Political Parties Are Cutting Taxes, But Who For?

This morning the Resolution Foundation released a report detailing something we’ve been talking about for some time now – the main political parties’ tax cuts all help the richest more than the poorest. Forty six per cent of total benefit for the Conservatives’ £7bn tax cut plans would go to the top twenty percent, 43% for UKIP’s £13bn, 34% for Labour £900m and 31% for the Liberal Democrats £5bn. The Liberal Democrats’ plan can be praised as the least regressive. Meanwhile Labour’s plan can be praised for being the smallest. However being the least bad of a bad lot is not something either party can be particularly proud of.  Even before discussing how these tax cuts will be paid for it’s clear that these are regressive measures that will increase inequality. 

At the moment none of the main parties are talking about tackling the taxes that hit the poorest hardest. All three parties’ tax cut plans all focus on income tax. However, as we’ve shown in our previous research, this is not the largest tax for those on low incomes. A household supported by the equivalent of a full time minimum wage will pay more in VAT and Council Tax than they will in income tax. The need to fix council tax isn’t a fringe concern either. At the Resolution Foundation’s launch event this morning commentators from all parts of the political spectrum agreed that council tax needed reform and has done for some time. But instead of cutting council tax for the poorest, all political parties have focused on fiddling with income tax which is one of the most clearly progressive parts of the tax system.

In our policy document calling for a fairer stronger economy we asked all political parties to make sure that any changes to the tax system would be progressive, benefitting low and middle income earners most. This evidence would suggest that based on tax cuts alone all the main political parties have failed this test, and then some. However there is another side to the tax equation. Most of the main political parties have not yet laid out where they will raise taxes after the election. The tough talk from all parties on cutting the deficit indicates that they will have to increase taxes; the only remaining question is who they will target. As parties consider their plans they would do well to look further up the income spectrum and at research suggesting that taxing those at the top may not be as harmful as they assumed.

Tim Stacey, Senior Policy and Research Adviser