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New LibDem tax policy (sort of)

April 20th, 2009 Posted in Economics, UK Politics by

Two-and-a-half cheers for Nick Clegg, who seems finally to have settled on the policy the party will take into the next election – namely, raising the basic income tax threshold to £10,000, shedding about £700 off the annual bill of the average worker.

The party leader loses half-a-cheer for having moved away from an overall tax-cutting agenda to one of “tax neutrality”, although I’m reliably told by Cowley Street that Nick’s overall long-term aim to reduce the overall tax burden remains in place.

All those of us who applauded Nick’s determination to go much further in cutting tax last September when he spoke to the Sunday Telegraph’s Melissa Kite, need to continue to press against the old approach of recycling 100% of identified expenditure cuts back in to alternative public sector programmes. Economic times may be tough, but we don’t want to fall into the trap of simply shifting government expenditure from one department to another. If spending reductions can be made, at least some of these savings should be passed on directly to the taxpayer.

I gather that the reasoning behind changing the tax policy from a “4p cut in the basic rate” to a “raising of the threshold” is because Chris Rennard believes it’s easier to communicate to voters a £700 tax reduction rather than a 4% cut. £700 sounds bigger too.

The key thing now – as I argued on the BBC’s six o’clock news this evening (15 mins in) – is to make sure this message is aggressively communicated. The party’s spent four years arriving at a new tax policy, but only has one year before the election to make the case to an electorate who will probably find it counter-intuitive that the LibDems want to lower the average income tax bill.

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