Two million extra people in higher tax bracket

Since the General Election in 2019 two million extra people will have found themselves paying tax in the higher income tax band.

Now my first reaction to that news was to think that, when there are serious levels of poverty, then taxing the wealthy is the way to go. But a comment in the Mirror by former Lib Dem MP (and Pensions Minister) Steve Webb made me think again:

Paying higher rate tax used to be reserved for the very wealthiest, but this has changed very dramatically in recent years.

The starting point for higher rate tax has not kept pace with rising incomes, and the current five-year freeze on thresholds has turbo-charged this trend.

People who would not think of themselves as being particularly rich can now easily face an income tax rate of 40% and around one in five of all taxpayers will soon be in the higher rate bracket.

So although it is not the most pressing issue while dealing with the cost of living crisis, it certainly deserves some attention. And it rather undermines the Conservative vision of a low-tax society.

Christine Jardine has issued a statement:

It is time Rishi Sunak and Boris Johnson stopped taking the British public for fools. You can’t call yourself a low-tax Government then hike them to record levels.

Britain’s squeezed-middle is being crushed by a barrage of tax hikes.  Britain needs an emergency tax cut before its too late for millions of families and pensioners on the brink.

This Government has proven itself to be completely out of touch with the cost of living crisis and people will never forgive them for these tax hikes.

* Mary Reid is a contributing editor on Lib Dem Voice. She was a councillor in Kingston upon Thames, where she is still very active with the local party, and is the Hon President of Kingston Lib Dems.

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19 Comments

  • Tristan Ward 1st Jul '22 - 1:27pm

    It’s all very well to say that public services should be better funded, but- bluntly – the only way to do that in a low growth economy is tax. It is also unrealistic to expect only people on (say) £100,000 or more a year to pay that tax if what is needed is rwal funding increases.

  • nigel hunter 1st Jul '22 - 1:47pm

    For ‘low tax society’ read for the rich.That is the tax rate for millionaires has not really changed in years whilst due to a number of factors,inflation increasing their earnings for one makes them richer.The rest of us have taken the hit and with the tax increase made poorer.

  • David Le Grice 1st Jul '22 - 1:49pm

    I’d say we should be allot more concerned about the freeze in the basic rate freeze which is dragging low income workers into paying tax and is a real cut to the earnings of every basic rate payer.

  • I agree with David Le Grice. In the current economic situation we should be more concerned about those who are really struggling rather than people like myself who pay the higher rate of tax. It would also be good if people who complain about high tax levels would suggest some areas where savings could be made on government expenditure.

  • Joseph Bourke 1st Jul '22 - 2:31pm

    Back in the 1970s many workers were still paid weekly and it was common for employers to ask staff to work overtime shifts on a Saturday at 1 and/1/4 or 1and 1/2 times their hourly rate. The basic rate of tax was 33% then and with national insurance workers would see something approaching 40% of their extra pay go in deductions as they had already used their tax free allowances and NI thresholds. Many workers complained it was not worth giving up Saturdays for the extra amount they actually got in their pay packets.
    When you actually run the numbers the most progressive system of income tax is one that combines a flat rate of tax with a high personal allowance – something close to median (not average) income so that around half of taxpayers (lower income workers and most pensioners) don’t pay income tax. That also has the benefit of eliminating the disincentive of a sudden increase in tax rate from 20% to 40%. This increase is actually less due to the fall in employee Ni from12% to 2% at higher income levels.
    A flat rate tax with a high personal allowance (or tax credit in the form of a UBI) combined with a Land Value Tax with a homeowners allowance for owner occupiers that would exempt many lower value properties in any given local area could deliver are far more equitable system of taxation than what we currently have to deal with.

  • George Thomas 1st Jul '22 - 3:37pm

    “It is time Rishi Sunak and Boris Johnson stopped taking the British public for fools. You can’t call yourself a low-tax Government then hike them to record levels.”

    I would like there to be more focus on highlighting that this record tax is needed because Tories have cut services to the bone, made empty statements towards challenges like climate change and wasted huge amounts of money either going massively over-budget on different projects (cutting much needed links on HS2 to Scotland and Bradford) or simply gifting money to their friends.

    There is obvious risk in suggesting that Tory hypocrisy in their actions and fantasy in their public statements are the worst things they’ve done if/when LD’s get back into government and carry on with high, though perhaps not record high, taxes.

  • Without more details, it is hard to determine whether this is a good thing, or a bad thing.

    On the one hand it seems that people caught by the effective freezing of the thresholds (Higher and Additional Rates) will have less of the pay increase that took them over the threshold to spend.

    On the other hand, it would seem industry is doing well to be able to afford to pay more people higher wages.

    Additionally, of those 2M an estimated 1M should be new workers from overseas, given how we keep being told how productive etc. these people are…

  • Brad Barrows 1st Jul '22 - 4:31pm

    Unfortunately, this is another Liberal Democrat Press Release that could have been produced by the right wing of the Conservative Party. It may be smart politics to be trying to attract middle and higher income groups to switch from voting Conservative to voting Liberal Democrat, but I do not believe this truly reflects core Liberal Democrat beliefs.

  • £50k/year is not the “squeezed middle”, even if the tax threshold hasn’t quite kept pace with inflation recently. According to the March figures from HMRC, only the top 14% of income-tax payers have any income in the higher bracket (and therefore rather less than the top 14% of all adults, of course) … while a household with two earners could in theory have a six-figure combined gross income (just!) and still not pay higher-rate tax.

    As with Brad, I’m not saying it’s not the right thing to do politically – if you want to replace the Conservatives you have to appeal to rich people – but it does cause a bit of mixed messaging when you’re then also talking about “progressive alliances”.

  • Nnconformistradical 1st Jul '22 - 5:58pm

    “In the current economic situation we should be more concerned about those who are really struggling”
    Seconded

  • Peter Watson 2nd Jul '22 - 12:45am

    @Brad Barrows “It may be smart politics to be trying to attract middle and higher income groups to switch from voting Conservative to voting Liberal Democrat, but I do not believe this truly reflects core Liberal Democrat beliefs.”
    Comments on this site (and in this thread) reassure me that messages like this one (or the parallel one about VAT cuts) do not reflect the core beliefs of many individual Lib Dems, but it does seem to be a true reflection of the party’s current positioning. 🙁

  • James Fowler 2nd Jul '22 - 9:48am

    There’s certainly a lot of incoherence from us on this issue. The standard Party line is that more or less everything requires more government funding, and it’s scandalous if any public service anywhere falls short at any time. While this position is a normal opposition trope, it’s also indistinguishable from Labour and very, very expensive if meant seriously. This can only mean tax rises, certainly not tax cuts.

  • Nonconformistradical 2nd Jul '22 - 10:40am

    @James Fowler
    “The standard Party line is that more or less everything requires more government funding, and it’s scandalous if any public service anywhere falls short at any time.”
    Which public services do you think can be left to ‘fall short’ as you put it?

  • Interesting discussion above. I don’t really understand tax but when I see my friends and family in Denmark paying over 50% and having a great lifestyle and good public services I feel comfortable with the idea of a lot of people here paying 40%

  • James Fowler 2nd Jul '22 - 12:25pm

    Fair point @Nonconformistradical – I ought to put my money where my mouth is. So here’s where I would put a break on or halt the onward march of expenditure and ignore the complaints: Pensions, transport and defence in that order.

  • Brad Barrows 2nd Jul '22 - 4:11pm

    @James Fowler
    I admire you for being brave enough to list three areas.
    So, by ‘pensions’ you must be referring to the State Retirement Pension – do you think it’s purchasing power should be eroded (by being increased by less than inflation) or that the age to qualify for the pension should be increased further? Both measures would impact more on the poorest older people who do not also have a second pension and whose life expectancy is generally lower (so many will not live long enough to even get a state pension.)
    By ‘transport’ are you thinking about less on building new roads, cuts to subsidies on the railways, or both?
    By ‘defence’, I hope you are thinking about the UK stopping trying to be a ‘global power’ – maybe selling its aircraft carriers, for example – and ending its spending on nuclear weapons.

  • @Brad Barrowa – By ‘defence’, I hope you are thinking about the UK stopping trying to be a ‘global power’

    Looks like Russia with its “special military operation” will curtail any discussion about not replacing Trident. So it looks like defense spending is going to have to increase further so as to fund the replacement of Trident…

  • Brad Barrows 3rd Jul '22 - 9:17pm

    @Roland
    I think the opposite – the priority for defence spending has to be addition conventional forces to deter any conventional ‘special military operation’ that Russia may launch against a NATO member.

  • @Brad Barrows – Agree, hence why we need to be asking questions about investment and when we can expect to see the benefits of that investment.
    However, expect when we start discussing the replacement for Trident – circa 2030 – Russia’s 2022 SMO to be cited…

    Whilst some will want Trident to be decommissioned before 2040, I doubt that will happen as that will most probably incur additional costs, over and above leaving Trident in place until it goes end-of-life.

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