I campaigned at the last general election for a fairer, more balanced tax system. I’ve long thought it unfair and economically perverse to give bigger tax breaks to speculators than employees. It sounded like a bit of spin but it was really the case that a City trader could pay a lower effective rate of tax than the person who cleaned his office. That was the tax system left to the Coalition Government by Gordon Brown.
The last Labour government didn’t just drift into an unfair tax system. Nor was it a result of the financial crash during their last two years in office. It was by design. Blair and Brown promised to hold down taxes for the rich. They kept the top rate of income tax at 40%, the rate set by Nigel Lawson in 1988. But they slashed capital gains tax from 40% to 18%. I often taunt Labour MPs with Mandelson’s assertion that New Labour was “intensely relaxed about people getting filthy rich” and usually stop there. To be fair, he went on to say “as long as they pay their taxes.” Taxes, that is, which were held down by his government and a tax system that was somewhat leaky. For thirteen years Labour refused to introduce a general anti-avoidance rule.
So what have the Liberal Democrats done in government? Well we made sure that our number one manifesto commitment, a £10,000 annual income tax allowance, was the fiscal priority in the Coalition Agreement. Each Budget has seen us get ever closer to the goal of giving everyone £10,000 of tax free pay. The next tax year starts in April, when the allowance will be £9,440 which means that someone will pay £600 less tax than when the Coalition came to office. A dual income household will receive a £1,200 tax cut, thanks to the Liberal Democrats.
I’m hopeful that we will hit the £10,000 allowance in April 2014. As chair of the Lib Dems’ Parliamentary Economic Affairs Committee, it’s top of the list of my Budget submissions to the Treasury.
But that’s not all. As well as giving a big tax break to low and middle earners we’ve made sure that the rich make their fair contribution to reducing the budget deficit. For the first three years of the Coalition we will have kept the 50% top rate of income tax, put in place by Alistair Darling a month before the 2010 general election. From April we will have put in place more effective taxes on the wealthy, bringing in more money. The tax rate will be 45%,broadly in line with most other major economies.
As well as a top rate higher than the one set by Labour for all bar 36 days of their time in office, we will have slashed the tax relief high earners get for contributions to their own pension funds. Under Labour a rich banker could put £250,000 into their fund and get tax relief. The new limit will be just £40,000. We’ve also introduced a new higher rate of stamp duty of 7% on house purchase over £2million. And we’ve slapped a big surcharge on houses held in trusts and companies, a form of tax avoidance that grew unchecked under Labour.
To tackle tax avoidance by both companies and rich individuals we’re putting in place a general anti-abuse rule. I’ve been raising the issue of international corporate tax avoidance for the last couple of years, calling for action by the EU and the OECD. The Coalition is now making combatting tax avoidance a major aim during our presidency this year of the G8. Corporate tax avoidance also harms developing countries. I’ve been working with Action Aid and Christian Aid to highlight these issues in Parliament.
Oh, and finally, we’ve increased capital gains tax to 28% so a city trader no longer pays less tax than the cleaner.
At just over half way through the Coalition these are significant achievements. Liberal Democrats in government have done much to achieve that fairer more balanced tax system that we all campaigned for in 2010. We’ve put more money in the pockets of ordinary families and taken more off the wealthiest. A record to be proud of and something we should shout about from the rooftops.