The problem with Clegg's tax cut plan: it won't help the poorest workers

With the personal allowance already at £10,000, the lowest-paid five million workers will not benefit from further increases.

There's little more than a month to go until the Budget (on 19 March), so it's time for Nick Clegg's annual appeal to George Osborne to increase the personal tax allowance. In a speech tonight at 6:10pm at Mansion House, he will say that he wants the threshold to be lifted from £10,000 (the level for 2014-15) to at least £10,500 by April 2015. Here's the key extract:

We want to keep cutting income tax for ordinary taxpayers. That will be the main item Danny and I push for in the Budget - again.

In the next parliament we would raise the personal allowance so that no one pays any income tax on the first £12,500 they earn. 

It’s our flagship policy because it’s how we make work pay, and it’s our way of making sure the British people know that this recovery is theirs.

In a smart piece of framing, Clegg is calling the policy a "workers' bonus", although workers who have seen their pay fall for years might reasonably grumble that a small tax cut hardly bears comparison with the pay packets enjoyed in the City of London. But while the move is undoubtedly good politics, and the best example of an area where the Lib Dems have genuinely set the agenda (in the first leaders' debate in 2010, David Cameron told Clegg: "I would love to take everyone out of their first £10,000 of income tax, Nick...We cannot afford it"), it is bad policy. 

At a time of falling living standards, raising the personal allowance will do nothing to help the five million lowest-paid workers who earn less than £10,000. It is those in the second-richest decile who gain the most in cash terms from the policy (mainly due to the greater number of dual-earning households), followed by the richest tenth, who gain marginally less due to the gradual removal of the personal allowance after £100,000 (a brilliant piece of stealth redistribution by Alistair Darling). As a percentage of income, it is middle-earners who gain the most, with those at the bottom gaining the least. 

Progressive alternatives to raising the income tax threshold include increasing the National Insurance (NI) threshold, which currently stands at £7,748, cutting VAT, which stands at a record 20 per cent and hits the poorest hardest, or raising in-work benefits such as tax credits. As the IFS noted last week, aligning the NI threshold with the personal allowance would "cut taxes for 1.2 million workers with earnings too low to benefit from an increase in the personal allowance, would benefit only workers, and would simplify the direct tax system." Alternatively, raising the level at which in-work benefits are withdrawn by 20 per cent would be "a bigger giveaway in entitlements to working families in the bottom three income deciles than the gains to that group of raising the personal allowance to £12,500, despite costing £10 billion per year less". 

But all of these measures lack the headline-grabbing potential of another cut in income tax. For similar reasons, rather than calling for an increase in the NI threshold, Labour is promising to reintroduce the 10p tax rate, a measure that would do even less to benefit the poorest but that offers a useful means of distancing the party from one of Gordon Brown's greatest blunders. All of which is a reminder that when it comes to tax, there are few areas where the triumph of politics over policy is greater. 

Nick Clegg speaks at the Liberal Democrat conference in Glasgow last year. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Metro mayors can help Labour return to government

Labour champions in the new city regions can help their party at the national level too.

2017 will mark the inaugural elections of directly-elected metro mayors across England. In all cases, these mayor and cabinet combined authorities are situated in Labour heartlands, and as such Labour should look confidently at winning the whole slate.

Beyond the good press winning again will generate, these offices provide an avenue for Labour to showcase good governance, and imperatively, provide vocal opposition to the constraints of local government by Tory cuts.

The introduction of the Mayor of London in 2000 has provided a blueprint for how the media can provide a platform for media-friendly leadership. It has also demonstrated the ease that the office allows for attribution of successes to that individual and party – or misappropriated in context of Boris Bikes and to a lesser extent the London Olympics.

While without the same extent of the powers of the sui generis mayor of the capital, the prospect of additional metro-mayors provide an opportunity for replicating these successes while providing experience for Labour big-hitters to develop themselves in government. This opportunity hasn’t gone unnoticed, and after Sadiq Khan’s victory in London has shown that the role can grow beyond the limitations – perceived or otherwise - of the Corbyn shadow cabinet while strengthening team Labour’s credibility by actually being in power.

Shadow Health Secretary and former leadership candidate Andy Burnham’s announcement last week for Greater Manchester was the first big hitter to make his intention known. The rising star of Luciana Berger, another member of Labour’s health team, is known to be considering a run in the Liverpool City Region. Could we also see them joined by the juggernaut of Liam Byrne in the West Midlands, or next-generation Catherine McKinnell in the North East?

If we can get a pantheon of champions elected across these city regions, to what extent can this have an influence on national elections? These new metro areas represent around 11.5 million people, rising to over 20 million if you include Sadiq’s Greater London. While no doubt that is an impressive audience that our Labour pantheon are able to demonstrate leadership to, there are limitations. 80 of the 94 existing Westminster seats who are covered under the jurisdiction of the new metro-mayors are already Labour seats. While imperative to solidify our current base for any potential further electoral decline, in order to maximise the impact that this team can have on Labour’s resurgence there needs to be visibility beyond residents.

The impact of business is one example where such influence can be extended. Andy Burnham for example has outlined his case to make Greater Manchester the creative capital of the UK. According to the ONS about 150,000 people commute into Greater Manchester, which is two constituency’s worth of people that can be directly influenced by the Mayor of Greater Manchester.

Despite these calculations and similar ones that can be made in other city-regions, the real opportunity with selecting the right Labour candidates is the media impact these champion mayors can make on the national debate. This projects the influence from the relatively-safe Labour regions across the country. This is particularly important to press the blame of any tightening of belts in local fiscal policy on the national Tory government’s cuts. We need individuals who have characteristics of cabinet-level experience, inspiring leadership, high profile campaigning experience and tough talking opposition credentials to support the national party leadership put the Tory’s on the narrative back foot.

That is not to say there are not fine local council leaders and technocrats who’s experience and governance experience at vital to Labour producing local successes. But the media don’t really care who number two is, and these individuals are best serving the national agenda for the party if they support A-listers who can shine a bright spotlight on our successes and Tory mismanagement.

If Jeremy Corbyn and the party are able to topple the Conservatives come next election, then all the better that we have a diverse team playing their part both on the front bench and in the pantheon of metro-mayors. If despite our best efforts Jeremy’s leadership falls short, then we will have experienced leaders in waiting who have been able to afford some distance from the front-bench, untainted and able to take the party’s plan B forward.