Nick Clegg’s Unfunded Tax Cut & Complacency
Yesterday Nick Clegg appeared on the Today programme. He repeated the claim that back in May “Britain was the brink of bankruptcy”, a subject I dealt with over at Left Foot Forward.
But perhaps a bigger issue was his claims on income tax – he stated that his policy was to raise the tax free allowance to £10,000. So far the government have only announced a £1,000 increase in the personal allowance.
There are three issues here – first, as Howard Reed and Tim Horton have argued this isn’t the best way to combat poverty or to help the low paid. Most of the money goes to the better off, one reason that Guido refers to the policy as “a middle class tax cut”.
Second, as analysis by the Resolution Foundation (covered by Will over at Left Foot Forward) has demonstrated – what the government gives with one hand, it takes with another – higher VAT more than “compensates” for a higher tax free allowance.
But most significantly, as Faisal Islam yesterday, taking the personal allowance to £10,000 would cost an additional £11.5bn. £11.5bn (the near equivalent of another 2.5% on VAT) that has not been budgeted for.
I imagine we will soon get confirmation that the Deputy Prime Minister “misspoke” and that the £10k personal allowance is an “aspiration” not a “a policy”. I’m sure Mr Clegg would like to go into the next election offering just such a cut in income tax phased in between 2015 and 2020.
This does reveal quite a bit about how the coalition thinks – tough austerity now, then electoral hand outs in 2015.
Responding to bad poll numbers yesterday Tim Montgomerie tried an old trick – “you think an 8% Labour lead is bad, wait till its 20%”. That was predictable; what’s more interesting is what the post reveals about the Tories’ economic complacency:
The economic cycle is on Cameron’s side. We should be in the upswing phase at the time of the next election. If the economic gods smile kindly on Cameron the UK economy will be ticking along nicely by 2013/14/15 and Osborne, Cameron and Clegg will be able to say they steered the UK economy through difficult times – without any help from Labour. It will be a powerful message. In the meantime there’ll be tough cuts, inflation, higher mortgage rates, internet-powered explosions of protest and, most worryingly, the potential for real €urozone problems. But we will get through it. Hopefully.
Essentially – “don’t worry, we’ll have two awful economic years now, but things will be fine by 2015, I hope” – is this the plan?