Saturday, January 14, 2006

LibDem Fiscal Sums

Unlike certain Tory leadership contenders, LibDems have never been shy of nailing their colours to the fiscal mast.

Chris Huhne has been making much of his pledge to increase green taxes and use the money to help low wage earners:

"There have to be higher taxes on actions that threaten the future of our world. That means pain for some. Of course...this is a switch in the tax burden, not an overall increase. We must...take the low paid out of tax entirely. Nobody on the minimum wage should have to pay income tax."

He doesn't explain his sums, but he keeps telling us he's a very able economist're right, we'd better check.

Right, so the minimum wage equates to about £9,700pa. And the personal tax allowance is currently £4895pa. So that needs to approximately double to lift those minimum wage earners out of income tax.

And using the IFS ready reckoner gives us a total cost of...jeeps! £30bn pa!

Thirty bill- that's really quite a lot of money, even by the standards of LibDem fiscal sums.

Hmm. So what green taxes would he increase? How about the jolly old duty on unleaded? Should cause a bit of PAIN for those Surrey housewives in their guzzly 4x4s. IFS again...umm...let me see...that's an increase of £1.50 per litre! New pump price of around £2.50 per litre- say, £150 to fill up the 4x4.

Chris is well on the way to saving the planet alright. But possibly not his wafer-thin majority Home Counties seat.

Pic: Grandma's Graphics


Anonymous Dr Tim Leunig said...

If you assume that taxes above £9,700 don't change (i.e. 22% from £9,700, not 10%), and the same higher rate tax band, and taking into account reductions in tax credit claims, then the cost is £16bn (see various pieces by Maurice Saatchi over the years). £16bn is a lot of money, for sure, but it is a lot less than £30bn.

Sr Tim Leunig, London School of Economics

12:12 AM  

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