Sunday, 20 March 2011

Calling Danny Alexander's bluff

Writing in the Guardian, Liberal Democrat chief treasury secretary Danny Alexander claims that, "once you take all the coalition's personal tax changes into account, everyone earning under £35,000 will be better off." The point of this post is pretty much to declare this as bollocks.

First of all, let's look at what he calls "the first big step" towards the goal "that no one should pay any tax on the first £10,000 they earn." This was to "increasing the [tax-free income] threshold by £1,000, from £6,475 under Labour to £7,475 this year." As a result, "from next month, almost a million of the lowest paid won't pay any tax at all."

As the lower tax rate is 20%, this means that people will pay £200 less income tax a year. Or, if you will, £16.66 a month. This isn't to be sniffed at when you're on a low income, it's true. But it hardly amounts to dragging people out of poverty. But this is counterbalanced by an increase in National Insurance rates from 11% to 12%, and the withdrawal of tax credits from those earning more than £6,420 going from 39% to 41%. All of which increases the marginal tax rate for someone earning a quarter of the national average earnings of £26,000 goes up to 73%. So much for not paying any tax at all.

This is not all. If you take into account that VAT has risen from 17.5% to 20%, the estimated 6.5% rise in food prices, and the sharp rise in fuel and energy prices which has prompted the chancellor to promise a duty freeze, the picture becomes starker. Not least because, workers - if they get a pay rise at all - are getting raises which amount to an average 2.9% cut against an inflation rate of 5.1%.

Of course, a pedant might point out that Alexander wrote only about workers being better off in relation to "personal tax changes." But, aside from this not being true anyway, trying to argue this in isolation from broader policies and trends is akin to saying "let them eat iPads."

Likewise, when Alexander insists that the Lib Dems should be judged "on how we deliver our own agenda," he is asking us to take a single point in isolation. Even taking this sophistry at face value, his claim crumbles on the barest examination. Putting it into the broader context of he and his party collaborating with a period of heightened class warfare in which people are finding it ever harder to make ends meet, the judgement he seeks only becomes harsher.