Tuesday, 20 May 2008

Clegg riding the tax waltzer

Nick Clegg describes the tax regime under Labour as a 'tombola tax system.' Good line. But the tax system he proposes is akin to a waltzer tax system, just as you think it's spun one way, it spins back again. The whole thing ends up in a dizzying mess.

Let's leave aside his claim that some people on low incomes are paying 'effective' tax rates of 90% (did he mean 'marginal' rather than 'effective' by any chance? Are you telling me that someone on £10,000 pa could be taking home just £1,000 pa? Nonsense.) The mishmash of proposals will have all sorts of bewildering effects. Let's just take those on low incomes:

- Basic tax down to 16%. Good.
- Tax shifted to pollution (the poorer you are the higher proportion of your incomes in consumed by energy costs and the like). Bad.
- Reducing taxes further after tax avoidance clamp-down. Goodish. If tax avoidance was so easy to cease someone else would have done it by now so probably won't happen. Remember the non-doms saga?
- Scale back tax credits. Bad- Clegg is right that it would be simpler to take people out of tax altogether. Simpler but I'm afraid more costly and less targeted.
- Introduce a local income tax system. Good or bad. If you are single and working could be good depending on the rate. If you are a working couple would be bad. If you are on a fixed income, undeniably good.

So overall, if you are on a low income I think you would rightly be concerned about the overall Lib Dem tax package. The most amazing thing is that having castigated Gordon Brown for the complexity of the current tax system, it would be just as difficult if not more so to calculate whether you were better or worse off under the Lib Dem proposals.

The one thing that the Lib Dem tax waltzer isn't is simple. Dizzying, quite fun, politically opaque, yes but simple, no.

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