Coalition tinkering on tax and pensions is too little too late

Philip Booth writes for City AM

The foreword to the coalition’s mid-term review could have been written in the early 1970s. Perhaps this is not surprising. Policymaking tends to lack a sharp edge in coalition. Compromises must be made, and this can lead to bad decisions. Changes to student fees are a prime example. Most students will pay a lot more for their education, but the government will save very little money because of the complex system of subsidies that has been introduced to buy-off the Liberal Democrats.

But it’s not clear whether the Conservatives would have done better alone. Changes to child benefits, introduced yesterday, were their decision and they’re a shambles. There is a clear case for abolishing child benefit and using the £12.5bn in savings to create a system of transferable tax allowances to lift families out of tax. Instead, the government has bottled it and played around at the edges. Its reforms create huge effective marginal tax rates for families with one earner on over £50,000 a year, as well as discriminating against single-earner couples.

To complicate matters further, the government has now proposed tax relief of up to £2,000 a year to assist working mothers with the costs of childcare. In other words, yet more tinkering, with stay-at-home mothers implicitly discriminated against. A better solution would have been to deregulate the sector to drive down the costs of childcare – now some of the highest in Europe.

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