Nick Clegg speaks at the Liberal Democrat spring conference in York last weekend. Photograph: Getty Images.
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Why the Lib Dems' £12,500 tax allowance promise is a smaller pledge than it sounds

Inflation alone will ensure that the allowance rises to over £11.3k and minimum wage workers will still be paying tax.

Since the weekend, when the Lib Dem faithful gathered in York for their spring conference, quite a few column inches have been filled with frothy speculation about Nick Clegg’s likely longevity as Liberal Democrat leader. Nothing, however, has been written about the new twist he gave their proposed tax policy (Lib Dem blogger Mark Pack being the honourable exception). Clegg’s remarks may have sounded like a passing aside – but they were fiscally and politically significant.

The context was that Clegg – like Danny Alexander – spent the weekend seeking to highlight the Lib Dems' flagship commitment to remove minimum wage workers from income tax in the next Parliament via a personal tax allowance (PTA) of £12,500. The not-very-hidden-message was that this will be top of their demands in any future coalition talks.

It is an odd policy in many ways. I’ve written before about why it isn’t what it’s billed to be. It’s not a tax cut for the lowest paid (the 5 million lowest earners don’t’ get a penny); nor is it really about lifting people out of income tax (roughly 10 per cent of the cost of the policy goes on this). It isn’t targeted at those on the minimum wage (the clear majority of whom are part-time workers who don’t pay income tax); and it’s certainly not well designed to reach those fabled "hard working families" (just 15 per cent of the gain goes to working families in the bottom half of the income distribution). In a world of Universal Credit (UC), it’s an even more regressive than people realise: millions of low and middle income working families will have most of their gains immediately withdrawn via a lower UC entitlement. And there is no policy justification whatsoever for raising the PTA once again while leaving the national insurance threshold at a far lower level – a point that even senior Lib Dems concede in private. But none of this is new.   

What might have been news, however, was Clegg’s apparent clarification that the aim of Lib Dem policy for the next Parliament is to “stick at £12.5k” (£12.5k being around the earnings of a full-time minimum wage worker in 2015). I’m told this really means setting the goal of a PTA of £12.5k by the end of the Parliament in 2020; in exactly the same way that in 2010 Clegg made an allowance of £10k the lodestar for 2015.

The details really matter here. Reaching an allowance of £12.5k by 2020 is very much less ambitious than moving straight to a PTA of £12.5k in 2015/16, and dramatically less stretching than committing to uprate a £12.5k allowance in line with increases in the minimum wage over the next Parliament (which is the implied logic of the policy). Even without further increases in the PTA in next week’s Budget, or indeed in Budget 2015, we would expect inflation alone to ensure that the allowance rises to over £11.3k by 2020 (the default for the PTA is that it rises in line with CPI). Inflation is the friend of those seeking to boast of a higher income tax allowance.

The extra cost of going from £11.3k to £12.5k by 2020 is about £6bn over the next Parliament (more if UC doesn’t come in). But moving straight to a PTA of £12.5k in 2015/16 would cost over double this amount. And uprating a £12.5k allowance in line with the minimum wage would cost far more still. Indeed, Clegg’s remarks suggests he’s realised that this continued link to the minimum wage, the stated justification for choosing £12.5k in the first place, would not only cost an exorbitant amount, but it would also mean that the Low Pay Commission (who determine the minimum wage) would in effect be in charge of a central element of tax and fiscal policy. And that was never going to happen.

So the defining commitment at the heart of the Lib Dem manifesto is actually likely to be to raise the PTA by a bit over a thousand pounds more than it would have otherwise gone up by over the whole of the next Parliament. Regardless of whether you think this is a smart or silly thing to promise, what is beyond doubt is that it is a smaller pledge than many realise. (And it’s also a different pledge to that being advertised: a £12.5k PTA in 2020 would mean a full-time minimum wage worker will still be paying income tax in every year of the next parliament.) 

Now, £6bn over the Parliament is still an awful lot of money. All the more so when most of the gains go to those households who are better off, and more than ever in a period of sustained austerity when every taxcut will require another tax rise or, more likely, yet deeper spending cuts that will overwhelmingly hit the poor. But the lower than expected cost is highly relevant to potential 2015 coalition talks. It means the Lib Dem tax plans are likely to represent a less insurmountable barrier to a deal with either of the other main parties than some might think. Clegg seems to have watered down his top demand for future coalition talks without anyone noticing.   

Gavin Kelly is chief executive of the Resolution Foundation 

Gavin Kelly is a former adviser to Downing Street and the Treasury. He tweets @GavinJKelly1.

Photo: Getty
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The rise of the green mayor – Sadiq Khan and the politics of clean energy

At an event at Tate Modern, Sadiq Khan pledged to clean up London's act.

On Thursday night, deep in the bowls of Tate Modern’s turbine hall, London Mayor Sadiq Khan renewed his promise to make the capital a world leader in clean energy and air. Yet his focus was as much on people as power plants – in particular, the need for local authorities to lead where central governments will not.

Khan was there to introduce the screening of a new documentary, From the Ashes, about the demise of the American coal industry. As he noted, Britain continues to battle against the legacy of fossil fuels: “In London today we burn very little coal but we are facing new air pollution challenges brought about for different reasons." 

At a time when the world's leaders are struggling to keep international agreements on climate change afloat, what can mayors do? Khan has pledged to buy only hybrid and zero-emissions buses from next year, and is working towards London becoming a zero carbon city.

Khan has, of course, also gained heroic status for being a bête noire of climate-change-denier-in-chief Donald Trump. On the US president's withdrawal from the Paris Agreement, Khan quipped: “If only he had withdrawn from Twitter.” He had more favourable things to say about the former mayor of New York and climate change activist Michael Bloomberg, who Khan said hailed from “the second greatest city in the world.”

Yet behind his humour was a serious point. Local authorities are having to pick up where both countries' central governments are leaving a void – in improving our air and supporting renewable technology and jobs. Most concerning of all, perhaps, is the way that interest groups representing business are slashing away at the regulations which protect public health, and claiming it as a virtue.

In the UK, documents leaked to Greenpeace’s energy desk show that a government-backed initiative considered proposals for reducing EU rules on fire-safety on the very day of the Grenfell Tower fire. The director of this Red Tape Initiative, Nick Tyrone, told the Guardian that these proposals were rejected. Yet government attempts to water down other EU regulations, such as the energy efficiency directive, still stand.

In America, this blame-game is even more highly charged. Republicans have sworn to replace what they describe as Obama’s “war on coal” with a war on regulation. “I am taking historic steps to lift the restrictions on American energy, to reverse government intrusion, and to cancel job-killing regulations,” Trump announced in March. While he has vowed “to promote clean air and clear water,” he has almost simultaneously signed an order to unravel the Clean Water Rule.

This rhetoric is hurting the very people it claims to protect: miners. From the Ashes shows the many ways that the industry harms wider public health, from water contamination, to air pollution. It also makes a strong case that the American coal industry is in terminal decline, regardless of possibile interventions from government or carbon capture.

Charities like Bloomberg can only do so much to pick up the pieces. The foundation, which helped fund the film, now not only helps support job training programs in coal communities after the Trump administration pulled their funding, but in recent weeks it also promised $15m to UN efforts to tackle climate change – again to help cover Trump's withdrawal from Paris Agreement. “I'm a bit worried about how many cards we're going to have to keep adding to the end of the film”, joked Antha Williams, a Bloomberg representative at the screening, with gallows humour.

Hope also lies with local governments and mayors. The publication of the mayor’s own environment strategy is coming “soon”. Speaking in panel discussion after the film, his deputy mayor for environment and energy, Shirley Rodrigues, described the move to a cleaner future as "an inevitable transition".

Confronting the troubled legacies of our fossil fuel past will not be easy. "We have our own experiences here of our coal mining communities being devastated by the closure of their mines," said Khan. But clean air begins with clean politics; maintaining old ways at the price of health is not one any government must pay. 

'From The Ashes' will premiere on National Geograhpic in the United Kingdom at 9pm on Tuesday, June 27th.

India Bourke is an environment writer and editorial assistant at the New Statesman.

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