I really ought to go to bed, but I thought I’d leave you with this little snippet.
According to the Lib Dem Treasury team notes about the tax commission’s new proposals, a retired couple on a £15,000 income living in a Band G house will be £1,578 better off under their proposals (assuming average environmental taxes of £332 per household).
This however is highly misleading, on two counts. For starters, it assumes that the couple OWN their house (i.e. own an asset of between £160,000 and £320,000). If they don’t, have no other assets and are paying minimal rent (I assumed £70 p/w when using this calculator, which is approved by Help the Aged), they would be entitled to full council tax benefit. In which case, they would be around £450 worse off (again, assuming an increase in environmental taxes of £332 per household on average).
Poorer pensioners in smaller houses and on less income would still be worse off by around the same amount (benefits would render their council tax to zero and they save next to nothing with the income tax cuts). Meanwhile, a pensioner couple in a Band H house on an income of around £20,000 would be another £500 better off.
In short, poor pensioners do badly or gain next to nothing, while pensioners on middle incomes do well. And that is before you consider the fact that these wealthier pensioners will be sitting on hundreds of thousands of pounds worth of assets which under these proposals will be exempt from tax altogether.
Could someone explain to me how this is justifiable? And why aren’t poor pensioners included in the illustrative figures sent out to journalists?
For the record, here are the relevant statistics:
- Average Council Tax Band G: £2,023
- Average Council Tax Band H: £2,428
- Change in NI/IT contributions for £15k pensioner couple under Lib Dem proposals: -£82
- Cost of Local Income Tax for £15k pensioner couple: £33
- Change in NI/IT contributions for £20k pensioner couple under Lib Dem proposals: +£706.75
- Cost of Local Income Tax for £20k pensioner couple: £579
UPDATE: As I explain in the comments, I’ve just spotted a flaw in the “entitledto” website that means it occasionally comes up with some funny numbers, and clearly it was last night. However, it doesn’t undermine by basic argument: that these tax proposals favour the wealthy over and above the genuine poor. A Band D couple with £10,000 for instance gains nothing and is still assumed to pay the £332 in extra environmental taxes. I was only actually wrong to assume that a couple of £15,000 would be entitled to full CTB; everything else still holds.
Unfortunately, I can’t find party figures that are sufficiently detailed to show if they’ve taken into account savings in not paying council tax benefit (although I suspect they have).
The vast majority of pensioners living in houses banded E-H are high income owner-occupiers (it’s hardly rocket science to conclude that people who live in big expensive houses tend to be rich). Yes – the impact on poor people renting huge/expensive houses is bad – but it’s worth noting that a significant proportion of pensioners in this situation have savings of over £20,000. I think you are simply ignoring the fact that most poor pensioners live in band A-D properties.
http://www.esrc.ac.uk/ESRCInfoCentre/Images/High_Value_Property_Findings_Paper2-Orton_tcm6-9363.pdf
James – I’ve just tried the same calc (the first one) as you and come up with wildly different numbers. I show the pensioner couple being better off, even if you assume the most disadvantageous split of their £15k income (ie all earned by one and nothing by the other).
I think the main difference is in the council tax benefit – I don’t come out remotely close to them getting full council tax benefit. I get either £18 or £27 a week in benefit, not the £39 that your example assumes. Can you supply more of your assumptions?
Aside from the question of what council tax benefit they are entitled to (where we seem to differ), my recollection was that only about half of all eligible pensioners actually do claim it.
Further, the poorest pensioners would benefit from Lib Dem proposals for a citizen’s pension, removing means testing etc.
And finally, the poorest pensioners are unlikely to suffer £332 in environmental taxes, as they are unlikely to have many expensive holidays or drive gas guzzlers.
So I think – on balance – it looks like poor pensioners are likely to be *better off* under these plans.
Steve – I am hardly ignoring that fact. My point was that low income earners are EXEMPT from council tax and thus gain nothing from these proposals, while those paying significant amounts of income tax stand to save.
Dominic – I got similar figures to you until I remembered that if a couple didn’t own their house they would have to pay rent on it. Did you factor that in?
As for your other points: if people aren’t claiming CTB, then by all means promote the system and simplify it – what you’re saying is that the ones who do apply don’t deserve any more money while the ones who feel they can afford not to should benefit at their expense.
Regarding the citizen’s pension, last time I looked we were at Year Zero. These tax policies are revenue neutral. In other words, at the moment, we have no way of paying for a citizen’s pension. I’m not suggesting we won’t – the party is trying to find £18 billion to reallocate from existing spending – but the fact remains that these TAX proposals are bad news for the worse off, and it is these tax proposals we are discussing.
(and let’s not forget that the citizen’s pension is likely to raise wealthier pensioner income by even more)
Regarding environmental taxes, the £332 average is the Treasury Team’s assumption, not mine. You can’t have it both ways – assume this average for one group and then say it doesn’t apply to another. You will also have to factor in things like heating costs which are likely to be higher for pensioners. Either way, even if you were to assume that this pensioner couple would pay £0 more environmental taxes under these proposals, they would still be worse off.
Oh – and Will: the figures clearly show that the reduction in council tax is assumed to be a tax saving, but as I said it doesn’t actually look at less wealthy pensioners.
I’ve just run the numbers again. My assumptions are:
The income is split £7000 and £8000, so under the LD plans they would pay virtually no income tax (c£40 a year), and therefore also virtually no LIT – remember the treshold for both would be just over £7,000. Their combined weekly income would therefore be £288.
Assuming £2,023 of council tax and £70 per week of rent (your numbers), savings under £6k and all other categories at the default, the website tells me their c tax benefit would be £20.82 per week, or £1,083 per annum.
That means they would still suffer £940 council tax per annum at present.
Given that they would pay virtually zero LIT, they’d be £940 better off compared to c tax. They’d also save approx £500 in income tax between them through the abolition of the 10p rate.
So they’d be approve £1400 better off, less any green taxes they suffered. Even if they paid the average across all households of £331 (unlikely to be as much, as noted in my earlier post) they’d still be over £1000 better off under the new LD proposals, compared to where they are today.
sorry for the typos in that: “approx” rather than “approve”; “threshold” etc 😳
James – you said:
“If people aren’t claiming CTB, then by all means promote the system and simplify it – what you’re saying is that the ones who do apply don’t deserve any more money while the ones who feel they can afford not to should benefit at their expense.”
I don’t think this is an accurate description of the problem. Lots of people don’t claim various benefits and tax credits not because they don’t need the money but because they don’t know how to, they’re put off by the forms, the administration lets them down etc.
In fact, it’s often the people who are most in need who don’t claim (as they’re often also people who find the most difficulty with dealing with bureaucracy and forms).
Don’t fret too much about this. It is a Lib Dem initiative so it’s never meant to be implemented.
Dominic – I’ve spotted the problem. There’s something up with the coding on that website that is causing some funny numbers to come up. It’s just had me getting a council tax benefit of £19,028!
So I’ll have to give you that one. It is without question however that these new tax proposals still favour the relatively wealthy over and above the relatively poor. A Band G household makes a killing; a Band D household barely gets a thing.
Mark – I’m well aware of the complexity of the system – why else do you think I posted approvingly today about a proposal for a negative income tax? Yet every time such simplifications are proposed within the party, a significant number of senior party spokes have conniption fits. We could simplify the system enormously if we had the will to do it.
But you can’t make the logical somersault from X old people don’t claim the benefits they are entitled to, to all old people don’t claim the benefits they are entitled to, nor should you base your tax proposals on that assumption. Frankly, I’m unconvinced that when these figures are calculated, it doesn’t cross anyone’s mind that it is a neat way of presenting tax breaks for middle-income earners as a social justice issue, despite the fact that the real poor are being left out in the cold.
Glad it wasn’t me going potty! Could you possibly correct the numbers in the main post lest the unwary get the wrong impression?
I think you’re right in as much as LIT v LVT is an income v wealth debate. And that’s a further debate for us to have post Lyons, as you know.
But just looking at this package in isolation I don’t think you can say that it favours the relatively wealthy over the relatively poor. You need also to factor in the CGT changes and the green taxes, just for starters, to see that there’s been a shift in the direction of taxing wealth, compared to our 2005 manifesto or indeed to the current UK tax regime (c) G Brown.
Indeed that seems to be exactly what Evan is complaining about … and I think we are in agreement that he is on the wrong side of that argument.
I’ve crossed through the erroneous sections in the original post, but left them there for posterity.
The bottom line for me is, I don’t think we should be having this debate post-Lyons, and I doubt the sincerity of the sections in the paper that seek to postpone the debate to that point. There is every reason for us to at least sketch out the balance between local and centralised revenue raising.
My understanding of the internal politicking that was going on prior to this paper being released is that a number of senior politicians, having lost the argument, simply had a series of tantrums long and loud enough so that Vince and Ming opted to take the path of least resistance. That sort of capitulation leads to poor policy, and assuming the situation will be completely different after the Lyons Report is simply wishful thinking.
I think the big logical gymnastics are from you James in going from “they don’t claim X benefit” to “they therefore don’t need the money” 🙂 But I do agree that simplification is important – complicated systems give an extra edge to those who can work them best, which generally is the better off / more literate / more numerate. Lots of exceptions to that generalisation of course, but it still has a large degree of truth.
Hmm, re local taxes, I don’t concur with your assumptions, James.
I think if it had been left to the Tax Commission majority, we’d have had LIT as a given and no LVT at all. The late compromise in favour of a further review was definitely a sop to the land value taxers, not to the MPs.