Thoughts on politics and life from a liberal perspective

Tuesday, 31 January 2012

The £10K tax threshold could be one of those policies that sticks

Every now and then, a policy comes along from a government that in time, is accepted by the opposition parties and becomes entrenched in our body politic and hence country.

The Thatcher and Major governments did lots of things that subsequent governments have been able to unpick or slowly nudge back on. But policies like the Trades Unions reforms and most of their privatisations have stuck and become entrenched. It is not conceivable that a government of any stripe would roll the Union reforms back or for example renationalise British Telecom. By getting broad acceptance of these changes, the Conservatives in the 1980s and 1990s were able to make permanent changes to the way important aspects of our society work.

In 1997, the Labour government brought in a minimum wage. At the time the Conservative party was deeply opposed to this but over time a consensus was reached and it is now highly unlikely that the minimum wage would ever be repealed. Devolution for Scotland and Wales has also been accepted across the political spectrum from that government.

The truly entrenched policies are sometimes hard to determine until a good while afterwards. I would have included independence for the Bank of England to set interest rates in this list from Labour too until recently but with the financial crisis it is not guaranteed that that will remain and there is some suspicion that politics has been asserting itself in the process in the last few years.

So far, I do not think there is much that the current coalition government has done that one could consider entrenched. The schools reforms could easily be unpicked by a future government. The NHS reforms have not even reached the statute books yet and I would be amazed if they were not overhauled by the next government. The tuition fee reforms may stay in place but the vociferousness of Labour's opposition suggest they will try and do something on this if they get the chance.

There is one change though that I think we can already see falling into this category. The £10K tax threshold. It is undeniably extremely popular. A recent poll showed 83% support for it. But perhaps more importantly it is a very accessible policy. Everyone can grasp very quickly what not paying tax on the first £10K you earn means for them and their family and friends. It is also the reason why it will be very hard to change as any erosion will be equally noticeable. No party is going to want to fight an election on a platform of increasing taxes on low earners. So once the threshold reaches £10K it will never go back. If anything it may go even higher. There are voices off murmuring that the aim should be for the first £12.5K to be free of tax. This would roughly equate to the level earned by those on minimum wage.

The only possible way I can it slipping back is through bracket creep but I expect there will be lots of campaigners and politicians who will be very wise to this and again I think any party trying that on will not get very far.

Perhaps the most surprising thing of all then is that the only policy that currently appears to be in  position for this accolade of entrenchment is not from the senior partners in the coalition but from the junior partners the Lib Dems.

It is worth remembering that the next time you hear the Lib Dems are not achieving anything in government. It may be that looking back they actually achieved one of the most significant and lasting reforms of the entire government.


Adam said...

Very good article. It seems quite likely at the moment that our next manifesto will include raising the allowance to the NMW. And if we get into Government, then that might be a policy that sticks for the long-term.

One of the problems, however, with this being a "very accessible policy" is that we might miss (deliberately?) even quite big aspects that could make it better. I'm thinking in particular of the National Insurance thresholds. We shouldn't be thinking of raising the personal allowance beyond £10k until we have raised the NI thresholds to that level too. Otherwise we're giving a tax cut to those earning above £10k whilst passing over, for the sake of a simple media message, tax cuts for those earning £7-10k too.

Mark Wadsworth said...

£10,000 threshold, hooray! Mansion Tax or rejigging Council Tax bands, hooray! Scrapping 50p tax rate in exchange, hooray! They're on fire, those Lib Dems!

Anonymous said...

I don't think the mansion tax would raise anything. I mean in order for it to be fair (and legally enforceable), you would have to have homes revalued every year. That isn't cheap!

Tom Mein said...

A society that taxes someone earning £10,000 a year and then gives benefits to someone earning £45,000 a year, or gives someone £26,000 a year to sit and watch day time tv all day is crazy