Friday, 20 August 2010

Progressive Smrogressive

Joe earns £200,000 per annum, while Derek earns £15,000.  If you think that everyone should "share the pain" in the current government's programme of cuts, you might think that knocking 10% from both Joe and Derek's salary would be the most equitable thing to do.  If you do, you are wrong.  And possibly a member of the conservative party.

To suggest that leaving Derek with £13,500 would not have a more deleterious effect on his life than leaving Joe with £180,000 is, quite frankly, ludicrous.  Over a certain amount of income, you need incrementally much larger sums of money to make substantive improvements in quality of life, life chances, health, well-being, and so on. In other words, taking £1,500 from Derek has a far greater negative impact on his life than taking £20,000 from Joe.  One means not being able to run a car this year, the other means not being able to buy the new Ferrari this year.

The government's current approach to making the tax system more equitable really tells the tale of a government with a split personality.  On the one hand, the Lib Dem backed tax plans will raise the amount at which people begin paying tax to £10,000 over the next 3 years. Obviously this will massively benefit low-wage workers, but it will also help everyone else who earns over this amount.  This is a relatively progressive tax.  On the other hand, there is the new Labour-proposed and Tory-backed 50% tax rate targeting the "middle classes".  Except that this will only apply to individuals earning over £150,000 per year.  If you think this is going to affect the middle classes you are either a) mad, b) a conservative party member, or c) both.  This £150,000 threshold will only affect the top 1% of earners - since when did this mean "middle class"?

Given the tax avoidance strategies routinely employed by the very wealthy ,which some estimates put at upwards of £40 billion every year (and yes, if you earn over £150,000 a year you ARE very wealthy), it remains to  be seen how much money this will even bring to the Treasury.  Realistically, this threshold needs to be considerably lower if it can be considered anything approaching this "progressive" word that Dave and Nick (or "Dick Clameron" if you prefer) have been bandying about. What are the chances? Progressively low, I'd say.