10 October 2007

Now throw the low earners a bone, Mr Brown.

Now that the richest 6% have been rewarded with a tax cut at the expense of the rest of us. How about helping the poorest by widening the council tax bands, so big householders have to pay a little back from their windfall. Reducing inequality (so I thought) is what a Labour government is supposed to do, not pander to the rich and their newspaper owner friends.

In the end Labour has...
bowed to people's fears stirred up by the press. 37% of people feared they might be eligible for inheritance tax (in reality only 6% would pay it). Brown has now allayed their fears by taking them out of it altogether. The Tories of course, set the level at a million pounds to help even the top 1%.

I suppose by making the Tories jump on this issue, Labour have at least exposed the Tories hand and demonstrated that Labour are willing to do whatever it takes on tax to win over the press influenced marginal voters. Win at all costs it may be, lets hope the costs are not too high otherwise whenever the election comes, Brown might as well hand over the reigns to Murdoch. Anyway, roll on May 2008.


  1. Reducing inequality (so I thought) is what a Labour government is supposed to do

    Ha ha so did I but there's been precious little sign of that.

    I suppose by making the Tories jump on this issue, Labour have at least exposed the Tories hand

    The Tories spotted that there are a lot of stupid people - you say it's the press that are telling them what to think, I think it's a bit more complex than that, but there are plently of stupid people who foolishly think taxes apply to them when they don't, foolishly think Thatcher cut taxes and foolishly believe in ID cards and DNA databases as magic science that will solve all problems. Labour has once more proven what bunch of cynical cheap intellectual pygmies they are by simply stealing popular (but foolish) policies.

  2. Neil How about helping the poorest by widening the council tax bands?.

    Yet again, we are in agreement!

  3. Neil 37% of people feared they might be eligible for inheritance tax (in reality only 6% would pay it).

    IHT is payable by 6% of estates, but as most people have two or three heirs, that makes 12% - 18% whose inheritance will be reduced, of course.

  4. "I suppose by making the Tories jump on this issue, Labour have at least exposed the Tories hand"

    Bit arse about tit there Neil. The Tories have made Labour jump and shown Labour to be unprincipled, opportunist bastards. No news there then.

  5. Low earners saw their wages increase to £5.35 an hour last week - thanks to Labour's minimum wage - opposed by the Tories at the time of course.

  6. IHT is payable by 6% of estates, but as most people have two or three heirs, that makes 12% - 18% whose inheritance will be reduced, of course.

    No, it doesn't. If most people have 2 or 3 heirs, and there is no overlap between anyone's heirs, it's still 6%. If there are the same number of heirs as estates (so each person is the heir to 2-3 estates), it's only 12-18% if poor and rich relatives are uniformly distributed amongst heirs. In practice, of course, the relatives of rich people tend to be rich, and the relatives of poor people tend to be poor.

    The real number is more like 10% of families - 6% of estates pay IHT, but that statistic counts transfers to spouses in the "don't pay IHT" category, which is true, but misleading.

    (I don't have to hand the figures for the fraction of people that die young - one should exclude them, too, but I suspect they're a fairly small fraction. So if you say that about 10% of families will get an IHT bill on the death of a parent, you're probably fairly close.)

  7. Thanks Sam, Mark. Whether it is 6% or 10% or even 18%, it is still the richest people that are benefiting. This is disgraceful when we have such inequality in our society, but it shows exactly where the Tories stand (and now sadly Labour have caved in somewhat - at least they kept IHT on the very richest - £2bn the NHS desperately needs).

  8. Neil, look, IHT is just spiteful.

    OTOH, widening council tax bands, so that people in £1m properties pay £10,000 a year makes good economic sense, encourages efficient use of scarce resources and raises the same amount of money from the same people.

    What would you prefer - spite or good economic sense?

  9. Mark: If IHT had been replaced by wider council tax bands (that recouped the same amounts) I could agree it was fairer and made economic sense, but I fail to see how taxing someone's windfall - i.e. totally unearned income is in any way spiteful (lets get this is perspective - inheritors did get 300k completely tax free - it was only the amounts above that that were taxed). For me IHT is the most moral tax and it is very very disappointing that someone inheriting millions of pounds have just had a massive tax cut (it would have been even bigger if the Tories had had their way).

  10. someone inheriting millions of pounds have just had a massive tax cut

    *sigh* those people can afford all sorts of tax planning that gets them off the IHT hook *unsigh*.

    It is the moderately rich (i.e. those in houses worth £300,000 plus) who get stung, and get stung again for 4% SDLT when they sell (a tax economically borne by the vendor).

    Now, you know as well as I do that house prices are vastly overinflated at the moment, so a lot of this 'value' is not really 'hard earned money' at all, it is windfall. But Land Value Tax, or at least a lot more Council Tax bands, would dampen such house price bubbles, so win-win all round:
    1) There is some redistribution,
    2) Average and lower income people would always be able to afford to buy, and that it the goal here. Not spite.

  11. Neil, I assume you will voluntarily pay 40% on any inheritance you will receive as the Government knows how to spend your money better than you do.

    PS Fairdealphil, if the minimum wage is so successful, why not help all low wage earners by increasing the minimum wage to £12.50. You can then watch in amazement as demand for low skilled labour vanishes overnight!

    Who will then want to employ school leavers from 800 failing secondary schools in England? More fodder for the welfare state perhaps?

    Perhaps you're happy as long as they can turn out at election time and put across next to the Labour candidate's name, if they can read it...

  12. snafu: I believe in fairness in taxation. It would hardly be fair if I paid 40% and no-one else does would it? It would also make little difference if only one individual pays. This cut in IHT has nothing to do with fairness and everything to do with greed.

    As for the min. wage, a citizen's basic income is a better idea, but in the absence of that it should be set at a point where people can afford to live. Could you survive on £5.35 an hour? I think a rise to £6.50 would make a real difference to poverty without bankrupting business and there would be no need for complicated tax credits.

  13. Mark: Tax planning can save them a lot of IHT, but not all, so this is still a tax cut for them (or at least a solicitor cut). Of course, these loopholes should have been closed a long time ago.

    If we followed the Tory cuts, people could still use tax planning but get £2m exemption to play with rather than £600k.

    Agree on CBI, LVT and council tax bands.

  14. Brighton & Hove is the classic example of economic inequality. We have thousands of rock bottom low paid workers living in the same town as the Fat Boy Slim, Eubank and other millionaires. This city is in danger of becoming a place where the only people who live here are either millionaires or those who meet the draconian rules of the City Council's Housing waiting list.

  15. Neil, I don't earn £5.35 an hour because I studied hard at school and passed exams so that I'm worth more than that to an employer.

    Neil, why aren't unskilled workers worth £12.50 per hour!?! If you really want to make a difference to poverty and unemployment, you reduce welfare benefits to make work pay. Benefits are a lifestyle choice for too many in the UK.

    I believe in fairness in taxation, the whole problem with "fairness" is that we can have totally different ideas on "fairness"!

    I don't believe it's fair to call for tax increases that would increase the burden of taxation on other people but would not affect me as I don't earn "enough"! I don't think it's fair that you condemn increases in inheritance tax thresholds but then you stick to the old thresholds for your personal finances! You win both ways!!

  16. Snafu: I might personally benefit from the Tory changes to IHT, yet I still know it would be an unfair change.

    There are bigger costs to what you suggest. If we cut benefits and allow employers to go back to paying 50p an hour - we will end up spending more on prisons as they fill up with people who decide crime is an attractive option. As you lot are fond of saying - 'incentives matter'.

    At the end of the day, we live in such a wealthy society that everyone could be guaranteed the basics of housing, food etc. with just a fraction of this wealth and it is not merit but privilege that ensures that the bottom 50% only have 6% of the wealth. This is just not justifiable.

  17. Neil, it's good to know that you don't buy any products from the third world where wage rates can be 50p per hour but prefer to buy similar products that cost 10 times as much but are manufactured in the UK.

    What's wrong with £12.50 per hour if there is no link between a minimum wage and unemployment!?!

  18. snafu: Of course there is a link between the min wage and unemployment. But the level the min wage is at now is having little effect. Health and safety rules also impact on unemployment but few want them abolished. We have to play at the margins and I believe £6.50 is achievable, obviously £12.50 would not be (picking an extreme example is not the way to win your point).

    Global economics play a factor in every decision but we cannot just return to victorian standards in the UK. That would not help the third world.

  19. Neil, where have you come up with your £6.50 p/h rate from? Have you got any figures to back this up?


    "we will end up spending more on prisons as they fill up with people who decide crime is an attractive option"

    They will be far more likely to do that with no job than with a low paid one.

  20. Falco, the min wage has been increased faster than average earnings by this government (despite fierce Lib Dem and Tory opposition) and unemployment is still more than 2m less than what the Tories deemed acceptable when they were in office. In fact unemployment has continued to fall despite this min wage increase. I would argue that we accelerate these increases towards £6.50 (which is approx 60% median earnings) and only if there is a marked upswing in unemployment should the increase cease.

    The biggest factor in criminal activity appears to be inequality. There is a balance to be had between unemployment, benefit levels and pay and conditions. No one factor should be sacrificed at the altar of the others.

  21. Neil, has there been an increase in incapacity benefit (pays more than unemployment benefit) over the same period?

    The total number of economically inactive people has remained fairly constant at 7m over the last decade. That figure excludes economically inactive public sector workers by the way;)

  22. snafu: In 1992 there were 5.9m public sector workers (after 13 years of Tory rule), in 2006 (latest figs) there were 5.8m, despite over half a million extra doctors, nurses, police, teachers and other front line staff. And the total numbers of public sector workers are continuing to fall.

    There are over 2m more people in employment than in 1997, yet the economic inactivity rate has remained fairly static, but this is largely due to more students (surely a good investment for the future unlike the millions sitting on the dole under the Tories?). There has been real success in a number of previously problem areas.

    Incapacity benefit varies from £61 to £81 a week, hardly an amount that will have many clamouring to go through the stigma and regular scrutiny to get it. Of course a citizen's income would be better, so no-one would get caught in the benefits trap that gives a financial disincentive to work, but the world ain't perfect.

  23. Neil, the statistics make for interesting reading. Thanks for taking the time to provide the links. However, I struggle to understand how public sector employment was larger under a Conservative administration!

    Assuming that the population is now larger than it was in 1992, does this mean public services are under greater pressure or that statistics are being manipulated?

    How does the outsourcing of public services impact the statistics? Why have taxes needed to increase if the workforce has declined relative to the overall population?

    Incapacity benefit is only the first of many benefits for claimants. They can often be earning more than the benefits staff paying out the benefits...

  24. snafu: 'I struggle to understand how public sector employment was larger under a Conservative administration!'

    Of course it is hard to believe when we are brainwashed by the Tory press day after day, but the figures are fairly accurate.

    Productivity has improved immensely in the whole economy (worldwide) over the last few decades, and while efficiency savings have been much slower to emerge in the public sector, advances in technology have allowed some cuts in staff numbers (think of for example, how computing power has increased and costs have fallen in the last decade). Our public servants are providing more with less staff. Although a lot of the increased spending has gone on better pay and conditions (most of us wanted nurses, teachers etc. paid more, didn't we? although admittedly doctors and dentists seem overpaid!) and redressing neglected capital expenditure, but there have also been significant increases in output and the range of public services on offer.

    As you point out, there is more demand on public services from a larger and older population, so any increase in quality has been weakened, but imagine what it would have been like with another 10 years of Tories running down public services. (The Tories are so short sighted, they seem almost designed to annoy me - in Brighton they have already pissed me off after being in control for only a few months - by relaxing controls on pedestrian areas, so for example George St, Hove now has cars parked and driving down it all day, when previously there was room for tables for people to sit outside bars and cafes and room to walk about, now we have to dodge cars all the time sorry about that brief off topic aside).

    You are right to mention the impact of outsourcing, but the Tories did most of the outsourcing before Labour got into power and Labour have actually brought some services back in house (rubbish collection in some authorities is an example, another is NHS cleaning services in Scotland and Wales, sadly not England yet!).

    As for benefits being more than wages, before the minimum wage and tax credits, the situation was far worse. At least now, people are guaranteed more money (admittedly quite a negligible amount in some cases) if they work full time.

  25. Neil, I don't think you have justified the £6.50. If the minimum wage is to have much of an impact, (without reducing other burdens such as employers NI), then it will produce fewer, better paid jobs. Basically if you want people to take more money home reduce their taxes.

    How you can defend tax credits is beyond me. There should be a much higher basic allowance to take low earners out of the income tax bracket. Further, NI should be rolled into income tax, (it's just another income tax, there's no good reason to have two).

    What do you think about the citizen's basic income idea compared to the marginal tax rate for someone leaving benefits and going back to work?

  26. Neil, how did the Tories manage to "rundown public services" when they employed more "public servants" than Labour!?!

    If unemployment / incapacity benefits are so low, why aren't the economically inactive hoping that postal workers in Liverpool are sacked so they can take their jobs!?!

  27. snafu: The Tories call running down public services 'sharing the proceeds of growth' between the very rich and public spending rather than spending on things that matter to most of us (especially the poorest) - the NHS, education, etc. They increased spending but below inflation in a time when an ageing and growing population is placing more demands on services - that is how they run it down.

    How do you know the opinions of those on incapacity benefit in relation to the postal dispute?

  28. falco. The minimum wage and tax credits could be abolished if we had a citizen's basic income. And that would be desirable.

    If we could rely on the market to provide everyone with a living wage, then a minimum wage would not be needed. How do you justify people getting thousands of times the wage of someone else? You can have people getting millions for seemingly very little and others working every hour they can and working very hard in very harsh conditions getting a pittance. Cutting taxes just guarantees that those already doing well get even more, while the poorest suffer as public services they rely on and cannot otherwise afford are cut.