Chief Secretary to the Treasury Danny Alexander gave a speech this morning about the Coalition’s record on tax. He aligned the Liberal Democrats with the Coalition tax policy, pledged to raise the personal allowance of tax free income to £12,500 and indicated that a new ‘Mansion Tax’ proposal would form part of their manifesto.
He was right to align himself to the Corporation Tax cuts which the Government have implemented as well as the cuts to the personal allowance. But he is wrong to claim that the Liberal Democrats have met their manifesto commitment on the personal allowance, and wrong to propose a new tax on high value homes.
Personal allowance
He’s wrong on the personal allowance because the manifesto pledged to increase the personal allowance to £10,000 in 2011-12 and since then, inflation has eroded the value of money. £10,000 in 2014-15 is not worth as much as £10,000 in 2011-12. In October last year, I calculated that the equivalent at this year’s prices would be over £11,000. So raising it up to £10,000 this year is good progress, but it can’t count as having met the manifesto commitment. And it’s even worse than that.
Mr Alexander said:
And with Liberal Democrats in government after 2015, we will go further.
We are committed to raising the threshold to £12,500 in the next Parliament.
That’s not “going even further”, as Mr Alexander claims. In fact, according to OBR estimates of inflation, by 2018 it will be worth less than what he promised in 2010. So by the end of the next Parliament, with more inflation reducing its value further still, the amount he describes as “going even further” will in fact be worth considerably less.
The table below illustrates how inflation should affect a personal allowance set at £10,000 in 2011-12 prices.
2011-12 £10,000
2012-13 £10,520
2013-14 £10,857
2014-15 £11,182
2015-16 £11,473
2016-17 £11,840
2017-18 £12,266
2018-19 £12,733
This policy is a good one and he should use honest language when explaining it. He shouldn’t use deceptive phrases to make it sound more generous than it really is.
Mansion Tax
While he didn’t have much to say about his new Mansion Tax ideas, other than that it will be based on bands rather than exact values and details will be released “in good time”, it didn’t sound good based on what he did say. It would be locally administered but revenues would accrue centrally. It would be based on current values rather than values at a fixed point in time. And the bands would be uprated annually so that “people living in typical family homes need have no fear of being sucked into this levy”.
Our tax system is already ludicrously complicated. We don’t need more rules, rates and thresholds. The case against the Mansion Tax was expertly made last year by our former chief executive Matthew Sinclair. Advocates like Mr Alexander say that it’s unfair that someone in a £700,000 home pays the same Council Tax as someone in a £7 million home. Perhaps. But a new tax with a whole set of additional rules and regulations isn’t the answer.
The real problem that needs to be addressed is that politicians spend and waste too much of our money. They should join our War on Waste and spend less so that instead of dreaming up new ways take more of our money, they might start thinking about how to take less of it.