David Cameron's tax cut is a blunt substitute for properly reforming the benefits system. Photo: Getty
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Raising the tax allowance has reached its limits for helping the poorest families

Labour and the Lib Dems risk making the same mistake.

In his conference speech, David Cameron pledged to take a further 1m of the lowest paid workers out of income tax by lifting the personal tax threshold to £12,500. But if your goal is boosting household income for those at the bottom, how useful is the policy?

On the face of it, anything that enables low income families to keep more of their earnings must help – especially at a time when half of those experiencing poverty live in working households.  Of course for some struggling families this will be the case, but there are three important caveats.

First, the income tax threshold has increased steadily throughout this parliament. By the time it reaches £10,500 next year three million people will have been taken out of income tax altogether. This group of low paid and/or part time workers will see no further gain from raising it higher. If the concern is to boost the income of the lowest-earning individuals, then the limits of this particular policy have been reached for a growing number of people.

Second, the arrival of Universal Credit will sap the power of tax cuts. This is because eligibility for support to working families on low incomes will be assessed on a post-tax basis.  This means that a low-earning household will lose 65p for every £1 it gains from a tax cut. This happens to some extent today as Housing Benefit is assessed on a post-tax basis, although not tax credits. The interaction between different policies needs to be thought about.

This particular problem is relatively easily rectified, however. For example, increasing the work allowance (the amount a household is allowed to earn before UC starts to be withdrawn) each time the tax threshold is increased would be one way to do it. But no party is proposing to do this.

Third, tax policy cannot be looked at in isolation - it must be considered alongside pay, in-work benefits, and the cost of living. Together these factors determine how much disposable income a family has. The picture here has not been pretty for low income families. Since 2008 the cost of essential goods and services increased 28 per cent, far outstripping the rise in the minimum wage (14 per cent) or average wage rises (9 per cent).  And in recent years the value of in- and out-of-work benefits has fallen as they have been uprated by just 1 per cent, more slowly than the general rate of inflation.  This will be further exacerbated by George Osborne’s announcement that working age benefits – including tax credits – will be frozen for two years, which far outweigh any positive impact of tax cuts.

And it is not just the Conservatives that are viewing tax changes as a way of assisting the low paid. Labour is talking about introducing a new 10p starting rate of tax, and the Liberal Democrats are toying with the idea of raising the threshold at which national insurance starts to be paid.

Any one of these measures would put more money in the pockets of some low income working households, but all are a fairly blunt – and expensive – instrument for doing so. Reforming the benefits system so low paid workers in low income families can keep more of what they earn is a more efficient and targeted means of achieving the same goal. But this must be complemented by other measures to address low pay and the cost of essentials.

The key point is that tax will only ever form one part of a strategy to reduce poverty, as JRF sets out in A UK Without Poverty. Improving prospects for people living in poverty has to go beyond changes to the tax and benefits system. This means dealing with the root causes of poverty including low pay, a lack of secure jobs offering enough hours, educational attainment and the high cost of essentials such as energy, housing and childcare.

David Cameron said in his speech it is not enough to pontificate about poverty. He is right. Forecasts show one in four working age adults and one in three children will be living in poverty by 2020. But poverty is not inevitable – with a comprehensive strategy and some political will we can do something about it.

Katie Schmuecker is Policy and Research Manager at the independent Joseph Rowntree Foundation (JRF)

Photo: Getty
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Shadow Scottish secretary Lesley Laird: “Another week would have won us more seats”

The Labour MP for Kirkcaldy and Cowdenbeath on the shadow cabinet – and campaigning with Gordon Brown in his old constituency.

On the night of 8 June 2017, Lesley Laird, a councillor from Fife and the Labour candidate for Kirkcaldy and Cowdenbeath, received a series of texts from another activist about the count. Then he told her: “You’d better get here quick.”

It was wise advice. Not only did Laird oust the Scottish National Party incumbent, but six days later she was in the shadow cabinet, as shadow Scottish secretary. 

“It is not just about what I’d like to do,” Laird says of her newfound clout when I meet her in Portcullis House, Westminster. “We have got a team of great people down here and it is really important we make use of all the talent.

“Clearly my role will be facing David Mundell across the dispatch box but it is also to be an alternative voice for Scotland.”

At the start of the general election campaign, the chatter was whether Ian Murray, Labour’s sole surviving MP from 2015, would keep his seat. In the end, though, Labour shocked its own activists by winning seven seats in Scotland (Murray kept his seat but did not return to the shadow cabinet, which he quit in June 2016.)

A self-described optimist, Laird is calm, and speaks with a slight smile.

She was born in Greenock, a town on the west coast, in November 1958. Her father was a full-time trade union official, and her childhood was infused with political activity.

“I used to go to May Day parades,” she remembers. “I graduated to leafleting and door knocking, and helping out in the local Labour party office.”

At around the age of seven, she went on a trip to London, and was photographed outside No 10 Downing Street “in the days when you could get your picture outside the front door”.

Then life took over. Laird married and moved away. Her husband was made redundant. She found work in the personnel departments of start-ups that were springing up in Scotland during the 1980s, collectively termed “Silicon Glen”. The work was unstable, with frequent redundancies and new jobs opening, as one business went bust and another one began. 

Laird herself was made redundant three times. With her union background, she realised workers were getting a bad deal, and on one occasion led a campaign for a cash settlement. “We basically played hardball,” she says.

Today, she believes a jobs market which includes zero-hours contracts is “fundamentally flawed”. She bemoans the disappearance of the manufacturing sector: “My son is 21 and I can see how limited it is for young people.”

After semiconductors, Laird’s next industry was financial services, where she rose to become the senior manager for talent for RBS. It was then that Labour came knocking again. “I got fed up moaning about politics and I decided to do something about it,” she says.

She applied for Labour’s national talent programme, and in 2012 stood and won a seat on Fife Council. By 2014, she was deputy leader. In 2016, she made a bid to be an MSP – in a leaked email at the time she urged Labour to prioritise “rebuilding our credibility”. 

This time round, because of the local elections, Laird had already been campaigning since January – and her selection as a candidate meant an extended slog. Help was at hand, however, in the shape of Gordon Brown, who stood down as the MP for Kirkcaldy and Cowdenbeath in 2015.

“If you ever go out with Gordon, the doors open and people take him into their living room,” says Laird. Despite the former prime minister’s dour stereotype, he is a figure of affection in his old constituency. “People are just in awe. They take his picture in the house.”

She believes the mood changed during the campaign: “I do genuinely believe if the election had run another week we would have had more seats."

So what worked for Labour this time? Laird believes former Labour supporters who voted SNP in 2015 have come back “because they felt the policies articulated in the manifesto resonated with Labour’s core values”. What about the Corbyn youth surge? “It comes back to the positivity of the message.”

And what about her own values? Laird’s father died just before Christmas, aged 91, but she believes he would have been proud to see her as a Labour MP. “He and I are probably very similar politically,” she says.

“My dad was also a great pragmatist, although he was definitely on the left. He was a pragmatist first and foremost.” The same could be said of his daughter, the former RBS manager now sitting in Jeremy Corbyn's shadow cabinet.

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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