Tax is back at the top of the political agenda. Yesterday David Cameron showed a little more ankle than usual on the prospects of a Tory Government cutting taxes. Today Nick Clegg, the Liberal Democrat leader, joined the auction by saying he wanted to go "much, much further" than the revenue-neutral tax package approved under his predecessor Sir Menzies Campbell. "We are not ready to accept the Government's proposed overall level of taxation, and will look in depth at whether it can, and should, be cut," he said. Money raised from a crackdown on tax loopholes for the rich would not be ploughed into extra spending but handed back to lower and middle income taxpayers, he promised.
The two opposition parties are keen to pose as tax-cutters at a time when voters are feeling squeezed by Labour's stealth taxes and rising prices. But all is not quite what it seems. As my colleague Steve Richards pointed out today, Cameron is repackaging the same policy on which the Tories fought the last two general elections. The same point could be made about the LibDems' attempt to join the tax-cutting club. Clegg is still committed to £8bn of new green taxes and £6bn of "pension tax reforms" - including a nasty shock for people on the 40p top rate of tax, who would see the tax relief on the pension payments cut to 20 per cent. Many of them do not regard themselves as rich.
Like the Tories, the LibDems are also relying on our old friend "savings" in government spending to allow taxes to be reduced. If only life were like that in government. Voters may have reached the end of their tether on tax (one reason why Gordon Brown conjured up a surprise £2.7bn tax cut in response to the 10p rate fiasco last week). But I suspect people will be rather sceptical about politicians' promises to cut their taxes. They would be right to be.
Not only would the loss of £6bn of higher rate tax relief on pension contributions be a "nasty shock" - equivalent to raising the tax rate from 40p to 44p for everyone - but Lord Turner's conclusion, after a thorough 3 year investigation was that a unified pension tax relief system could not be introduced fairly while final salary schemes are common without significant extra complexity. So I think we should be told. Do the LibDems favour:
1. the ending of final salary schemes
2. unfairness or
3. complexity?
Posted by: Stephen Yeo | Tuesday, 20 May 2008 at 11:23 PM
While headline tax rates have dropped for the last three decades (yes, as far back as that), other taxes have crept in to make up the shortfall.
One tax which MP's haven't quite grasped in terms of subtlety is national insurance. For someone on average earnings it was 5.5% in 1975. Today it's 11%. But it is a quite perverse tax. You don't pay it on income over £770 a week and you stop paying it at age 65. So, the over 65 millionaire pays 40% and the shop worker under 65 pays 20% tax and 11% national insurance - total 31%. 9% is hardly a tax on wealth.
I don't think MP's have been encouraged to ask questions about NI - it's linked with pensions and other things. But, we have pressure for fair taxation on the one hand and a whole area of tax (for that it what it is) where inequality is screaming from the rooftops.
Posted by: Ed | Wednesday, 21 May 2008 at 01:23 AM
I'll believe and vote for them when politicians are forced (they'll never do this on their own) like the rest of us onto money purchase pension schemes. These depend wholly on growth (affected by the Brown Raid on pension dividends and the proposed LibDem extra raid).
It's arrogant in the extreme for them to preach at us about pensions tax reform and yet keep their noses firmly in the trough. Their bloated expense account allows them to bolster it even further, recouping capital gains on the second houses they buy with OUR money!
And they have they temerity to ask why we don't have any respect for politicians or what they say?
Posted by: Mike | Wednesday, 21 May 2008 at 08:42 AM