Personal allowances are no panacea

Moves to make the welfare system more responsive mean that what the lowest earners gain from the tax cut will be offset by concomitant losses in benefits.

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It makes no little political sense for the Conservatives to consider including a pledge to raise the personal tax allowance in their 2015 manifesto. David Cameron et al are routinely charged with being a government of the rich for the rich. A higher income threshold not only puts money in many pockets, enabling them to cock a snook at their critics; it also cleaves to traditional Tory fondness for tax-cutting.

Despite Mr Cameron dismissing the Liberal Democrats’ pre-election promise to hike the PTA as unaffordable, the policy has since proved one of the Coalition’s signal successes. So much so that both Chancellor and Prime Minister are keen to claim it for the Tories. Such are the dangers of coalition. By the time voters head for the ballot box, there is a real danger that the larger party will have succeeded in taking credit for a policy it actively resisted. Meanwhile, by copying the commitment to raise the threshold further – to £12,500 – it both spikes Liberal Democrat guns and sets a bar which Labour cannot clear.

And what of the policy itself? Here, there is a confusion of purposes. All too often, a £12,500 threshold is presented as a boost for the least well-off. Except that the majority of those on the minimum wage work part-time and are already below the cut-off point. Furthermore, moves to make the welfare system more responsive mean that what the lowest earners gain from the tax cut will be offset by concomitant losses in benefits.

That is not to say that there is no value in the policy. Quite the reverse. It will benefit a vast swathe of Britain’s earners (even if some are wealthy enough not to need it), and is a more desirable and more effective way to ease the pain of rising living costs than, say, bellyaching at energy suppliers. It is time for some honesty, though. To help Britain’s poorest requires a (costly) crimp on national insurance, not income tax.

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