Six pledges the parties haven’t thought through

The apolitical Institute for Fiscal Studies has found that it is far from just the three main parties’ plans on tax avoidance that don’t add up.

In fact, although there are “large differences” between the Conservatives, Labour and Liberal Democrats, each party has “little sense of direction” when it comes to their tax and benefits plans.

The institute adds that all three show a “lack of willingness to be clear” about the details of such plans.

These parties also share an “inability to resist the urge for piecemeal changes which would make the overall system less efficient and coherent.”

Proposals from the parties which the IFS regards as lacking coherence, simplicity or, it seems, even sense are as follows:

  • The Conservatives and Lib Dems propose to increase the personal allowance to £12,500 by the end of the parliament, at a cost of about £4bn per year in today’s prices. But 44% of adults already have incomes too low to pay income tax following boosts to the personal allowance that the coalition has made.  Further increases to the personal allowance will be of most value to those on middle and upper-middle incomes; not those on lower incomes.
  • Labour’s proposal to abolish the transferable personal allowance for married couples and use the proceeds to reintroduce a 10% starting rate of income tax would replace one small complication in the system with another. The IFS also says it is hard to think of any economic justification for a 10% starting rate over a small range of income, saying “virtually identical effects could be achieved by simply raising the personal allowance.” If, as Labour says, the new band is to be funded only by the abolition of the transferable allowance, then the IFS calculates that it would be worth only 50p a week to most taxpayers.
  • Both Labour and the Conservatives want dramatically to reduce the value of pension tax relief for additional rate taxpayers, on top of significant reductions in the value of pension tax relief introduced by the coalition. These are less visible ways of raising income tax than more straightforward alternatives, as an IFA has pointed. However IFS says such cuts harm the coherence of the system of pensions’ taxation; they would complicate it, discourage £150K+ earners to earn more, and hurt people as soon as they earn over £130K. The cuts would also hurt the system’s stability.
  • The Conservatives want to increase the IHT threshold in respect of primary residences at an estimated cost of £1bn a year. But in the IFS’s eyes, it is “hard to see a good economic or social rationale for such a policy.” It points out that owner-occupied housing is already tax-privileged and the Tories’ IHT plan would “help lock older people into bigger and more expensive homes when both they, and those looking to buy, might be better off if they were to 'downsize.'”
  • Labour proposals to offer a stamp duty holiday for first-time buyers is “likely, at least in part, to increase house prices, thereby shifting some of the benefit to current property owners,” says the institute.
  • Having examined parties’ plans for social benefits, the IFS’s Robert Joyce reflected: “The Conservatives have continued to fail to explain how they would achieve the substantial cuts to social security they say they would deliver in the first half of the coming parliament. These will be neither easy nor painless to deliver. Meanwhile, Labour claims to be taking tough decisions by removing winter fuel payments from a small fraction of pensioners and limiting child benefit increases to 1%. The former will save almost nothing – about one pound in a thousand spent on pensioner benefits.”
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