Lib Dem Fun (2)

So, having established that the top level statements are pretty vacuous, let's look in more detail at their proposal to increase the personal allowance for income tax from the current level of £6,475 to £10,000:

Cutting taxes for people on low and middle incomes. There will be no income tax on the first £10,000 you earn – meaning 3.6 million working people and low income pensioners will no longer have to pay any income tax at all, while millions more will have an income tax cut of £700. Pensioners will get up to £100 extra.

The change will be paid for by introducing a mansion tax, closing loopholes that benefit the wealthy and making sure airlines pay for the pollution they cause.

Two fundamental errors there.

1. It is true that increasing the personal allowance by £3,525 would reduce people's income tax bills by up to £705, and that this would, in relative terms, benefit lower earners more than higher earners (so it's a very good place to start), but they quite clearly overlook the other tax on income that employees have to pay, being Employee's National Insurance contributions ('NIC'), which is 11% of your income above the 'threshold' of £5,720 per annum (let's ignore Employer's NIC for now).

If we are to level the playing field even a little bit, then they ought to increase the NIC threshold to £10,000 per annum as well, which would mean a tax saving of up to £705 for people with mainly interest or rental income and a saving of up to £1,375 for employees.

2. If thirty million taxpayers get a tax cut of £700 each, the total 'cost' would be in the order of £21 billion.

a) Vince Cable's mansion tax (I thought they'd shelved this idea anyway), was set at 1% on the amount by which the value of a home exceeds £1 million. There are currently about 200,000 such houses, so let's assume a tax take from each of £5,000, that would raise £1 billion, but then minus off the Inheritance Tax that won't be collected and that gets it down to £600 million.

b) What loopholes that benefit the wealthy? The only one that springs to mind is the fact that very high earners could claim tax relief on pension contributions of £255,000 per year, but Alistair Darlling's weird new rules have probably wiped out a lot of the value of that tax break, so let's call the possible saving £5 billion or something.

c) I'm all in favour of airlines paying for the value of landing slots they use, and have done fag packet workings that say total revenues would be £5 billion per annum. You could, in theory, raise the same amount by increasing taxes on airline fuel, but it comes to much the same thing and sets an upper limit of £5 billion.

OK, that gets us halfway to raising the required £21 billion. If the Lib Dems want to be taken seriously, would they mind telling us how they will raise the rest? Or would they like to explain what government spending they'd cut, which would be a much simpler and better way of freeing up money for tax cuts?