Liberal Democrat leader Nick Clegg used a speech to ippr yesterday (16 March 2010) to reiterate his party’s commitment to increasing the income tax personal allowance to £10,000 – part of their agenda of ‘fairness’ in their proposals for tackling the fiscal deficit. This is an expensive move that would cost £17 billion in lost revenue, but made cost neutral by removing some of the loopholes that allow the rich to avoid paying their fair share.
Tax cuts for the lowest paid, funded by the well-off – what’s not to like? But the problem with tax cuts is they don’t benefit the poorest families, where no one works or where earnings are below the existing personal allowance. This is an obvious point that Clegg is upfront about, but it’s vital – under his plans, £17 billion would be spent without any of the extra cash going to our poorest families. In a country with some of the highest child poverty rates in the developed world and little sign of extra money to tackle child poverty, there are better ways to spend £17 billion. Funnelling just £4 billion extra through the tax credit system could have halved child poverty this year.
Nick Clegg spoke about families on £30,000 feeling financially stretched. He was ‘unashamed’ that they would benefit from his tax plans. But what about families struggling to get by on the tiny incomes they get from out of work benefits or part-time low paid jobs? As we are constantly being reminded in this election campaign, politics is all about making hard choices. The progressive choice to make now to is stick to our child poverty targets and give ourselves the best chance of achieving them. Tax cuts for low earners may be a fine aspiration, something to look at when the public finances are in a healthier state, but right now we should be focusing any extra resources on those who need it most.
Kayte Lawton, research fellow, ippr
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