56% of Lib Dem members say: let’s now ensure no-one on minimum wage pays any income tax

by Stephen Tall on March 21, 2013

Lib Dem Voice polled our members-only forum recently to discover what Lib Dem members think of various political issues, the Coalition, and the performance of key party figures. Some 650 party members have responded, and we’re publishing the full results.

56% say: no income tax for anyone paid less than the minimum wage

In 2010, the Lib Dems pledged to increase the personal income tax allowance to £10,000, cutting the tax bills of low- and middle-income earners. Which of the following personal taxation policies, if any, would you most like to see the party campaigning on at the next election?

    6% – Re-introduce a 10p tax band for taxpayers above the current income tax threshold (due to rise to £10k by the end of this parliament)

    56% – Extend the income tax threshold so that no-one paid less than the minimum wage (currently £12.5k a year) pays income tax

    26% – Increase the point at which employees pay National Insurance Contributions (currently £7,748) so the lowest paid pay no personal taxes

    7% – No further tax cuts: it is more important to reduce the cuts to public spending

    4% – Other

The strong preference of Lib Dem members is for the party — now it has secured the Coalition’s commitment to raising the income tax threshold to £10,000 — to go further still, ensuring no-one on the minimum wage pays any income tax: a majority (56%) backs what is current party policy. Just over one-quarter (26%) of party members, however, favour turning our attention next to the rate at which another direct personal tax, national insurance, is levied on the low-paid and lifting that threshold to help the lowest-paid. A small minority of party members (6%) back Labour’s new policy of introducing a new 10p tax rate for those earning more than £10k. And a small minority too (7%) reject any further tax-cuts, preferring instead to focus on reducing the current cuts to public spending.

I’ve made my own view clear before: if our liberal view of taxes is guided by fairness, we need to focus on the lowest-paid. To raise the income tax threshold further may be savvy politics, helping entrench in the public’s mind the Lib Dem identity with the progressive tax-cuts we’ve achieved to date, but it makes little sense in delivering social justice. It’s clear from the budget that the lowest income groups have suffered most from the cumulative tax-and-benefit changes brought in this parliament. (You can read my verdict on this here.). That’s sadly unsurprising in a recession. What’s important is that we as liberals re-double our efforts to help redress the impact that the economic downturn is having on the poorest in society.

Here’s a sample of your views…

I object to paying taxes on my near minimum wage income so that big business can be subsidised by the government who have to pay out benefits to some of my colleagues to enable them to pay for their housing costs and to buy food for their family.

What’s the point of trumpeting the £600 tax saving measures to low income earners when the threshold is really around £7,500 pa because of N.I. contributions?

WE should be seen as the low tax party. Future growth in the economy should go towards tax cuts not increasing public spending

Need to integrate tax and means-tested benefits to ensure that marginal rates are less than 50% for all taxpayers.

Whilst NI and IT remain separate, I’m relaxed about lower threshold for NI – on basis not perceived as a tax, has other associated benefits, and means those outside IT still make a small social contribution.

to be fair we must find ways of taxing the wealthy more effectively as they do not generally get income through PAYEE employment.

Despite choosing the income tax threshold, we should look at NI as well. However, that is more complicated since it involves reassessing the role of the contributory principle in our welfare system, which is a far broader issue – though one which also deserves attention.

You should only consider raising the tax thresholds if you are not cutting benefits.

0p tax rate infinitely better than 10p. However National Insurance needs addressing too.

I would prefer no-one should pay tax until they are earning at least a living wage. The minimum wage is not enough to live on in most areas.

NICs are a less visible tax than income tax so it is less easily noticed if the threshold is raised.

As imperfect as it now is, I think it is healthy that even low earners feel that they make a contribution to the safety net which they, like eveurone else, can benefit from. I don’t think it is obviously desirable to create an “underclass” who pay no direct taxes at all. I would rather keep NI as the baseline contribution, and continue raising the IT allowance.

I would like to see assets not income taxed. Too many overseas property investors getting away with speculation and inflating house prices.

Though I support raising the threshold to the minimum wages, this is very expensive. I also think because NI is seen as paying for pensions and benefits, it helps people for a sense of social engagement so should a) be retained as a separate tax and b) the threshold for paying NI should not be raised.

I expect to lose 60 per cent of my income in the next few months so any changes to thresholds will do nothing for me then. This really does nothing for the very lowest earners.

The problem is for those paid below the tax allowance level and are those who suffering from the removal of benefits, the bedroom tax, cost of living and indirect tax rises.

Reducing cuts to benefits and public services, then NI (ideally supporting merging of NI and income tax and removing the insurance model)

No further tax cuts (as the main priority) when there is vital capital investment needed -in social housing for example. The low end tax cuts are not enough to allow the low paid to buy/rent in the over priced private housing sector.

Balance tax cuts with more taxes on immovable wealth, e.g. Land Value Tax

I would like to see the income tax threshold increase to 12.5K a year AND increase the threshold for employee NI. In fact I’d like us to propose unifying them and making the bands more progressive.

I want to combine NI and income tax and abolish both for those working on the minimum wage. Spending cuts are vital though.

Merge NIC and tax, a meaningless and costly distinction that no longer serves a purpose, creates extra work for business, extra govt admin.

You could merge both which would be an honest and distinctive policy and we wouldn’t have this reduce tax increase NIC malarkey, it would also save a fortune in collection and administration

It’s one of the easiest policies to understand and enjoys a lot of support.

I would also like to see the NI threshold raised in conjunction with a raised IT threshold – Perhaps aspirationally over the next parliament £12.5k IT / £10k NI

Restore the differential in personal allowance for the over 65′s. we have the lowest pension in the developed world, and it is still taxable!

A minimum wage should be exactly that – the minimum the state believes it is necessary to earn each hour in order to be self-supporting as a working citizen. Changing the tax allowance to reflect this will, of course, mean that the minimum wage itself may be adjusted to meet this definition.

Announce a long term commitment to introducing LVT, increasing taxes on wealth in the form of property in the interim, and raising the thresholds for NIC and income tax to the minimum wage over an affordable period. The latter to be partly paid for by the introduction of a 30% tax rate which could ease the step from 20% to 40% for middle earners.

Personally I’d like to see the 50% tax returned, but unlikely under coalition (and Wish Labour wouldn’t be so opportunistic seeing how 50% was a VERY late policy change for them

Income tax cuts & threshold increases do not benefit those whose income is insufficient to reach these levels We must also see that those unable to work for whatever reason and those working part-time in low paid jobs do not continue to fall behind even the lowest paid full time workers.

Any of the first three are interesting. What’s important is that tax continues from the bottom up. Also work on reducing tax relief for pensions amongst the highly paid. If they’re not going to help us spend our way out of trouble take it off them.

While it is tempting to lift the NI threshold, IMHO it’s important to retain a contributory principle – avoids a ‘free ride’ but brings with it an ‘entitlement’ mind set.

Ideally NI should be the target for cuts, but bringing the income tax allowance up to full time minimum wage level is fine and politically more expedient.

Focus should now be on VAT and getting that down within a policy of continuing to cut the deficit.

Merge income tax and NI – be honest!

  • 1,500 Lib Dem paid-up party members are registered with LibDemVoice.org. 647 responded to the latest survey, which was conducted between 14th and 17th March.
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  • * Stephen Tall is Co-Editor of Liberal Democrat Voice, a Research Associate for the liberal think-tank CentreForum, and also writes at his own site, The Collected Stephen Tall.