A brief (recent) history of the Lib Dems’ flagship tax-cut for the low-paid

by Stephen Tall on March 21, 2013

Tax Threshold infographicGeorge Osborne’s fourth budget saw him finalise the commitment to implement in full the Lib Dems’ number one manifesto commitment: taking out of income tax all those who earn less than £10k a year.

It prompted this post by my Co-Editor Caron Lindsay yesterday – Why it’s worth being a member of the Liberal Democrats – recalling the recent history of this focus on raising the tax-free allowance. Which in turn triggered this comment by Alex Wilcock, recalling the slightly less recent history:

The fact is, raising thresholds was party policy in the 1990s, then put back on the agenda when Chris Huhne made it the central plank of his Leadership campaign in February 2006.

Curious, I thought I’d do a quick fact-check. Here’s what I found:

Lib Dem manifesto 1997:
Break open the poverty trap. We will take nearly 500,000 low earners out of income tax altogether by raising tax thresholds. This will provide lower taxes and new incentives to work, while cutting the benefits bill and reducing tax for 99.5 per cent of all income taxpayers. This will be paid for by introducing a new top tax rate of 5Op on taxable income of over £100,000 per year.

And though I can’t find Chris Huhne’s 2006 leadership manifesto online, here’s a news snippet:

Radical tax plan (14 Jan 2006)
An outsider in the race for the Liberal Democrat leadership will float a radical plan today to free thousands of people from income tax by hiking up levies on polluting industry.
Chris Huhne will tell a Lib Dem conference in London that increasing charges on industry such as the Climate Change Levy could raise enough money to increase the income tax threshold to the level of the National Minimum Wage – currently around £10,500 a year.

So there you go… Success, of course, has many parents. And for all I know the policy may well pre-date the 1990s: anyone know?

Finally worth mentioning that this isn’t a policy unique to the Lib Dems. In 2001, Margaret Thatcher’s favourite think-tank, Centre for Policy Studies, published a pamphlet, Poor People! Stop Paying Tax!, co-authored by Maurice Saatchi (yes, the very same), which argued pithily:

The government first taxes people on low incomes. Then it means-tests their income. Then it offers them benefits to restore their income back to where it was before they paid the tax. Then, finally, it taxes some of the benefits. A radical simplification is needed in which the tangled web of benefits and credits is simply exchanged for lower tax. In this proposal, the personal income tax allowance (the threshold at which you start paying tax) is dramatically raised from £4,385 to £10,000.

Such thinking never entered the Tory mainstream, though. It took the Lib Dems entering government finally to deliver this long-standing pledge.

* 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.