UPDATE. Praise be to James Graham and the Social Liberal Forum, who have produced a far more effective and wide-ranging defence of the £10k tax threshold policy than my poor effort below, or than I could have managed with 2 hours of furious blogreading IFS quoting graphmaking marriage-ruining hell. If you are pushed for time, go straight there, rather than this effort.
As I suspected, the Fabian’s effort looks at just one leg, not the whole tax policy. As James writes:
taking the personal allowance policy in isolation, it transpires, is exactly what Tim Horton and Howard Reed have done. They even preface their report by emphasising how much they approve of the Lib Dems’ tax raising proposals. And if you were in any doubt that this is anything other than a bit of Labour propaganda rather than serious research, they rather give the game away by putting an embarrassing photo of Nick Clegg on the front cover.
This goes straight into my “blog post of the year” category. Bet you didn’t know I even had one.
Hat-tip Guido, who also does a robust job of defending the LibDem policy of raising the tax threshold to £10,000.
I like and respect Tim Horton, and so don’t want to dismiss too easily the Fabian piece of research that seems to rely heavily on the fact that this does not help those who, um, don’t have an income.
Sure: if every policy were to be condemned if it failed to enrich that bottom decile more than the rest, then the only policy that could be recommended would be a lifting up of benefits. The Fabians, quite simply, would prefer £17billion that Vince et al have found in forms like the mansion tax and pension tax relief ‘spent’ in other ways.
I don’t think that this attack will prove very effective. If it is fairly explained, most people would see the Lib Dem Tax Switch not as an alternative way of ‘spending’ the money, but as a way of redistributing the tax take; taking certain (unfair) tax reliefs on e.g. pensions for the very rich, and using the money gained to tax less those for whom the decision to work must in some cases be quite marginal. Two caveats to their general ‘how unfair’ message:
- The level of regression amongst working households must be less than that shown in their graph 9. And that is how a lot of people will see it. A person on £15k and another on £20k will get about the same amount, meaning a greater % for the former. That seems quite fair to most of us.
- Skimming, I could not see a similarly distributional analysis of the way the money is raised – the removal of tax breaks, the mansion tax, and so 0n – that fund this proposal. The Lib Dems are only proposing this change as part of a complete funded package – if one leg is not done, neither is the other. Taking just one side seems a bit disingenuous, to say the least.
There has to be a huge debate about tax policy in the next two years. I am beginning to get a bit frustrated with the only criterion being a straightforward income decile graph, and a quick eyeballing of whether the poorest 2-3 deciles get the most. What LeftFootForward call the Fairness Test is not the only test to be applied, as the dismal quality of some Robin Hood Tax arguments has illustrated.
That will not be good enough for me, or the voters, I think.
UPDATE: Another reason I take against relying just on a distributional analysis in tax arguments, is that it fails to realise the dynamism of people between those deciles. In some (unpublished) research in 2008, I found that people often moved between the bottom and the next deciles, and so on, because of changing circumstances. But the dominant narrative – particularly for people attacking Labour and accusing it of fostering dependency – imagined the same millions in poverty year after year. That is not the case.
People wanting to move permanently out of poverty may consider not only the decile they are in, but the one they aspire to get into. Disadvantaging work over benefits damages that aspiration. Another reason that lightening the tax burden lower down the income scale has more to say for it than I think this Fabian analysis suggests.