The Lib Dem proposal to increase all rates of income tax by 1 percentage point may be broad-based – it would affect the approximately 30 million adults who pay tax – but it is a relatively modest rise per person and would raise an extra £6bn.
Nevertheless it would impact on the incomes of people further down the income distribution ladder than Labour’s proposal, which would only affect people on at least £80,000 a year. Revenue from this proposal, the IFS says, is “vastly more uncertain” and suggests it would raise “something like £4.5bn”.
A comparison of the impact on the UK population of the two manifesto pledges, drawn up by the IFS, shows that neither proposal would affect the 24 million lowest-income adults, since their annual incomes are below the personal allowance.
The next 28 million (with incomes up to £80,000) would only be impacted by the Lib Dem proposal, while the next 500,000 (up to £97,125) would be affected by both but would pay more under a Lib Dem government.
Finally, the incomes of the top 800,000 would be impacted by both Lib Dem and Labour but would lose more under the Labour proposal.
The IFS points out that some of the lower-income families who would pay more income tax under a Lib Dem government would actually “gain substantially” from the party’s proposed benefit increases.
These would see a reversal of most of the major cuts to working-age benefits that are planned for implementation over the coming years. Commitments include reversing cuts to child tax credit and dropping the idea of limiting support to two children, ending the freeze on most working-age benefits and reversing work allowance cuts in universal credit.
These changes would cost the taxpayer some £11bn.
The IFS says that Labour’s proposals for benefits – including restoring levels of Universal Credit – are “modest” by comparison, with a bill of around £5bn.
It adds that income tax and benefits are just part of a far bigger picture. “Both parties propose other tax rises (such as higher rates of corporation tax) which would also ultimately affect the incomes of UK households. And both parties propose increases in public spending, particularly on education and the NHS.”