Nick Clegg speaks at his party's spring conference in York earlier this month. Photograph: Getty Images.
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Lib Dems revolt over Clegg's refusal to cut taxes for the poorest

Lord Oakeshott and the liberal Centre Forum are demanding a cut in the National Insurance threshold, rather than another cut in income tax.

There is no coalition policy of which Nick Clegg is prouder than the increase in the personal tax allowance. Having achieved the original target of £10,000 (from a starting level of £6,475 in 2010/11) a year earlier than expected, Clegg has been pushing George Osborne to go further - and will get his wish in the Budget tomorrow. The Chancellor is likely to announce that the tax threshold will rise to £10,500 next year and perhaps even to £10,750 if he's feeling generous. Given the Lib Dems' limited success in government (no AV, no House of Lords reform, no mansion tax), Clegg is understandably keen to claim credit for a policy that voters overwhelmingly support and that David Cameron rejected as unaffordable during the first 2010 leaders' debate ("I would love to take everyone out of their first £10,000 of income tax, Nick. It's a beautiful idea, it's a lovely idea - we cannot afford it"). For Clegg, the increase due to be announced in the Budget is a step towards the Lib Dems' new target of a £12,500 tax allowance by the end of the next parliament. 

But not all in his party share his enthusiasm for continually hiking the tax threshold. By definition, as the policy continues, it becomes increasingly less progressive. The five million workers who earn below £10,000 will gain nothing from another rise, but all of those earning up to £120,000 will be better off (the personal allowance is tapered away at a rate of 50 per cent after £100,000 - a stealth tax introduced by Alistair Darling).  It is those in the second-richest decile who receive the most in cash terms from the policy (mainly due to the greater number of dual-earning households), followed by the richest tenth (who receive marginally less due to the tapering away of the allowance). As a percentage of income, it is middle-earners who gain the most, with those at the bottom gaining the least.

For these reasons, an increasing number of Lib Dems are calling for the party to support progressive alternatives to raising the tax threshold. The Centre Forum, the party's favourite think-tank, has proposed increasing the National Insurance threshold, which currently stands at £7,748, to help low-earners. As the IFS recently noted, 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."

The reliably contrarian Lord Oakeshott has echoed this demand, stating that "Raising the income tax starting point to £10,000 is a great Liberal Democrat manifesto achievement but we should declare victory and move on, or we'll become victims of our own success. We've lifted 2 million out of income tax but left 1.2 million of them paying National Insurance contributions from around £7,750 a year." The Guardian reports that his concerns are shared by his political ally Vince Cable, who has also noted "the diminishing returns of the policy for the low paid." 

Other alternatives to raising the tax threshold include cutting VAT (which is paid by all and hits the poorest hardest) and raising in-work benefits such as tax credits. As the IFS noted, increasing the level at which the latter 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. With the Tories considering making their own pledge to raise the personal allowance to £12,500, Clegg is determined not to relinquish ownership of the policy. But as he continues down this path, the divide between him and his party's redistributionists is one to watch. 

George Eaton is political editor of the New Statesman.

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The problems with ending encryption to fight terrorism

Forcing tech firms to create a "backdoor" to access messages would be a gift to cyber-hackers.

The UK has endured its worst terrorist atrocity since 7 July 2005 and the threat level has been raised to "critical" for the first time in a decade. Though election campaigning has been suspended, the debate over potential new powers has already begun.

Today's Sun reports that the Conservatives will seek to force technology companies to hand over encrypted messages to the police and security services. The new Technical Capability Notices were proposed by Amber Rudd following the Westminster terrorist attack and a month-long consultation closed last week. A Tory minister told the Sun: "We will do this as soon as we can after the election, as long as we get back in. The level of threat clearly proves there is no more time to waste now. The social media companies have been laughing in our faces for too long."

Put that way, the plan sounds reasonable (orders would be approved by the home secretary and a senior judge). But there are irrefutable problems. Encryption means tech firms such as WhatsApp and Apple can't simply "hand over" suspect messages - they can't access them at all. The technology is designed precisely so that conversations are genuinely private (unless a suspect's device is obtained or hacked into). Were companies to create an encryption "backdoor", as the government proposes, they would also create new opportunities for criminals and cyberhackers (as in the case of the recent NHS attack).

Ian Levy, the technical director of the National Cyber Security, told the New Statesman's Will Dunn earlier this year: "Nobody in this organisation or our parent organisation will ever ask for a 'back door' in a large-scale encryption system, because it's dumb."

But there is a more profound problem: once created, a technology cannot be uninvented. Should large tech firms end encryption, terrorists will merely turn to other, lesser-known platforms. The only means of barring UK citizens from using the service would be a Chinese-style "great firewall", cutting Britain off from the rest of the internet. In 2015, before entering the cabinet, Brexit Secretary David Davis warned of ending encryption: "Such a move would have had devastating consequences for all financial transactions and online commerce, not to mention the security of all personal data. Its consequences for the City do not bear thinking about."

Labour's manifesto pledged to "provide our security agencies with the resources and the powers they need to protect our country and keep us all safe." But added: "We will also ensure that such powers do not weaken our individual rights or civil liberties". The Liberal Democrats have vowed to "oppose Conservative attempts to undermine encryption."

But with a large Conservative majority inevitable, according to polls, ministers will be confident of winning parliamentary support for the plan. Only a rebellion led by Davis-esque liberals is likely to stop them.

George Eaton is political editor of the New Statesman.

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