60% tax shocker

The previous Labour government was brilliant at budget presentation. Year after year the headlines which they wanted the public to see would appear and only, several weeks later would the small print be analysed and digested and the hidden tax rises revealed. The classic example in recent years was the withdrawal of the 10% tax band, which was hidden in the small print under a small reduction in the headline basic rate of income tax. Thus, what was presented as a tax cut was in fact a swingeing tax rise, hitting the lowest earners harder than everyone else.

I have just been made aware of another one, and I felt I must blog about it in case I am not the only person out there who hadn’t noticed until now.  Last year we all remember the announcement of the new 50% rate for those earning over £150,000. Hurrah, said everyone who wanted to bash bankers earning a huge bonus in times of national economic difficulties caused in part at least by those self same bankers. For the record, I was not cheering, and I’m not a banker.

That new rate came in with effect from 6th April this year. What seems not to have been noticed is at the same time anyone earning over £100K will see their personal allowance progressively reduced. If you earn about £113,000, your entire personal allowance is wiped out. The personal allowance is of course the amount anyone can earn without paying tax on it. The effect of this is to create a hidden (stealth – remember that word?)  tax rate of 60%.

Now we are not quite in the realms of the 90% plus tax rates prevalent under the Wilson / Callaghan government but the principal reason why this level of taxation is wrong remains the same. It will not increase the tax take. You do not need to be Arthur Laffer to understand this one. If I am earning, say, £90K, a very good salary but by no means Master of the Universe level, why on earth should I bust a gut to earn an extra £20K or thereabouts if the Government is going to take away more than 50% of it in taxation? It is a tax on aspiration, on hard work and on entrepreneurship, it raises no extra money for the treasury and merely panders to the politics of envy. It should be dealt with by George Osborne in his first budget.


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