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Sustainable Economy > Published by Will Straw, March 23rd 2011 at 9:13 am

Osborne’s tax cut is not as big or fair as you think

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Today’s newspapers have been well briefed on the Budget and seem certain that George Osborne will raise the tax threshold by a further £600. The policy sounds good but, in reality, has several problems.

1. It’s not as big as you think

The Daily Mail claims today that:

“Twenty-five million workers will be promised tax cuts of up to £320 a year in today’s Budget…

“That means two million paying 40 per cent income tax will be £45 a year better off. Those on the basic 20 per cent rate will gain the £320 benefit.”

The Telegraph have also bought the Tory spin claiming “in cash terms the savings is £320“. The Sun who clearly missed Nick Clegg’s January op ed on their own pages trailing the policy write:

“in a surprise move, he will hand a £205 income tax cut to the 23million Brits who do not pay the higher rate. Once other financial calculations are taken into account, it will actually be worth £320.”

But as Channel 4 News’ Faisal Islam has pointed out on Twitter, “Not £320. Its £120. Basic maths. 20 per cent of £600 equals…..”

The £320 figure presumably comes from combining the new £600 tax threshold rise worth £120 with the £200 that was announced in the June Budget. In other words, double counting.

2. It’s not as fair as you think

As Left Foot Forward has repeatedly pointed out, raising the tax threshold – a key plank of the Liberal Democrats’ manifesto – is a badly targeted, regressive approach to tax reform. As the Observer reported at the weekend:

James Browne, senior research economist at the Institute for Fiscal Studies, said the measure was an inefficient way of helping the poorest households. “You’re giving a fixed cash amount to all basic rate taxpayers, so relatively little money is going to the people who you’re taking out of tax altogether,” he said, pointing out that more than 90% of the beneficiaries would be likely to earn more than £10,000 a year. “If you really wanted to target low-earners, perhaps you would be better off to increase the working tax credit.”

Indeed, while top-rate tax payers did not benefit from the earlier tax threshold rise, on this occasion “everyone on less than £115,000 will benefit“. Hardly a good use of scarce public resources

3. You’ll probably end up paying for it

The Daily Mail’s piece goes on to ask “Where will he find the cash?” Given that Osborne is unwilling to consider a slower ‘Plan B‘ to reduce the deficit it’s a good question. The initial raising of the tax threshold by £1,000 cost £3.9 billion so a further rise of £600 is likely to cost £2.34 billion and probably more given the decision to allow people earning between £37,400 and £115,000 to benefit from the move. The Financial Times reports that, “Mr Osborne will help to fund the measures through a £1bn crackdown on tax avoidance and a previously announced extra £800m tax on banks.” But that still leaves a £600 million shortfall and that’s before the expected cuts to fuel duty have been paid for.

In June, the Chancellor raised VAT to 20% to pay for his income tax cuts and corporation tax cuts. Families were hit by an average £170 bill for the VAT rise. As Gavin Kelly of the Resolution Foundation told the Observer:

“For many working families, any gains from allowances are likely to be greatly outweighed by cuts to tax credits and the rise in VAT.”

Don’t be fooled when George Osborne claims he’s cutting your taxes today.

  • http://twitter.com/martinmcivor/status/50485481774915584 Martin McIvor

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/unslugged/status/50485764257103872 Roger O Thornhill

    This > RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/johnty85/status/50486176427163648 John Cartmell

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/bevaniteellie/status/50486243468910592 Ellie Gellard

    RT @leftfootfwd Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/iain_31/status/50486472784084993 Iain

    RT @BevaniteEllie: RT @leftfootfwd Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/rooftopjaxx/status/50486807267258368 Rooftop Jaxx

    RT @unslugged: This > RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/abbaspremji/status/50486883725225984 Abbas Premji

    RT @BevaniteEllie: RT @leftfootfwd Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/andyirv/status/50487153133748224 Andy Irving

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/arcpdur/status/50487659751161857 Peter Durant

    RT @BevaniteEllie: RT @leftfootfwd Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/adamramsay/status/50487918518734848 AdamRamsay

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw >>crucial point.

  • http://twitter.com/aktaraja/status/50488316272971776 aktaraja

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/dis_ppl_protest/status/50488637569253376 DisabledPeople

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/andyjreed/status/50488764191096832 Andy Reed

    RT @BevaniteEllie: RT @leftfootfwd Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/slasheduk/status/50489383429746688 SlashedUK

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/melawson/status/50490838882598912 Megan Lawson

    RT @BevaniteEllie: RT @leftfootfwd Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/janedaisypain/status/50492369824518144 Jane Phillips

    “@leftfootfwd: Osborne's tax cut is not as big or fair as you think http://t.co/VJWlHc2 reports @wdjstraw”

  • http://twitter.com/politicalhackuk/status/50493561480822786 John O’Shea

    RT @unslugged: This > RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/falseecon/status/50494856891604992 False Economy

    RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/thewarmjets/status/50494966249689088 Alex

    RT @FalseEcon: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/nextleft/status/50495077402939393 Sunder Katwala

    RT @unslugged: This > RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/pollyfw/status/50495390633574400 Polly Worthington

    RT @FalseEcon: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/sallycatriona/status/50495456656101376 Sally Catriona

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/aufstehenuk/status/50495614127054848 Chris Ingram

    RT @FalseEcon: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/chris_goulden/status/50495927781302273 Chris Goulden

    RT @unslugged: This > RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/szeitblom/status/50496027849015296 Serenus Zeitblom

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw <<-exposing Gideon's spin

  • http://twitter.com/petergcampbell/status/50496033049948161 Peter Campbell

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/gZK8yn

  • http://twitter.com/jasonoutsider/status/50496588472266753 Jason Bowles

    RT @BevaniteEllie: RT @leftfootfwd Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/othertpa/status/50498712602021888 Other TaxPayers Alli

    RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/dontplaymepayme/status/50499062314708992 dontplaymepayme

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/stridalina/status/50499169579839489 astrid thorpe

    RT @FalseEcon: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/manatrue/status/50499390653210624 bee hive

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/frdragonspouse/status/50499646581256192 Jill Hayward

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/adamramsay/status/50500324439502849 AdamRamsay

    RT @leftfootfwd: "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • andy

    RT @FalseEcon: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/nishmadoshi/status/50501590368530432 Nishma Doshi

    RT @AdamRamsay: RT @leftfootfwd: "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/ch33sl3y/status/50501890210930688 cheesley

    RT @AdamRamsay: RT @leftfootfwd: "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/chuzzlit/status/50502071706857472 Alison Charlton

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/linz156/status/50503975421743104 Lindsey J

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/woodo79/status/50504928212418560 Stuart Wood

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/textuallimits/status/50507332299395072 textuallimits

    Analysis of Osborne's tax cuts from @leftfootfwd : http://bit.ly/gGfau2 #breadandcircuses

  • http://twitter.com/pareayh/status/50511550443819009 paurina

    Osborne's tax cut is not as big or fair as you might have though | Left Foot Forward: http://bit.ly/ihni6I

  • http://twitter.com/wondrousdavid/status/50512317355532288 David Bain

    RT @AdamRamsay: RT @leftfootfwd: "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/elizcro/status/50512636521103360 Elizabeth A

    RT @FalseEcon: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/andy_coates/status/50512909759021056 Andy Coates

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/nickbloke/status/50519930692579329 Nick H.

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/oldmankelv/status/50520661965287424 Kelvin John Edge

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • Ash

    One point you don’t make that I find very interesting is this: up till now, the ‘spin’ on tax threshold rises has been Lib Dem-flavoured (“were taking low-paid people out of tax”). Now it’s turned Tory-flavoured (“we’re cutting taxes for millions of hard-working families”). This makes it that much harder for the Lib Dems to sell the policy as some sort of victory for the “progressive” party in the Coalition, rather an old-fashioned Tory cut in direct taxes, benefitting mainly mid-to-high earners and funded by a rise in VAT.

  • http://twitter.com/oldmankelv/status/50522444540297216 Kelvin John Edge

    RT @FalseEcon: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/phoebewonderlan/status/50523675782422528 Robaire Beckwith

    RT @Dis_PPL_Protest: RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/frankspring/status/50525874050711552 Frank Spring

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/oldmankelv/status/50527034522349568 Kelvin John Edge

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/emilymarydavis/status/50543311580184576 Emily Davis

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/g3oGG9 reports @wdjstraw

  • http://twitter.com/smsyellowpages/status/50547623458914304 MS

    Osborne's tax cut is not as big or fair as you think | Left Foot …: Today's newspapers seem certain… http://bit.ly/gGEtFz – Freedom!

  • http://twitter.com/wdjstraw/status/50547844930744320 Will Straw

    Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://twitter.com/marcusaroberts/status/50547889616859136 Marcus A. Roberts

    RT @wdjstraw: Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://twitter.com/bernardandpaul/status/50547968977285122 Bernard and Paul

    RT @wdjstraw: Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://twitter.com/martinmcivor/status/50547976866762752 Martin McIvor

    RT @wdjstraw: Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://twitter.com/lucahelvetica/status/50547993518157824 LucaHelvetica

    RT @wdjstraw: Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://twitter.com/jasoncharlton/status/50548159373524992 JASON CHARLTON

    RT @wdjstraw: Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://twitter.com/jenniviitanen/status/50548251451064320 Jenni Viitanen

    RT @wdjstraw: Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://twitter.com/averyps/status/50548310288760832 Phil BC

    RT @wdjstraw Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://twitter.com/superfurryandy/status/50560329339510784 Andy Bean

    RT @wdjstraw: Osborne's tax cut is not as big or as fair as you think: http://bit.ly/g3oGG9 #Budget

  • http://thoughcowardsflinch.com/2011/03/23/a-reaction-to-the-osbornes-growth-budget/ A reaction to the Osborne’s growth budget « Though Cowards Flinch

    [...] the rise in the tax threshold by £1000 (£7,465, worth £200 to basic rate taxpayers). However, again according to Will Straw, the real figure will actually be more like £120, and in any case “the entire tax cut will [...]

  • Mick

    I have never seen Nick Clegg look as miserable as he did today during the budget speech. This was a Tory budget, no hint of coalition compromises. And we are certainly not ‘all in this together’.

  • http://twitter.com/staffsunison/status/50672609100173312 Staffordshire UNISON

    RT @FalseEcon: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2

  • http://twitter.com/hlcheathrow/status/50714659682131968 Jon Purdom/Paco Saez

    RT @OtherTPA: RT @leftfootfwd "Don’t be fooled when Osborne claims he’s cutting your taxes today" http://bit.ly/gGfau2 #falseeconomy

  • http://twitter.com/myinfamy/status/50744548237914113 Daniel Pitt

    Tory tax cuts not as big or fair as you think http://bit.ly/g3oGG9 #ConDemNation #Budget2011

  • http://twitter.com/sebdance/status/50879218682310656 Seb Dance

    RT @leftfootfwd: Osborne's tax cut is not as big or fair as you think http://bit.ly/gZK8yn