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 For example, increasing the work allowance (the amount a household is allowed to earn before UC starts to be withdrawn) each time the tax threshold is increased would be one way to do it.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)

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Forget the progressive alliance - it was the voters wot won it in Richmond

The Labour candidate on how voters have acted tactically for decades.

The Richmond Park by-election is both a triumph and a setback for the concept of an anti-Tory progressive alliance. As the Labour candidate, I was bombarded with emails and tweets saying I ought to stand down to prevent Zac Goldsmith being re-elected long after it was technically impossible for me to do so even if I had wanted to. I was harangued at a meeting organised by Compass, at which I found myself the lonely voice defending Labour's decision to put up a candidate.

I was slightly taken aback by the anger of some of those proposing the idea, but I did not stand for office expecting an easy ride. I told the meeting that while I liked the concept of a progressive alliance, I did not think that should mean standing down in favour of a completely unknown and inexperienced Lib Dem candidate, who had been selected without any reference to other parties. 

The Greens, relative newbies to the political scene, had less to lose than Labour, which still wants to be a national political party. Consequently, they told people to support the Lib Dems. This all passed off smoothly for a while, but when Caroline Lucas, the co-leader of the Greens came to Richmond to actively support the Lib Dems, it was more than some of her local party members could stomach. 

They wrote to the Guardian expressing support for my campaign, pointing out that I had a far better, long-established reputation as an environmentalist than the Lib Dem candidate. While clearly that ultimately did little to boost my vote, this episode highlighted one of the key problems about creating a progressive alliance. Keeping the various wings of the Labour party together, especially given the undisciplined approach of the leader who, as a backbencher, voted 428 times during the 13 years of Labour government in the 1990s and 2000s, is hard enough. Then consider trying to unite the left of the Greens with the right of the Lib Dems. That is not to include various others in this rainbow coalition such as nationalists and ultra-left groups. Herding cats seems easy by contrast.

In the end, however, the irony was that the people decided all by themselves. They left Labour in droves to vote out Goldsmith and express their opposition to Brexit. It was very noticeable in the last few days on the doorstep that the Lib Dems' relentless campaign was paying dividends. All credit to them for playing a good hand well. But it will not be easy for them to repeat this trick in other constituencies. 

The Lib Dems, therefore, did not need the progressive alliance. Labour supporters in Richmond have been voting tactically for decades. I lost count of the number of people who said to me that their instincts and values were to support Labour, but "around here it is a wasted vote". The most revealing statistic is that in the mayoral campaign, Sadiq Khan received 24 per cent of first preferences while Caroline Pidgeon, the Lib Dem candidate got just 7 per cent. If one discounts the fact that Khan was higher profile and had some personal support, this does still suggest that Labour’s real support in the area is around 20 per cent, enough to give the party second place in a good year and certainly to get some councillors elected.

There is also a complicating factor in the election process. I campaigned strongly on opposing Brexit and attacked Goldsmith over his support for welfare cuts, the bedroom tax and his outrageous mayoral campaign. By raising those issues, I helped undermine his support. If I had not stood for election, then perhaps a few voters may have kept on supporting him. One of my concerns about the idea of a progressive alliance is that it involves treating voters with disdain. The implication is that they are not clever enough to make up their mind or to understand the restrictions of the first past the post system. They are given less choice and less information, in a way that seems patronising, and smacks of the worst aspects of old-fashioned Fabianism.

Supporters of the progressive alliance will, therefore, have to overcome all these objections - in addition to practical ones such as negotiating the agreement of all the parties - before being able to implement the concept. 

Christian Wolmar is an award winning writer and broadcaster specialising in transport. He was shortlisted as a Labour mayoral candidate in the 2016 London election, and stood as Labour's candidate in the Richmond Park by-election in December 2016.