Azara Blog: David Cameron wants to throw tax money at the rich non-workers

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Date published: 2009/01/05

The BBC says:

Conservative leader David Cameron has announced plans to help savers, whom he has described as the "innocent victims" of the economic downturn.

He plans to scrap taxes paid by basic rate taxpayers' on savings interest and raise the level of non-taxable income for pensioners by £2,000 a year.

The Tories have said the tax cuts will be fully funded, paid for by lower public spending.

Labour say the Tories are making promises without having the funding.

The Lib Dems said the plan was a "fake giveaway."

Savers have suffered as interest rates have fallen to a 57-year low of 2%, with a further cut anticipated on Thursday.

In response, the Tories are proposing to help savers by ending the 20% tax paid by basic rate taxpayers on savings' interest.

According to the Tories, anyone with savings who has earnings or pension income of less than £43,875 will be better off.

They say those most dependent on income from savings, such as the retired and those not working, will benefit most and that someone with annual pension income of £12,000 would save £200 a year.
...
Mr Cameron said the tax cuts - estimated to cost about £4.1bn - would be paid for by restricting public spending increases across most of government in 2009-2010 to 1% in real terms.

Dear, oh dear. Poor Mr Cameron is desperately flailing about trying to pretend that he has something to say about the economy. Too bad that most things he says about the economy do not make much sense. And this plan is a case in point.

The higher rate of tax threshold (for the 2008-9 tax year) is at 34800 pounds. If you add in the personal allowances you get to the 43875 pounds mentioned in the article. Consider three people. Person A works for a living and earns 43875 pounds. Person B does not work for a living but earns 43875 pounds in interest (not that easy to do in this day and age, of course). Person C does not work for a living but earns 43876 pounds in interest. According to Mr Cameron, Persons A and C do not deserve any tax cut (since A is a worker and C is too rich) but Person B deserves a tax cut of 20% * 34800 = 6960 pounds, because somehow Person B is virtuous. This is nonsense. Well, it's possible the Tories will allow Person C to also have a 6960 pound tax cut, and only tax the extra 1 pound at 40%. It is just not clear from their announcement.

Who will benefit from this plan? Well, pensioners who are rich enough to earn quite a bit of interest, but not too much. But not poor pensioners. Others who will benefit will be Mrs Cameron, who doesn't work for a living but no doubt has some pretty nice interest income courtesy of her husband's whacking great income. And Mr and Mrs Cameron's children will also benefit from this plan because no doubt they have pretty nice bank accounts courtesy of their rich parents and grandparents. Why should the ordinary taxpayers of Britain fork over so much money for the benefit of rich toffs and rich pensioners? This proposal is just far too crude to make sense.

If the real aim is to help pensioners, then the Tories should propose an increase in the State Pension. Unfortunately they have not done this. Even worse, the Tories have refused to say what services they will cut to pay for this tax cut. So this is a political announcement, not a (sane) economic one. They want to get votes from the rich non-workers of the world and not annoy anyone else, although ultimately it is the latter who are going to end up paying for this proposal.

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