Wednesday, 12 May 2010

Now is not a good time

I know intellectually that I won't have every election over the course of my lifetime go the way I want it. Frankly, that would be as unhealthy for the country as it would be freakishly unlikely. So I accept that from time to time, party/ies I don't want in power will be in power.

It's just that I very much see this as something that happens at an unspecified point in the future. They can win some other election that hasn't happened yet. I'll settle for winning those that take place in the present. That's only fair, right?


Inspector Clouseau said...

It's a little scary out there right now. The level of acrimony is troubling.

Nice work. I came across your blog while “blog surfing” using the Next Blog button on the blue Nav Bar located at the top of my site. I frequently just travel around looking for other blogs which exist on the Internet, and the various, creative ways in which people express themselves. Thanks for sharing.

Mike said...

Cheer up Andrew and think back to your stated priorities when voting a week or so ago:
"a) make sure that the pain of recovery is mitigated for those most vulnerable to it and b) make sure the gains of recovery are shared beyond those best placed to benefit"

Insofar as the new government can be judged at this stage, the plans to take the poorest workers out of tax altogether and to kick IHT cuts into the long grass must surely meet with your approval (it does mine). The CGT rise seems pretty just too (i.e. why should property and stock speculators pay 18% tax as compared with income tax which can be up to 50%?).

This is just the headline stuff, I know, but putting aside tribal loyalty, won't these do more for the poorest than any of Labour's tax policies?

Andrew R said...

I do like the CGT rise and the dropping of IHT. But they won't of themselves do anything for people on the lowest incomes - that depends on how the revenue is spent.

On which note, there's been some analysis to show that the rise in income tax threshold (which will happen piecemeal over the next few years, let's not forget) won't primarily benefit the poorest. For an obvious starter, people who are so poor they don't pay income tax won't see any benefit at all.

When fully implemented, it'll be worth c.£15/week to you and me, but only c.£5/week to the lowest 10% of earners. If you want to spend that kind of money to help the poorest, there are much more efficient ways of doing it.

And, of course, you can't look at these things in a vacuum. If/when VAT goes up, that will more than offset any benefits from raising thresholds. Spending the money on e.g. benefits would be more effective.

As for comparisons to Labour, the IFS showed during the election that Labour's tax policies had had an enormous redistributive effect, with the poorest 10% gaining 13% of their income.

Mike said...

It would be too much for me to try to convince you not to be circumspect about the new coalition, but I am trying to encourage objectivity in your comparison to Labour. A few points:

1. Your IFS study is a snapshot of Labour’s final weeks of government, not how they governed for 13 years. Moreover, the IFS is not comparing Labour with the new coalition.

2. You are assuming a VAT rise by the new coalition which has not been announced. You may be right, but it seems premature. It is also a little unfair since Labour did not rule it out. Moreover a refusal to make spending cuts makes a VAT rise much more likely.

3. Cutting taxes for the lowest-paid (full-time) workers is more efficient than taxing them and then handing back the money in the form of tax credits or benefits. But I accept it may not be so well targeted. I query whether attempting to target people through tax credits and benefits is invariably preferable to raising income tax thresholds (which the Left-Foot Forward study seems to suggest). If so, why not raise the 22% income tax band to 40% and hand out the proceeds in the form of tax credits?

4. Taking people “out of tax” is not just about paying less tax. A bouncer earning £9k a year had to fork out for an accountant to complete his self-assessment tax return (because he was self-employed). When he lost his job and (so could not afford his accountant) his possessions were seized on behalf of HMRC because he had not completed all the formalities for a cessation of trade. Although this a personal anecdote (and I have plenty more) I hope it explains why taking people out of income tax is not just about how much tax they pay.

5. Of course, the policy to raise income tax thresholds has no benefit for people (or households) who do not earn any income.

6. To be honest, the analysis of the income tax proposal by Left-Foot Forward does not have much place in an objective discussion. My main criticism is that they repeatedly compare “households” with no (or hardly any) income with “households” who do earn income and not surprisingly the latter do better (see point 5 above). This is then used to suggest that the policy is “regressive”. I don’t think this being honest or objective.

Don’t get me wrong, perhaps during the next 5 years, the poorest households will have their benefits slashed and their public services taken away. (If that happens I will join you on the barricades!) But for the moment, I would have thought the proposed redistribution of the tax burden (amongst those who pay tax) is a good thing and we can be circumspect perhaps but not alarmist about what to expect next.

Andrew R said...

1. The study does review Labour's 13 years in power - that's the first graph in the link (The distributional impact of Labour from 1997-2000)

2. It's not so much that I'm assuming a VAT rise (though I am) it's that you can't judge the government on just one aspect of tax/benefits policy. You need to see the whole picture.

3. More efficient at what? If you want to affect all taxpayers, as your proposal would, then raising the band is a good move. But you can't then pretend that it's specifically targetted at a smaller sub-group, because it won't be. As ever, "efficiency" depends on what your output is - if the output of this policy is meant to be an increase in net income for the poorest, it's a very expensive way of achieving that goal.

4. I'm not sure where you're going with this. If you're saying that tax system could stand some reforming to make compliance easier, and not penalise people for being too poor to afford expert advice, I agree.

5/6. This policy is being advertised as helping the poor. People who don't earn any income tend to be poor. If the policy doesn't help them, that's not a mere semantic quibble - it's a major flaw in the policy's ability to achieve its stated aims.

Anyhow, it's not that I think this is a terrible idea. It's not. But it doesn't do as much as it seems it ought to on first glance. In fact, it seems like it'll benefit me more than it will someone earning £9K, which is frankly a poor set of priorities for the government.

Mike said...

1. You are right (dammit!) And that shows that Labour have been more progressive/redistributive than governments pre-1997.

2.Agreed, we will need to wait for a full budget. (Apologies if I have kicked off this discussion prematurely!)

3. By efficient, I mean that for every £1 of revenue removed from the Exchequer the taxpayer receives a benefit of at least £1 (the "at least" bit is as a result of reduced compliance). Whereas trying to targeting people more specifically (e.g. through means testing) usually carries increased admin costs. Of course, this is a relative argument - I am not suggesting that no benefits/reliefs should be means tested, merely that a tax cut puts more money in the pockets of recipients.

4. Reform of the tax system is one thing (and no party is offering that), but I was making a more fundamental point that removing the compliance burden altogether is a non-financial benefit not mentioned (let alone reflected) in the analysis. For example, you may be surprised how many pensioners currently fill out a self-assessment tax returns and worry that if they get it wrong they will have a tax inspection of all their records. I have had clients who say it makes them feel sick every year when they get a letter from HMRC. Of course a £10k threshold will not help everyone, but it is a start.

5/6. I agree that if anyone suggests that this policy will help people who have no income they would be lying!

We don't yet know if you will be better off because (despite the assumptions of Left-Foot Forward) we don't know what exactly they will do with the other tax bands. But even if you were, there are other benefits which cannot be seen from calculating who is better or worse off. I think there are general economic and social benefits from making low-paid employment more viable, rewarding those who take it and reducing poverty traps.

Am I any closer to convincing you? (I fear not!)

Andrew R said...

Well, I agree that this is a good way to help taxpayers in general. And that is perfectly fine and I'd be churlish to complain. But it's not a good way to help the poorest/most vulnerable. (The stat I heard was that of the cost of c.£17BN for the full £10K threshold, only 6% will go to the lowest income households. So - if the goal is to help those people - the is highly inefficient in terms of achieving that goal.)

Making low-paid employment more viable is absolutely a good idea, but the tax threshold isn't actually the biggest culprit here. What really bites is the loss of benefits/tax credits as you take up a new job. I know IDS has some ideas on this to do with making benefits taper off more slowly, so I will watch that one with interest.

As for whether you're closer to convincing me, if your thesis statement is still "won't these [i.e. change in tax threshold] do more for the poorest than any of Labour's tax policies" then it's fair to say you've got a little way to go.

Mike said...

"As for whether you're closer to convincing me, if your thesis statement is still "won't these [i.e. change in tax threshold] do more for the poorest than any of Labour's tax policies" then it's fair to say you've got a little way to go."

I note the sarcasm, Andrew, but what Labour tax policies are you thinking of? I am not trying to wind you up, but I am not aware that they have any tax policies to help the poorest.

Scooting back to the start of this thread, I think I was trying to challenge your pessimism about the coalition by pointing to policies you might like for reasons that you might like. I was not expecting you to reply with a partisan presentation attacking the £10k income tax threshold!

I do not accept the statistics or costing until we see how it will be implemented (you cannot simply assume that the other tax bands will remain the same). I see your point about households with no income not being affected by the proposed changes to income tax and CGT and if we define "the poorest" as only encompassing those people our comparison of the tax policies between Labour and the coalition can be very briefly concluded. Though I still cannot get from there to your conclusion that this shows the coalition has "a poor set of priorities".

The charity I know which helps the lowest-paid workers with their tax has been pushing for an increase in the income tax threshold for some time. So i am frustrated to see Left-Foot First (and I have since found some other scurrilous websites) attempting to smear the policy while offering no change to the status quo.

I guess we can wait to see what the IFS makes of the budget and in the meantime I will stop writing such long essays on your blog!

Andrew R said...

In fairness, I've probably backed myself into a more adversarial corner than I really intended. I'm not distressed by the £10K threshold at all - I just linked to the Left Foot Forward analysis by way of saying that it might not be as straightforwardly good as it looks. The point about people on zero income is the main trouble I have - we don't have to define the poorest as only those people, but there's no way to define the poorest that excludes them.

Anyhow, overall I'm not in despair about the new government. The original post was more of a joke at my expense than a serious lament that Britain was about to plunge into a fresh new hell. Some of their policies I like, some I can go along with. Some worry me, but like I say, that's got to happen at some point in my life.

joven said...
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