Monday, May 25, 2015

Time for the Liberal Democrats to end their obsession with raising the personal allowance

When Gordon Brown was still prime minister, the Liberal Democrat emphasis on raising the personal allowance served us well.

As I once blogged:
One of the problems Labour regularly runs into is that, despite its rhetoric, it is difficult to make the rich pay more. Of course, there are things you can do, such as taxing property rather than income, but the result is that increased public spending tends to increase the burden on lower earners until they become unwilling to bear it.
But time has moved on - I suspect it had already moved when I wrote that in 2012 - and I do not think this flagship policy serves us well today.

First a minor point. Raising the personal allowance is only a mechanism and a crude one at that. It does lighten the burden  on low-earning taxpayers, but it also lightens the burden on high-earning taxpayers. Even if reducing the tax burden on the low-paid remains your aim, you should be open to the possibility of their being a more effective or elegant way of achieving it.

But there is a deeper problem with tax cuts. As soon as the Coalition was formed the Lib Dems accepted the Conservative narrative. Britain's economy was in danger of going the same way as Greece because public spending was too high.

Once we had accepted the need for severe austerity, raising the personal allowance was in danger of looking nonsensical. Governments afraid of going the way of Greece because of the public-sector deficit do not tax cuts: they increase them. Just ask the people of Greece. The old and the new Liberal Democrat economic stories did not fit together.

Finally, this policy does not fit with the new realities of life the Liberal Democrats. It is hard to see a short-term  future for us that does not include a great deal of local campaigning, and those campaigns are bound to involve standing up for local services against cuts in central government funding. (Remember the worst of such cuts are yet to be felt.)

If we are calling for more public spending locally, then calling for lower taxes at Westminster would stretch even out reputation for saying different things to different audiences.

So it's time for some new Liberal Democrat thinking on the economy.


Chris Rennard said...

If we really want to help the poorest, and encourage people into work, then we need to look more at raising the threshold for paying NI.

Jock Coats said...

Na! Time for some *old* liberal thinking. A tax *free* society funded by ground rents:

Anonymous said...

Actually, the personal allowance is progressively removed altogether for those earning over £100,000. Which means it isn't really a personal allowance at all.

Anonymous said...

Surely the whole point of the policy was to give tax cuts to the middle classes in Con/LD marginals. After all, the original idea was to cut the basic rate of income tax, not to raise the allowance.