have never said I was one! Just because it's on Wikipedia doesn't mean it's true (OMG you mean stuff on the internet isn't necessarily true...!???)
The reason I advocate a nil rate band for the first £10k and that I believe it benefits the poorest is by taking a pensioner on £12k a year as an example.
Currently - using broad brush figures - they pay no tax on the first £5k or so and then pay 20% on the next £7k. Under my proposal they would pay no tax at all on the first £10k and then would pay 20% on the remaining £2k. A tax bill of £400 versus a current tax bill of £1,400 or thereabouts. A tax cut of £1,000 or so. It may not matter to you but it sure as hell matters to pensioners and Tories need to court pensioners' votes aggressively IMHO.
Right, you are living beyond your means and you have got to the point that your debts are taking up so much of your disposable income that you are struggling to pay the bills.
Someone comes along and offers you the chance to drop the interest rate level on your debt a bit. Do you take the money and spend it, or do you use it instead to try and start paying off that debt faster while trying to find sensible savings in your other outgoings?
Do you want that little bit extra now, while continuing to maintain and service higher debt payments? Or, would you rather get to grips with the debt and spending so that over the longer term you can continue to get rid of the debt faster but still see your disposable income increase?
I know what advice I would give to someone in that position, and I hope that a Conservative government decides that no tax cuts now until they have brought the debt and public spending down to manageable levels.
I want real and sustainable tax cuts later that can be properly costed and accounted for, not cuts that stop us reducing the national debt or producing efficient and effective public services for the longer term good of the economy.
As a recent letterwriter to the DT said: you are reckoned to be in poverty if you earn less than £16k - yet you are taxed on about 2/3rd of that amount.
The tax and benefit system is a fraudulent carousel of money, designed to buy votes.
Oh dear...
A phoney poll gives you a 16 % point lead..And as expected some gray haired eton type jumps ranks and starts rambling on about tax cuts. Oh dear.
No tax cuts for 6 years... oh sorry I meant until a 2nd term ( A Sheffield Moment ).
Look - numb skulls. P Hammond is the sort of guy you need to put in a sack, and getting Willy The Joker Vague out to rebuff him is even funnier
A large increase in the allowance will take more people out of the tax net. This is a BAD thing. If people can get services without paying for them, then they vote for the party that will provide the most lavish services.
Removing any obligations to contribute to the running of society from a large numbers of low income earners is not something that is in the Conservatives long-term electoral interests.
This is a bad idea. It creates a sizable constituency of people who vote but pay no (income) tax, removing their incentive to vote to restrain govt spending.
I am all for shifting the income tax burden away from the bottom quartile to the top quartile. But perhaps better to
- abolish NI (severely regressive)
- abolish the zero band altogether
- set a 10% lower tax threshold up to the top of bottom quartile earnings
- change the higher tax rates to make this revenue neutral.
That way, everyone pays some tax, but low earners pay less. What do you think?
If you do not wish to pay any income tax (albeit for just one year!)
declare yourself bankrupt!!
Interesting idea, care to say HOW?
OTOH, why not just abolish all income tax.
This would cost £150bn so what govt spending needs to be cut to provide £150bn
Save £24bn by introducing education vouchers at £4000 per child and £10,000 per Uni student.
Scrapping all non NHS quangos £67bn.
Not giving money to the EU £15bn
Scrapping tax credits £14bn (With no Income Tax, tax credits would be unnecessary).
Foreign Aid £5bn
Welfare for industry £15bn
Transport £10bn
Result £150bn saved and nobody needs to pay any income tax.
A £10k zero-tax band would be fantastic, and lift so many low-paid people out of tax altogether, whilst winning over higher-paid people too. It gets my vote.
Ian,
Please stop advocating fruitcake policies. What next; leave the EU?
Anon 10:01
Yes that is one very good reason indeed why Cameron would be insane to ofter anything on taxes. Other then maybe a commitment to not radically increase them.
Keeping expectations as low as possible has got to be the right move. Its worked so far, he currently has a 16 point lead anyway. I cant remember Thatcher promising hardly anything. At the time most people were more concerned about the rubbish collection and burying their dead.
I predict similar things will be afoot by 2010. Its just the way the democratic system is planned to work in this silly country of ours.
The Conservative Party only gets in when things can not get worse. But they still do anyway, and then slowly things get better, if we are lucky. Been there seen that, brought the T-shirt.
I have better idea. All income should be taxed; no allowances at all.
There are far too many people in this country who think money grows on trees.
Why are the Tories not looking to cut civil service admin costs, Lower tax to to abolish all the civil servants involved in tax credits, Simple income tax, scrap tv licence and road tax, clear out most Quangos, council tax scrapped and paid by central government at so much per person, etc etc.
Where is the vision to reduce civil sservants by massive numbers?
"A large increase in the allowance will take more people out of the tax net. This is a BAD thing. If people can get services without paying for them, then they vote for the party that will provide the most lavish services."
It doesn't take people out of the tax net - only the 'income tax' net...
You seem to be forgetting about all of the other taxes...
Another point. How many people are estimated to be in the wrong tax bracket due to incompetence by HM Treasury? Does NOBODY check what these f'kwits are doing.....
Bonjour Monsieur Iain
Why are taxs on employment so high :
20% basic Income Tax
11% National Insurance on employees
12.8% National Insurance on employers
Total 40.6% of every extra £100 paid by Employers
Is the Object of Taxation on Employment to MINIMISE Employment Levels ???
... or to drive JOBS ABROAD ???
I remain yr obedinet servant etc
G Adler
Choosing the fairest / most politically advantageous / simplest tax cut is relatively easy.
The KEY challenge is to stop spending so much and cut out the waste.
Since public borrowing is just tax deferred I don't really care so much what is said about tax cuts.
Message from very pissed off taxpayer to Mt Cameron - CUT PUBLIC SPENDING.
If you want to reduce the debt stop thinking in terms of tax and start thinking in terms of spending.
Nobody who earns less than median income should pay tax on their income. Shift the burden to indirect taxes if you have to and possibly increase the upper rate a bit to compensate. The people who pay the highest marginal rates are those at the bottom of the income scale which actively discourages people to move from benefits to work and from low-paid work to higher-paid work.
Does anyone know what proportion of our taxes goes to fund public sector pensions?
I've read that 28p of every £1 of Council Tax now goes to fund pensions for retired council employees.
I agree with the sceptics, of whom there are regrettably few to be seen here. This is one of those ideas that sounds really good, but has unintended consequences that are bad.
Anyone who works should pay tax. People on low incomes naturally support very high taxes because they are more likely to be in receipt of free education, health care, social housing and other benefits. If they/we are personally exempt from tax, all the brakes come off.
Not something which a government hoping to encourage responsibility and discipline would want.
I find it interesting that cutting taxes is seen as a cost...
I would have thought that a cost is taxes going up.
Years of propaganda by the state, and this is the result.
I'm getting fed up of people harrassing David Cameron about tax cuts even before the next election. How can David Cameron or anyone else predict how much of a mess this country's finances will be in 12 or 24 months from now?
We have to be carefl not to use the tax-and-spenders' language. It doesn't "cost" money to make tax cuts. You just don't raise that tax in the first place.
It doesn't take people out of the tax net - only the 'income tax' net...
You seem to be forgetting about all of the other taxes...
But most of these taxes are invisible!
How about a nice simple law that says all till receipts must show the tax paid? Works in the USA & Canada. Imagine a giant sign at each petrol station saying TAX PER LITRE is £1 - in bright red letters.
I agree completely with the logic of raising thresholds, not just on the basic rate.
however it is assinine for mpeople to complain about Conservatives reluctance to commit to anything specific. Has anyone seen the state of the nations finances recently?
Lets not forget that even under Thatcher, Howe actually raised taxes before the economy was in sufficient state to cope with tax cuts and a reduction in the national 'take'.
Also the huge splurge in govt spending under Brown has let a very fat genie out of the bottle. it will be difficult to cut back spending, not impossible for sure, but it will be difficult politically to claim to be able to make painless tax cuts - and govt borrowing is already much too high, so it seems to me most true conservatives should try to engage brain before opening mouths.
Quite simple really Ian.
You raise the allowance to the minimum wage.
Sack all the hangerson.... sorry civil servants who administer the useless benefits, grants, subsidies etc system.
Then set a tax level which everyone above the allowance level pays tax.
The result.... the very rich will actually pay more tax because they don't have to find tax avoidance methods (there won't be any!) and the poorest don't pay any tax!
It's called flat tax and it already operates in many countries!
Anon 9.54 am
That is a very good idea!
We often see the VAT element of a purchase being shown on a receipt - presumably to help those individuals and companies who are registered for VAT, reclaim the correct amount.
However, since the government introduced a tax on insurance premiums and airline flights, it's interesting to see that they show the tax as a separate item even though nobody can claim it back.
Doubtless the Chancellor would not be happy if this practice became more widespread...
well scraping the whole of income tax seems a good idea. apart from the savings speculated (not including the EU subscription) we would also be able to shut down the Inland revenue department, most of the treasury department and all the quangos related to income statistics. We most be nearly at the point where it costs as much to administer the inland rev. than it gets from income tax. Come on fellows, start thinking out of the box.
If you aboilsh income tax for the lower earners, what happens to tax relief on their pension contributions?
A reduced incentive to save for retirement , especially at the lower reaches of the wage scale.
Think outside the box by all means, but this thinking seems to be happening too near to your own goal!
Pensioners already have a 9K nil rate band from April 2008. It was introduced by McBean last year. Done in that way to maintain NuLabs record of stealth. In Donal's case its clearly worked.
As Milton Friedman said, the only practical way to cut spending is to cut taxes.
Anyone wanting to reduce a budget will first reduce the budget and THEN go around looking for the NECESSARY savings. It is no use going around asking people to cut therir spending before cutting the income, as that will just mean each department will do all it can to only yield small savings.
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