Liberal Democrat tax plans set middle bar high

The Liberal Democrats are targeting disenchanted Labour voters with their radical plans to redistribute £17bn from the rich to the less well-off. Nick Clegg is a wannabe Robin Hood. Under a Liberal Democrat government the personal allowance threshold for income tax would rise to £10,000. This would put £705 back into the pockets of millions of low and middle income earners, and 3.6 million people would pay no tax at all. But many voters may be shocked at what Clegg considers a middle income. According to figures calculated by Grant Thornton, those earning up to £112,950 would also benefit from the extra £705. In fact, due to the tapered withdrawal of the allowance (at the rate of £1 for every £2 earned over £100,000), only people earning £120,000 or more would not benefit at all. Not much of a redistribution. Clegg has not apologised for this, although many of the savings he proposes, to pay for the tax cut, including withdrawal of child trust funds and some tax credits, would adversely effect those on lower and middle incomes. A more sensible savings proposal is restriction of tax relief on all pension contributions to the basic rate of 20%, saving £5.5bn. Higher rate taxpayers now get tax relief at 40%. Although this move would be unpopular with the pensions industry, at least it would stop a very small proportion of pension savers – about 1.5% – from benefitting from a hugely disproportionate 25% of the UK pensions tax rebate. The Lib Dems may also think they've got an easy target with the mansion tax, an annual 1% charge on the value of properties worth more than £2m. This will hit fewer homes than the original proposal mooted at last year's conference when Vince Cable said the mansion tax would be a 0.5% charge on all properties worth more than £1m. But the idea's the same: get rich people who live in costly homes to pay more. Is it fair? Presumably, owners of expensive homes paid for their property out of taxed income. And there's the practicality of it, assessing the houses. How would a Lib Dem government value the properties? The mansion tax could cost more to calculate than it collected.