Carrying over the threshold (From The Northern Echo)

Carrying over the threshold

2:32pm Thursday 16th February 2012 in Rob Merrick By Rob Merrick

THE beleaguered Liberal Democrats are banking on one policy, above all others, to escape the Tory stranglehold on the Coalition and woo back angry voters.

Unfortunately, there is mounting evidence that this policy – lifting the tax-free income threshold to £10,000 – is a dud, a mirage or, at worst, a fraud.

Last month, Nick Clegg deliberately ruffled Conservative feathers by going public with a call to speed up plans to raise the amount a person can earn before paying income tax to £10,000.

The Coalition agreement promised only “real terms steps each year” towards this objective – but the Lib Dem leader suddenly wanted it reached as fast as possible.

Warning that pressure on family finances had reached “boiling point”, Mr Clegg said: “Cutting income tax is one of the most direct tools we have to ease the burden on low and middle earners.”

It earned the Lib Dems some good headlines, but there was no acknowledgement of the cost of the plan – or of how much, or how little, an achievement it would actually be.

The best estimate is that it will cost £4bn to hike the threshold to £10,000 by 2015, or £5.5bn to reach the landmark one year earlier – the best Mr Clegg can hope for.

When the threshold is £10,000, the average person will be £705 better off than they are with the threshold at £6,475, which is what the Coalition inherited. That cash is clearly worth having.

However, let’s dig a little deeper. Because of rampant inflation, about half of that increase – roughly £350 – would have taken place anyway, between 2010 and 2015.

And remember that much of that inflation flowed from the decision to hike VAT from 17.5 per cent to 20 per cent – an increase that cost each household around £400 a year.

Meanwhile, this week, we learned of a “tax credits bombshell” that will hit poorer families within weeks, those where parents work fewer than 24 hours a week.

There are around 30,200 families in this region alone that face losing all their tax credits, unless they can increase the number of hours they work. If they can’t, it will cost them £3,000-plus a year.

That rather puts the £350 that Mr Clegg’s big tax change will save them in the shade, reminding us that – during this great spending squeeze – all giveaways have first been snatched with the other hand.

Worse, because the measure is not targeted at the least well-off – unlike tax credits – it is a tiny bang for a massive buck. Only six per cent of the huge cost goes toward the stated aim of lifting low-income households out of tax.

All in all, if the Lib Dems ever get to parade their tax trophy, it will be a rather tarnished one.

THE Tories lack “gritty Northern candidates” and are still seen as the party of people who never had to “worry about running out of money before pay day arrived”.

Not my words, but those of high-profile Conservative blogger Tim Montgomerie, the man who hit the headlines last week after revealing that three Cabinet ministers are desperate to ditch the NHS shake-up.

He wrote: “Swapping a white lawyer for a black lawyer, or a rich City banker in a tie for a rich City banker in a skirt, wasn’t real change. The Tory problem was class.”