Why Lib Dems made the budget less fair

By Ewan Nicholas

Whilst the Institute for Fiscal Studies report this morning is making difficult reading for many of the left leaning LibDems, we should be wary about the ‘Nasty Tories stopped nice LibDems from being progressive’ narrative. Dig a little deeper and the truth is less comfortable still for Liberal Democrats.

Lib Dem influence actually made this budget less fair.

During the election Nick Clegg promised to raise personal tax allowances to £10,000, ‘taking the poorest out of tax altogether’ [http://www.nickclegg.org/your_money.aspx]. The coalition Government have, at the Liberal leader’s insistence, started to implement this policy by raising the tax free income bar from £6,475 to £7,475 from April 2011.

It’s easy to see that this will benefit someone on £30,000 more than it does someone on £6,000 (who would receive no tax cut at all).

The IFS report picks up on this. In the first couple of pages, the report states:

‘Those who lose the least are households of working age without children in the upper half of the income distribution. This is because they do not lose out from cuts in welfare spending and are the biggest beneficiaries from the increase in the income tax personal allowance.’

Writing as a man of working age without children somewhere around the upper half of the income distribution, I’m as happy as anyone to be receiving a tax cut, but should I really be a priority during financially restrained times? Perhaps there is an argument for simplifying the tax system, but shouldn’t tax cuts be focussed on the most in need?

The Budget shows this tax decision is costing the exchequer £3.5bn. Isn’t this money that could have been more focussed on the workless, under-employed and pensioners more directly?
The LibDems tax promise is a blunt instrument, good for election headlines but taking resources away from families and pensioners where they really are needed.