70 per cent of the cost of cutting the personal allowance goes to the richest half of society

Income tax is quite progressive; better to cut VAT or council tax.

Tomorrow is the beginning of the 2013/2014 tax year, and one of the changes that's going through is the latest rise in the Personal Allowance, which is increasing from £8,105 to £9,440. The Tories are making a big thing of it, launching this poster campaign:

That's going to sting for the Liberal Democrats, who are desperate to claim the increased personal allowance as their legacy from this government. But the phrasing is interesting, and worth examining.

For this poster, the Conservatives have dropped their favourite claim of "2.7 million taken out of tax altogether". That's good, because as the FT's Chris Cook explains, it's not exactly true:

The poorest families are paying a lot more in indirect tax (VAT, fuel duty, booze taxes) than in direct tax (income tax, NICs, council tax). In fact, direct taxes only overtake indirect taxes in size when you hit the fifth decile.

If you look at the second decile of households by income, just over 10 per cent of the taxes they pay are income tax. The other 90 per cent of their tax burden – still over £4,000 a year – comes from various other taxes, principally council tax and VAT. Between them, those two taxes account for almost half the tax burden on that decile.

But while it might not be the case that the tax cut takes workers "out of tax", it certainly is a tax cut for 24 million people. But rather than being a positive, this is actually the biggest flaw in the policy. This chart, prepared by the Resolution Foundation (pdf), shows the distribution of that tax cut amongst houses of different incomes:

As the chart clearly shows, the families with the biggest cash gain are the third richest tenth in the country, who get £210 each; and the families with the biggest proportional gain are the fifth richest tenth, gaining an extra 0.61 per cent of their income.

Meanwhile, the poorest families barely benefit from the rise at all. That's unsurprising; you need to be earning at least £8,105 a year for the rise to help you in any way, and at least £9,440 to gain the full benefit. And in a household, that needs to be true of both earners – otherwise half the allowance is wasted.

The chart also lets us get an idea of the distribution of the costs of the rise. Almost exactly 70 per cent of the revenue being forfeit for the increase in the allowance comes from the richest half of the nation. Less than 1 per cent of the money actually goest to the poorest ten per cent in the country.

The truth is that income tax in Britain is already one of the most progressive taxes we've got. The poorest in the nation pay little, while the richest pay most of their tax in income tax. As a result, if you want to cut taxes to help the poor, you would be better off returning VAT to its old rate of 17.5 per cent or increasing – rather than reducing – the number of people exempt from council tax. If you want to cut taxes to help the rich, going after income tax is the right way to do it.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Labour tensions boil over at fractious MPs' meeting

Corbyn supporters and critics clash over fiscal charter U-turn and new group Momentum. 

"A total fucking shambles". That was the verdict of the usually emollient Ben Bradshaw as he left tonight's Parliamentary Labour Party meeting. His words were echoed by MPs from all wings of the party. "I've never seen anything like it," one shadow minister told me. In commitee room 14 of the House of Commons, tensions within the party - over the U-turn on George Osborne's fiscal charter and new Corbynite group Momentum - erupted. 

After a short speech by Jeremy Corbyn, shadow chancellor John McDonnell sought to explain his decision to oppose Osborne's fiscal charter (having supported it just two weeks ago). He cited the change in global economic conditions and the refusal to allow Labour to table an amendment. McDonnell also vowed to assist colleagues in Scotland in challenging the SNP anti-austerity claims. But MPs were left unimpressed. "I don't think I've ever heard a weaker round of applause at the PLP than the one John McDonnell just got," one told me. MPs believe that McDonnell's U-turn was due to his failure to realise that the fiscal charter mandated an absolute budget surplus (leaving no room to borrow to invest), rather than merely a current budget surplus. "A huge joke" was how a furious John Mann described it. He and others were outraged by the lack of consultation over the move. "At 1:45pm he [McDonnell] said he was considering our position and would consult with the PLP and the shadow cabinet," one MP told me. "Then he announces it before 6pm PLP and tomorow's shadow cabinet." 

When former shadow cabinet minister Mary Creagh asked Corbyn about the new group Momentum, which some fear could be used as a vehicle to deselect critical MPs (receiving what was described as a weak response), Richard Burgon, one of the body's directors, offered a lengthy defence and was, one MP said, "just humiliated". He added: "It looked at one point like they weren't even going to let him finish. As the fractious exchanges were overheard by journalists outside, Emily Thornberry appealed to colleagues to stop texting hacks and keep their voices down (within earshot of all). 

After a calmer conference than most expected, tonight's meeting was evidence of how great the tensions within Labour remain. Veteran MPs described it as the worst PLP gathering for 30 years. The fear for all MPs is that they have the potential to get even worse. 

George Eaton is political editor of the New Statesman.