Tuesday, October 5, 2010

Don't touch my tax allowance

So now it turns out that since cutting child benefit for high earners is unpopular, the Tory high command has dusted down an old idea - the married couple's tax allowance - to try and win back favour. Won't do the trick with me I'm afraid: I'm not married.

This is a genuine policy mess, and they've only just announced it, which must be some kind of record. First, none of this was in the election manifesto. Sure, there is a big deficit, blah blah blah but we knew that before the election, and there is no serious case that the deficit has proved any worse than expected: if anything the numbers are improving. So why no mention of cutting higher rate taxpayers' child benefit, or capping welfare at £500 a week? Philip Hammond stammered on Newsnight that they are 'in a coalition', but the Lib Dems are not on record as having asked for either of these things, so I'm not sure that is a ready excuse (and given the reception of these ideas in the press, I'm sure the LDs are hiding behind the curtains on this one).

But worst of all, policy is informed by a combination of confusion and malice. Confusion because cutting child benefit for higher rate taxpayers may be simple to administer, but will produce real injustices, since a couple earning each below the threshold will keep their child benefit, whilst a family with one earner marginally over will lose it. I can imagine salaried workers pleading for pay cuts here. Malice because even higher rate taxpayers struggle with the colossal costs of bringing up children, with nursery fees in London routinely above four digits a month. With one child, CB is a nice top-up for a high income family, but with 2 or 3 it starts to look like real money -  £2500 a year for 3 kids. And to remedy this, the Tories are thinking of introducing a married couple's tax break which, if extended to higher rate taxpayers, would eat up all the savings of the CB cut.

All very amusing, no doubt, to higher rate taxpayers with no kids, who can continue spending their post-fisc income on skiing trips and Mini Coopers. The Conservative policy seems to be: don't have children. Accompanied, of course, by a cap on immigration. If you want to raise money from higher-rate taxpayers, there is a simple, efficient and equitable way of doing it: raise the higher rate. Making it 41% would not change anyone's life, and the pain would be shared precisely in line with ability to pay. It's called progressive taxation.