The vicious circle that undoes Clegg’s brilliant policy

As James argues, Nick Clegg’s income tax threshold is a brilliant policy. It should benefit lower to middle income earners and the working poor. That’s the theory to which Daniel Finkelstein objetcs.

‘The vast bulk of the money goes to those earning more than £10,000. It is a very expensive tax cut, very poorly targeted on the working poor.

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Second, there is an interlocking relationship between income tax and working families’ tax credit.
Many of the working poor would find the money they gained from the tax cut clawed back because their increased income attracted less tax credit.’ The thinking should be to reward the working poor by increasing their non-taxable income whilst protecting their tax credits, and also give middle income families a break. This would be funded through borrowing, which is, of course, impossible currently.