Proposal #17: Raise the basic rate of income tax to £10,000

By Lewis Goodall

I apologise in advance but I have to say, Vince was spot on. I assure you, the ‘Cult of Vince’ hasn’t got to me, but I do have to take my hat off to ‘the great sage’ on this occasion; when Cable announced his proposal to raise the threshold at which people start paying tax to £10,000 in Bournemouth this week, I couldn’t help but think that it was about time.

There could not be a cleaner, fairer, more equitable proposal available to any would-be government than this one. By increasing the threshold to £10,000 from the current £6,475, the next government would take four million of our poorest citizens out of paying tax altogether, one of the biggest tax cuts in recent history.

Our current system is an aberration from the historical principle of British taxation; the whole basis of the income tax system, since its inception, was that you would only pay if you were in a position to afford it. When income tax was first introduced, by William Pitt the Younger in 1798, it began at a levy of 2d in the pound on incomes over £60, or in today’s money a massive £47,000. Even until relatively recently, you had to be earning a decent wage to even enter the threshold.

Today, by contrast, we must bear the shame that after twelve years of a Labour government, the poor pay more of their income in tax than the rich do. In 2008, the bottom fifth of earners paid 38.7% of their gross income in total tax, compared to the richest fifth who paid 34.9%. This situation will only get worse when the highly regressive VAT increases to 20% next year.

This is the shocking legacy bequeathed to us by a string of governments of both colours, who have seldom paid sufficient regard to the plight of our poorest. As a result of their inaction and sorry pandering to the now discredited neo-liberal agenda, 13.2 million Britons live in poverty.

Though the moral argument for doing this is overwhelming, it makes great sense economically too. When we talk about cutting tax, far too often we get trapped into thinking about ‘trickle down’ economics; the idea that if you cut taxes for the rich that the economy will be stimulated more than if you cut taxes for any other income group. In fact, all economists would point out that the marginal propensity to spend (i.e. the proportion of money spent for every extra pound earned) is far higher for the poor than for the rich. Many of these people are on the breadline as it is; the last thing they’re likely to do with the extra £50 a week is go put it in an ISA (something the rich by contrast, are far more likely to do with a far higher marginal propensity to save.) Rather, they spend the extra cash in the shops, on essential goods and services that they could otherwise ill-afford. Thus, by cutting taxes by a relatively small amount for the poorest, much needed sectors of our economy receive long-term stimulus.

We’re the sixth biggest economy in the world. Poverty is not inevitable for any member of our society, and yet we blithely condemn millions of our fellow citizens to an existence of dire want. The UK government defines poverty as having an income of 60% or less of the median: by that measure that equates to 22% of the population. Moreover, a 2006 ONS survey showed that in 2005-06 62% of pensioner couples had less than £10,000 in pension income.

We have saved the banks, slavishly followed the neo-liberal hegemony and bailed out the very people who got us into this recession in the first place. Now it’s time to do something for those who need our help more than any of them. The poor didn’t create the housing-market bubble and nor did they create cheap credit. It’s unthinkable that they should continue to pay the price for these things in the form of a greater burden of tax than the richest pay. If they do, Labour doesn’t deserve a single vote come the next election.

In the last parliament, we saw a government who often seemed more interested in peddling the Tory trash of inheritance tax cuts for the richest, coupled with having the indignity to abolish the 10p rate without so much as a thought for its effects on the poorest. What is the point of this party if we continue to sing to this tune of inequality and shameless greed?

Let’s be Labour again, and help those in most need: our old, our young, and our most vulnerable, and make a start by the cessation of tax on their meagre incomes, which in meaningful terms, barely exist.