Of course, there is nothing wrong with a belief in increasing taxes to spend more on public services, or whatever. Just as there is nothing wrong with believing the economy is best stimulated with tax cuts. These are two opposing ideologies, and either could be right. But while all governments are guilty of the kind of ploy that claims to rise taxes for other reasons - take for example the idea that increased taxation on cigarettes and alcohol is done for public health reasons, or that increased duty on airline travel is to benefit the environment. New Labour seems to have developed a special affinity with the tax con. What is interesting is just how devious the government has become over the last decade, producing tax rises again and again while at the same time claiming with a straight face they were doing no such thing. Here then is a list of the five most juicy tax cons committed by the current administration in order of increasing subtly and subterfuge.
5. Below inflation increase in the Inheritance Tax threshold
There are a few tricks up the sleeves when it comes to using inflation as a measure by how much things could or should be rising. Labour used this to their advantage in a legitimate but sneaky tax rise in which the government lowered the threshold for the beginning of inheritance tax in real terms while claiming to raise it simply by making the raise less than the rate of inflation. Of course, in the strictest sense it has been raised, but any raise less than the rate of inflation is a cut by any other name. (Sneakometer rating = hmmm suspicious)
4. Implying that Tax Rebates are the same as cutting taxes
Gordon Brown is particularly keen on his tax credit system. The less well off can get money back for all kinds of things from the government: rebates for children, cash back on council bills, etc. The problem is that many people do not claim these rebates, either because they do not understand they are eligible, do not care to fill out all the paper work, or simply feel embarrassed by having to get them. Why not just cut the rate of tax for low earners you might ask, well quite. The sneaky cynical voice in the head says because offering showy rebates makes for good headlines, akin to cutting taxes, and if few people claim them (or if you make the process incredibly difficult) it is as if the tax was never cut. A director of the child poverty action group said that as many as two million households are eligible for help with their council tax but do not claim it. So why not just cut the tax if helping people is truly the aim? (Sneakometer rating = ferret like cunning)
3. Raising National Insurance Rather than Income Tax
A long standing Labour election pledge has been not to raise income tax. The idea being that since labour governments were seen as tax and spend, wanting to “tax… until the pips squeak” historically, it made sense to pledge not to raise the one tax that hits all families directly in the pocket, income tax. Correction, that should be, one of the taxes that hits all families directly in the pocket, because there is another, National Insurance contribution, which is a percentage of salary paid between certain thresholds. So when Gordon Brown increased this tax to fund the NHS spending splurge around the turn of the century, he was in effect raising a tax on everyone’s income, only he wasn’t raising income tax (think about it). On top of this the new chancellor, Alistair Darling, has raised the ceiling on NI contributions way above the level of inflation, once source claiming this would cost someone earning £40,000 an extra £520 a year. (Sneakometer rating=Why you little…)
2. Lowering VAT to help people spend their way out of a recession
Fresh from today, this makes the sneaky list because while the aim of cutting taxes pre-recession, alongside an increase in government spending, is a very Keynesian approach to keep the economy from stalling, VAT is a strange sort of tax to cut given that it only puts money back in people’s pockets if they spend, and not on things like food and other essentials. It’s like putting a plastic toy inside some breakfast cereal and claiming “free toy” on the box, only free of course if you buy the cereal. As my father used to tell me as a child, there’s no such thing as a free anything, you have to pay for it. So suddenly this 2.5% reduction in VAT doesn’t seem like such a good measure to make people better off, since they have to spend more money and perhaps go more into debt to see any benefit. You can imagine tomorrow’s headlines now: Government gives every member of the country £250 tax rebate... (if they spend £10,000 of their own money first). And of course all of this has to be paid back in a few years time anyway. (Sneakometer rating=read the small print)
1. The 10p Tax Debacle
For his last budget as chancellor, Gordon Brown had something special up his sleeve, a special kind of tax con. In true blockbuster movie ending fashion, he saved a grand announcement of a whopping two pence reduction in the basic rate of income tax right up to the last minute. The ruse worked, leaving the opposition struggling to say anything meaningful at all. Finally, it seemed, Gordon had produced a real tax cut. Or had he? It turned out that what he had sneaked in alongside this reduction in the basic rate was the abolishment of the 10p lower rate of income tax, what he called a “simplification of the tax system”. After the spectacle was over, and people got out their calculators, it became apparent that the net effect of the new tax system was neutral rather than any kind of tax cut, and worse, far worse, people on low incomes would actually lose out under the new scheme. Queue a near rebellion in the Labour party and an embarrassing row-back using a rebate to attempt to regain some shred of credibility. Lest we forget. (sneakometer rating = Cunning as a snake).
