Lib Dem plan to make the rich richer

John Rentoul

ifs Lib Dem plan to make the rich richerI have tried to explain on many occasions* why the Liberal Democrat policy of raising the income tax threshold to £10,000 a year is not the pure egalitarian honey of milk and socialism that Nick Clegg pretends it is.

I have not explained this very well, which is why most of the media-political complex persists in the delusion that “taking people out of tax altogether” is self-evidently a Good Thing.

Too late, as the Budget is almost on us and this part of it has probably been decided already, the Institute for Fiscal Studies finally explains it brilliantly, accurately and clearly. The green bars on the chart show the average cash gain from the policy by households from those on the lowest incomes (left) to the highest (right). Better-off households, apart from the best-off tenth, gain most:

This arises because two-earner couples, who tend to have higher family incomes, can benefit twice over from the increase in the personal allowance because both members of the couple would see their income tax liabilities fall.

Raising the threshold has some advantages. The IFS says:

It will strengthen work incentives, especially for low earners. But it is important not to claim too much for a policy which, especially in the current fiscal climate, is expensive

*Such as here and here.

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  • Jeremy G Hunter

    It makes sense: people who earn more will benefit more from being taxed less. Someone who earns £9,000 a year doesn’t benefit as much as someone who earns £11,000 a year.

  • DeadReckoning

    Not worth working, unless you earn enough to pay for childcare and still have a decent income left over.

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