Wednesday, 1 October 2014

Tory tax policy will widen inequality


Andrew Fisher

The Tories set out their General Election stall very clearly at their Birmingham conference. This is class war waged efficiently on behalf of the comfortable and the selfish. It is turbo-Thatcherism - slash benefits, cut taxes disproportionately for those with most, and cut taxes on big business too.

The BBC table below - with data supplied by HM Treasury - sets out how the income tax changes will affect different earners. So those higher rate tax payers earning £50,000 or more a year by 2020 will see a cash benefit of nearly three times the basic rate taxpayers.

This is a tax break for the top 15% of earners - those who need it least - who won't be queuing at the food bank, choosing between heating and eating or worried that every knock on the door could be the bailiffs. No, this is a tax break for those whose anxiety is whether they can have a second foreign holiday, afford a new car this year or scrape enough together to send their children private.

This comes on the back of a tax cut from 50% to 45% for the highest earners.

You've been framed!

The careful framing in Cameron's speech suggested these were tax cuts to benefit the lowest earners and the ever-nebulous 'squeezed middle' - dragged into the higher rate 40% bracket.

So raising the personal allowance to £12,500 (it will be £10,500 at the time of the general election in May 2015) was described by Cameron as:
"That will take one million more of the lowest paid workers out of income tax"
But the people it benefits least are the lowest earners. You see, someone working 30 hours per week on the minimum wage is only taxed £28 per year. So raising the personal allowance will only save them £28.

For many people working at minimum wage rates part-time or inconsistent hours on temporary or zero hours contracts earning £12,500 is a dream. Likewise for people even working full-time hours on apprenticeship rates, or on the youth rate of the minimum wage, earning £12,500 is not likely.

So despite the carefully chosen words to make it sound like good news for those struggling, Cameron's raising of the personal allowance actually does nothing for the lowest income groups (pensioners, those on out-of-work benefits) or for the lowest earners, who already don't pay any or very little tax.

The lowest earners will also be hit hardest by the freeze in uprating of in-work benefits like tax credits, housing benefit and child benefit. And of course those on out-of-work benefits will be far worse off still.

On the raising of the 40% rate, Cameron said:
"The 40p tax rate was only supposed to be paid by the most well-off people in our country…but in the past couple of decades, far too many have been dragged into it "
Currently, only the top 15% earners pay the higher rate - around 1 in 7, so it is only paid by a relatively small proportion of the better off. And of course someone earning a little over £41,900 (the current threshold) only pays 40% on amounts over that - so someone earning £45,000 only pays 40% on the top £3,100 of their salary - the rest of their tax is paid at the basic rate of 20%.

In Cameron's defence though the number of higher rate taxpayers has ballooned from 930,000 in 1984 to 4,400,000 paying higher rate in 2014. Of course what Cameron could have done would be to put the 40% rate at £50,000, the 45% rate at £100,000 and restored the 50% rate at £150,000 - then that would have benefited the higher, but not the highest, earners.

Corporate giveaways

Cameron persisted with the commitment to make the UK a virtual tax haven (as cabinet minister Francis Maude favours) - and to cut the contribution to public services and deficit reduction from corporations:
"with the next Conservative Government – we will always have the most competitive corporate taxes in the G20…lower than Germany, lower than Japan, lower than the United States"
The consequences of which we have previously evaluated.

Conclusion

A vote for the Conservatives is a vote for redistribution - to the rich. A vote for a more unequal society, with worse public services to pay for tax cuts for the richest. Don't be conned.

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