Nick Clegg and Danny Alexander at the opening ceremony of the Commonwealth Games in Glasgow. Photograph: Getty Images.
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The Lib Dems' tax cut plans won't help the poorest

We need to reform regressive taxes, not progressive ones. 

After yesterday’s news that wages have once again fallen in real-terms, it’s becoming increasingly clear that political parties cannot avoid the issue of low pay. This is particularly pressing given growing awareness and concerns over inequality, which has highlighted that pay at the top is not so shabby.

Today’s announcement from the Liberal Democrats that they would raise the income tax threshold to £12,500 is an example of this, presented as it is as a way to help people on low and middle incomes. Previous increases to the personal allowance have been a key coalition policy and touted as part of their anti-poverty strategy. But while this will help many households with middle incomes, it won’t help as many people on low incomes. In fact, some on high salaries will also see a tax cut. 

People on individual incomes up to £99,000 will be getting a £500 tax cut, while people working full-time on the minimum wage will be getting less than £400, and those earning less than £10,000 won’t benefit at all from this proposed change. The introduction of Universal Credit will mean that this change would have even less of an effect on low income households as 65 per cent of any gain they get would be lost as their Universal Credit is withdrawn. Analysis by the liberal think-tank Centre Forum has shown that an increase in the personal allowance would benefit households higher up the income distribution (the 6-9th decile benefit most) far more than it would the poorest third of households. 

Similarly, National Insurance (NI) has been looked at, with the Lib Dems again looking to raise the threshold to £12,500. The same analysis by Centre Forum shows that such changes would help the top 20 per cent of households more than the bottom 20 per cent. A far better way to make NI more progressive would be to raise the upper limit so that those at the top pay a greater share of tax.

The point that this policy misses, and most tax reforms miss, is that people on low incomes don’t pay much income tax. As the Equality Trust’s recent report on the tax system shows, for people with low incomes, VAT and council tax, even after taking into account council tax support, are each individually bigger than income tax. When politicians discuss tax they often discuss it interchangeably with income tax but this doesn't chime with how most people experience tax. Income tax only makes up the majority of tax for those in the top 10 per cent ... like those on an MP’s salary.

If politicians want to make the tax system fairer, benefit the low paid and reduce inequality it makes much more sense to reform council tax than it does to reform income tax. Income tax is the only fully progressive tax, where those at the top pay a greater proportion of their income than those at the bottom, and many don’t pay any income tax at all. Council tax, on the other hand is, as Paul Johnson of the IFS recently noted, is the only tax which is deliberately regressive in its design. Rather than cutting council tax support and tinkering with income tax, political parties need to urgently look at reforming regressive taxes. 

Tim Stacey is Policy and Campaigns Officer at The Equality Trust.

Tim Stacey is Senior Policy and Research Adviser at the Equality Trust. 

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Listen: Schools Minister Nick Gibb gets SATs question for 11-year-olds wrong

Exams put too much pressure on children. And on the politicians who insist they don't put too much pressure on children.

As we know from today's news of a primary school exams boycott, or "kids' strike", it's tough being a schoolchild in Britain today. But apparently it's also tough being a Schools Minister.

Nick Gibb, Minister of State at the Department for Education, failed a SATs grammar question for 11-year-olds on the BBC's World at One today. Having spent all morning defending the primary school exams system - criticised by tens of thousands of parents for putting too much pressure on young children - he fell victim to the very test that has come under fire.

Listen here:

Martha Kearney: Let me give you this sentence, “I went to the cinema after I’d eaten my dinner”. Is the word "after" there being used as a subordinating conjunction or as a preposition?

Nick Gibb: Well, it’s a proposition. “After” - it's...

MK: [Laughing]: I don’t think it is...

NG: “After” is a preposition, it can be used in some contexts as a, as a, word that coordinates a subclause, but this isn’t about me, Martha...

MK: No, I think, in this sentence it’s being used a subordinating conjunction!

NG: Fine. This isn’t about me. This is about ensuring that future generations of children, unlike me, incidentally, who was not taught grammar at primary school...

MK: Perhaps not!

NG: ...we need to make sure that future generations are taught grammar properly.

I'm a mole, innit.