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Con-Lib agreement on a £10k personal allowance for income tax?
Mr_Mumble
Posts: 1,758 Forumite
On Newsnight Michael Gove let slip the Conservatives had agreed with the Lib Dems on a personal allowance of £10,000.
Kirsty Wark, quoting David Cameron pre-election, on this policy stated it adds £17bn to the deficit.
As John Redwood later pointed out to Wark this will have been agreed based on other tax hikes. However, imho, they'd have to be very big tax hikes.
The 'easy' options to raise such a huge amount of money that the Tories could live with? My two guesses are:
1. A 25% basic rate income tax rate would bring in £12-13bn per annum afaik. 25% would mean anyone earning under £24,100 would pay less income tax overall while those earning >£24,100 would pay more income tax*.
2. 20% VAT would bring in around £10bn per annum.
Smaller tax raising measures such as reducing tax credits for the higher paid to supplement the above are no-brainers.
These tax rises could leave room for the NIC hike to be abolished and/or 50p tax rate and/or the implementation of a £1m IHT allowance.
While hardly 'radical' the above would mean a far larger and transparent change in tax regime than anything done under New Labour. The losers, as usual, will be those middle income bracket earners who could possibly be appeased by greater benefit cuts.
*This calc does ignore inflation, since the 10k pa would probably come in April 6th 2011 the real cost to the exchequer will be eroded by ~3% inflation. The quickie sums: £10,000-£6,475 = £3,525 * 0.2 = £705 less tax paid by those earning £10k and £705 / 0.05 = £14,100 more required to give up the personal allowance gain, so, £24,100 is the break-even point.
Kirsty Wark, quoting David Cameron pre-election, on this policy stated it adds £17bn to the deficit.
As John Redwood later pointed out to Wark this will have been agreed based on other tax hikes. However, imho, they'd have to be very big tax hikes.
The 'easy' options to raise such a huge amount of money that the Tories could live with? My two guesses are:
1. A 25% basic rate income tax rate would bring in £12-13bn per annum afaik. 25% would mean anyone earning under £24,100 would pay less income tax overall while those earning >£24,100 would pay more income tax*.
2. 20% VAT would bring in around £10bn per annum.
Smaller tax raising measures such as reducing tax credits for the higher paid to supplement the above are no-brainers.
These tax rises could leave room for the NIC hike to be abolished and/or 50p tax rate and/or the implementation of a £1m IHT allowance.
While hardly 'radical' the above would mean a far larger and transparent change in tax regime than anything done under New Labour. The losers, as usual, will be those middle income bracket earners who could possibly be appeased by greater benefit cuts.
*This calc does ignore inflation, since the 10k pa would probably come in April 6th 2011 the real cost to the exchequer will be eroded by ~3% inflation. The quickie sums: £10,000-£6,475 = £3,525 * 0.2 = £705 less tax paid by those earning £10k and £705 / 0.05 = £14,100 more required to give up the personal allowance gain, so, £24,100 is the break-even point.
"The state is the great fiction by which everybody seeks to live at the expense of everybody else." -- Frederic Bastiat, 1848.
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Comments
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So will it be 20K for a man and woman together? Its smart to split income between you both if possible.
Sounds great Im self employed, I think I will buy a few more things for my business:) We could be non tax payers from now on
20% VAT is great news for silver investors. Buy silver now while its only 17.5% on top.0 -
They will not increase income tax by 25% upto 25%. That would be madness and effect middle earners significantly.
They will probably raise VAT0 -
don't even worry about it. there's no way cameron could whip his mps to vote for this.
and it's not a case of letting slip. cameron said pretty much straight after the election this was one area of policy they would go for. but what the leadership say and what the party is prepared to support are not always the same thing.Those who will not reason, are bigots, those who cannot, are fools, and those who dare not, are slaves. - Lord Byron0 -
On Newsnight Michael Gove let slip the Conservatives had agreed with the Lib Dems on a personal allowance of £10,000.
Kirsty Wark, quoting David Cameron pre-election, on this policy stated it adds £17bn to the deficit.
As John Redwood later pointed out to Wark this will have been agreed based on other tax hikes. However, imho, they'd have to be very big tax hikes.
I thought 2.5% on VAT would bring in closer to £13bn, taking it to 21% would raise £18bn.
The other area would be extending the scope of VAT - which could raise a huge amount.
The difficulty is that we probably need to increase taxes by £20bn+ to deal with the deficit before giving anything back. (on the basis that no fiscal deficit in the UK has ever been addressed by spending cuts / growth alone)US housing: it's not a bubble
Moneyweek, December 20050 -
A £10k personal allowance isn't as expensive as it sounds as pensioners already get a personal allowance of £9.5k, so that's a few million people it won't affect for starters. Then you've all those earning over £110k who have their personal allowance taken away anyway. Then you've those who don't have taxable income, i.e. those living on benefits already earning less than the personal allowance if they're working a few hours, those living on dividends from investments, etc. etc.
They'll reduce tax credits - probably eliminate them for the higher earners and maybe reduce them for lower earners who are already better off with the higher personal allowance.
VAT will be increased to 20% anyway and its scope will be increased with some zero rated items moved onto 5% reduced rate or the full 20% standard rate.
Let's hope they see sense and scrap employees NIC completely and put up basic rate income tax accordingly to compensate. NIC is just another tax and no longer means anything - the monies raised aren't ring-fenced and people get the same (if not more) benefits whether they've paid NICs or not throughout their lives. That will mean that ALL taxpayers contribute equally - at the moment, far too many groups of people avoid paying national insurance because they don't earn wages - i.e. pensioners, those living on investment income (dividends etc), small limited company owners paying themselves dividends instead of wage - NIC is too easy to avoid. I see the Liberals being the party that would drive for scrapping NIC and perhaps the Tories would have to concede that point - they're all wanting tax reform, and scrapping NIC is certainly a worthwhile reform.
The pain of tax rises should be shared equally across all society - just hitting the workers again isn't acceptable. Workers need to be incentivised. Reform of the personal allowance and working tax credits is a good start to make sure that it pays to work. Increasing VAT and raising basic rate income tax, whilst scrapping employees NIC, does the job nicely - everyone should pay more tax to get us out of the mire - sadly that includes pensioners and benefit claimants as well as workers - no-one should be ring-fenced and protected.0 -
So the single parent on £6500 pa will get no tax benefit and lower tax creits.
People struggling on two part time jobs will pay more tax than they did NIC
If vat is increased those with the lowest disposable incomes are hit hardest.
This is typical tory policy kick the poorest where it hurts there is nothing here which those with large disposble incomes would even notice.The only thing that is constant is change.0 -
Lets get rid of index linked pensions, starting off with MPs. That should save a bob or two and in this financial era when the private sector is abandoning final salary schemes is not only totally justified but also a requirement to greater equality.The only thing that is constant is change.0
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A £10k personal allowance isn't as expensive as it sounds as pensioners already get a personal allowance of £9.5k, .
As previously stated it was costed at £17 billion according to Cameron, he wasn't telling porkies was he :eek:'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0 -
zygurat789 wrote: »Lets get rid of index linked pensions, starting off with MPs. That should save a bob or two and in this financial era when the private sector is abandoning final salary schemes is not only totally justified but also a requirement to greater equality.
I think it is fairly safe to assume you don't have one
'Just think for a moment what a prospect that is. A single market without barriers visible or invisible giving you direct and unhindered access to the purchasing power of over 300 million of the worlds wealthiest and most prosperous people' Margaret Thatcher0 -
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