Few expect Andy Burnham’s extended political honeymoon to last beyond the October 28 budget. The fiscal position is precarious. The bond vigilantes are signalling their nervousness about the UK in the form of 10 year bond yields of 5.4% : the highest of developed economies (despite some nice comments from the IMF). The public will expect to see some evidence of the Prime Minister’s commitment to spend more on defence, employment for young people, affordable housing, meeting the NHS and social care needs of an ageing population, together with some relief from high energy costs, which may spiral further if Trump returns to war with Iran after the mid-term elections on November 5. A promise to defer difficult budget decisions until next year will not convince markets.
The tax options are seriously constrained by the unnecessary pre-election promise not to raise VAT rates or the rates of income tax and employees NICs. Taxes are already approaching 40% of GDP, a post-war high. But more will be needed. The government has, however, already discovered that seemingly easy options targeted at companies and rich people can backfire. Rachel Reeves’ increase in employers’ NICs has angered employers and threatens jobs. A tax raid on inheritance has proved to be less of a tax on rich heirs to family fortunes than a major threat to family farms and firms. Some big taxpayers amongst the ‘non-doms’ have emigrated rather than pay more tax. VAT receipts on private school fees have had to be netted off against the costs of educating children of less affluent families who have migrated to the state sector. Successive attempts to hit the well off by salami-slicing pension tax relief have undermined savings. Gordon Brown’s seemingly innocuous ending of tax relief on company dividends helped to end DB pension schemes. Clever schemes to combat cleverer tax avoidance have added to complexity and economic distortions. The Law of Unintended Consequences is unforgiving.
Taxation is unpopular and so is ‘austerity’ applied to popular public services. Politicians who want to be liked, or win elections, face a dilemma: how to raise revenue painlessly while avoiding damaging unintended consequences. Experience tells us that it is impossible to square this circle. Taxes on companies are hidden from the public but are mainly passed on in -unpopular – higher prices or by reductions in investment. Taxes on rich people may be popular with people who aren’t rich but rich people are potentially mobile and able to afford tax advice on avoidance techniques. Wealth taxes have been largely abandoned except where they are very small (as in Switzerland). Property is not mobile but the taxation of family homes is deeply unpopular with the public outside of ‘mansions’. These problems are unlikely to deter Mr Healey from trying to squeeze a bit more from Capital Gains Tax (which can deter the establishment of new businesses), tax relief on pension contributions (deterring savings) or high-value property (which can’t be isolated from the wider property market). These all tick the box marked ‘fairness’ but they represent the last bit of a much squeezed toothpaste tube.
Another politically popular wheeze is to tax ‘windfall’ profits which accrue to unpopular companies that have profited greatly from events beyond their own efforts: commodity price spikes or regulatory change. Oil and gas companies are a nice, easy target and they are currently enjoying windfall profits from the interruption of energy supplies in the Persian Gulf which have inflated crude and product prices. But there are already windfall taxes, dating from the last tax raid in 2022, which have taken the effective tax rate on North Sea profits to 78%. The ratcheting of tax rates is a serious deterrent to investing – over and above environmental objections – especially from oil majors which operate globally. The government has had to accept the need for a tax mechanism (OGPM) which reflects the cyclical nature of profits. So, nothing to tax, there.
Then there are the banks which are enjoying windfall profits from the lag between rising interest rates on loans and interest on deposits. There is also a second windfall from ‘quantitative tightening’ (QT) where the Bank of England has been selling its stock of government bonds to the banks which earn more from the yields on the bonds than they pay for cash to hold as reserves (though QT has now stopped). But banks are already taxed over and above normal business taxation. There is a bank levy (which I claim some credit for, insisting in the Coalition that banks should pay ‘insurance’ for being ‘too big to fail’). There is also a bank surcharge and bonus taxation. The banks also complain that they have had a miserable time since the financial crisis with returns to equity below the cost of capital, leading international investors to go elsewhere. They argue, furthermore, that further taxes will be passed on in reduced or more expensive lending to SMEs – though this is a rather feeble argument as the banks are extremely risk averse and already starve SMEs of credit: the main reason I established the British Business Bank. The banks are no more deserving of compassion than they are of revenge for their past conduct two decades ago. On balance, there is a case for a modest ‘windfall’ tax raid provided there is, as in the oil and gas industry, a mechanism which recognises the cyclical nature of the business and stops endless ratcheting upwards.
Overall, the scope for ‘painless’ taxes is becoming exhausted. The government will soon be forced to choose between breaking its promise not to raise – transparent – taxes on income and spending or embark on a new era of public spending ‘austerity’. Either way, the Chancellor and the Prime Minister should prepare themselves for being hated by almost everyone.
* Sir Vince Cable is the former MP for Twickenham and was leader of the Liberal Democrats from 2017 until 2019. He also served in the Cabinet as Secretary of State for Business, Innovation and Skills from 2010 to 2015.
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Vince Cable….The public will expect to see some evidence of the Prime Minister’s commitment to spend more on defence, employment for young people, affordable housing, meeting the NHS and social care needs of an ageing population, together with some relief from high energy costs, which may spiral further if Trump returns to war with Iran after the mid-term elections on November 5…
A singularly unhelpful’ article.
BTW.. That list should occupy 28th Oct.. What miracles will ‘the public’ expect Andy Burnham to perform on the 29th?
There is one potential “painless” tax. Change the BoE Base Rate into a duty on borrowing.
Currently, only those with loans linked to the BoE Base Rate see their interest payments change as the BoE changes Base Rate. However, all the additional monies collected simply go straight to the banks bottom-line, not the BoE. Changing this to a duty, would mean the banks would have to pass the monies back to the BoE.
Obviously, a duty could be extended to all borrowing…
“ The government will soon be forced to choose between breaking its promise not to raise – transparent – taxes on income and spending or embark on a new era of public spending ‘austerity”
This worries me. Our coalition disaster was caused by our willingness to contemplate breaking a clear and unequivocal election promise. I find it concerning that Vince seems to think that breaking a clear and unequivocal election promise should even be a matter for consideration. I had assumed we had learned from our major misjudgement – perhaps we haven’t.
The problem is that successive governments have been raising taxes year on year through freezing allowances and pushing almost all of the middle class into the 40% bracket. This is neither hidden nor painless. It kills enterprise, cripples growth and exacerbates the cost of living crisis.
A serious Liberal party would allow people to keep more of their money – what Grimond called “less government and better government.”
Instead Davey seems to want to spend the same as Burnham, just on slightly different things. No wonder the party is knocking around on 9% in the polls.
It shouldn’t be too hard to make the big multinationals to pay their fair share of taxation. We know what their profits and turnovers are on a world while scale. We know what their turnover is in the UK. So we can easily calculate what their profits should be in the UK if fair accounts were presented.
If they didn’t like it we could offer to Nationalise them on the basis of the accounts they have presented. Starbucks reportedly paid no corporation tax last year because they claim they lost money. So how much would be a fair value for a loss making company?
@ Cllr James Moore, “A serious Liberal party would allow people to keep more of their money”. A siren voice from the Home Counties of Middle England ?
Back in 1909, when serious people such as Rowntree and Charles Masterman were highlighting poverty throughout all parts of the U.K. we had a serious Liberal Party forming the Government, James. It introduced the People’s Budget, with unprecedented taxes on the lands and incomes of Britain’s wealthy to fund new social welfare programmes such as non-contributary old age pensions under Old Age Pensions Act 1908. The Budget passed the House of Commons in 1909 but was blocked by the House of Lords for a year before becoming law in April 1910. The Liberal Government also had the serious matter of how many Dreadnoughts to build .
@ Roland,
“There is one potential “painless” tax. Change the BoE Base Rate into a duty on borrowing.”
This won’t work. The point of any interest rate setting is just as much to encourage potential lenders to lend/not lend as it is to discourage potential borrowers from borrowing/not borrowing. So when the BoE raise interest rates they are effectively saying to potential lenders, “please lend us some more money. We’ll make it worth your while”.
So they are effectively also saying that they want the Govt to take on more debt.
Of course they don’t want to admit this so they wrap up their statements in some unintelligible monetarist gobbledegook.
The govt/BoE could have zero rates if it wanted to. Just reintroduce QE on a grand scale. The pound would fall, imports would reduce, and exports would surge. So we probably wouldn’t need to borrow anything at all if our trade was balanced. That would save a lot of money!
It would take a brave government to do it though.
You can always look at any single tax in isolation and make arguments against it. So the first question is do we need to raise more tax somehow, and the second is what is the least bad way of doing it? (and the UK’s current overall tax take is pretty average)
If we do then a liberal party would seek ways that are fair, and affordable. Fair means tax that isn’t punitive, and affordable means those asked to pay it don’t suffer hardship as a result.
Corporation tax is inherently affordable, being a tax on profit so won’t be paid by start-ups still building their business, or established businesses suffering in a downturn. National Insurance isn’t, because it’s paid regardless of how well the company is doing just because it has employees. Inheritance tax is inherently affordable – you don’t need the money anymore because you’re dead.
Of course even “affordable” taxes have second order effects – higher corporation tax might lead to lower dividends, leading to lower share prices, hitting your pension scheme for example.
What I always find disappointing though is that any proposal to take a bit more tax from those who can afford to pay it without hardship, such as the wealthy or multinational companies, always end up getting filed as “too difficult”, so we cast around for ways to suck more out of middle earners in ways we hope they won’t notice.
Why not start by making our obscure taxation set up transparent and consistentently progressive so that all may know how it actually functions and that all are taxed equitably in proportion to their wealth?
“The bond vigilantes are signalling their nervousness about the UK in the form of 10 year bond yields of 5.4%”
Vince didn’t mention that the biggest “vigilante” is none other than our own Bank of England which is busy acting as seller of government bonds. This forces prices down but yields and effective interest rates up. It’s what they call QT or quantitative tightening.
It’s hard to see why a truly independent BoE would do this. They’d do far better to hang on to the bonds until they mature. As it is they are selling them at a loss and will have to be recompensed by the Treasury. They must be being instructed to sell them by govt though.
https://www.theguardian.com/business/2026/sep/17/bank-of-england-bond-sales-plan-gilts-treasury-public-finances
Tax justice UK have highlighted how misleading the claims about millionaires leaving Britain is. We should not believe the lies in the British media.
Stop Funding Hate works to show just how woeful Ofcom is as a regulator. Something MPs, including our own LIz Jarvis, witnessed in committee on Tuesday morning.We should be making the fight against inequality and supporting a cap on the top one percent, as advocated by Cllr Tanya Park and the Just Society. We should not be leaving it to the Greens who mopped up votes where I live with a clear message on inequality.
Healy has apparently added CGT to the list of sensible taxes he can’t raise. His reason is that a rate of CGT equal to income tax would raise less money. The press are widely stating this as ‘he would lose revenue through rich people fleeing abroad’. The real reason that CGT would bring in less money if equalised with Income Tax is that there would no longer be any point for many rich people in passing their income through financial instruments which give returns as capital gains. They mainly do this because CGT is lower than Income tax. He might get less revenue from CGT but he would get more from income tax.
Far too many people are being taken in by claims of high taxation.
When I started work in the late 60s the basic rate of income tax was 33% and the top rate (so-called ‘supertax’) was 98% and allowances were minimal. This was true under both Conservative and Labour governments after 1945. It worked for over 30 years and only a handful of high profile people left the UK to avoid tax.
The claims of tax bring a disincentive to work are pure right wing propaganda. There is another way of looking at progressive taxation. The better off should pay more to fund common services than the poor and not so well off. As JK Galbraith put it “tax is the price we pay for a civilised society”.
Instead governments have moved away from fair income taxation to indirect or hidden taxes on a wide range of goods and services that hit the low paid and the poor much harder than the rich. It’s not right and it’s certainly not fair.
When are the LibDems going to tackle these issues?
@Mick Taylor – “Far too many people are being taken in by claims of high taxation.”
Totally agree, my retort to any wealthy person spouting this nonsense is “so you want to pay 98% tax?”. Also people forget both the rate of Corporation Tax has been halfed and the threshold has been increased – hence for businesses the retort is “so you want to pay 52% corporation tax?”.
Yes through various measure the government has increased the percentage of tax revenue as a percentage of GDP; but, does this really matter?
Remember this is money flow we are talking about, so, for example my “health insurance” (ie. NHS funding) is included in that tax revenue figure, whereas in the US it would be outside to a private business). Hence provided the money keeps flowing through the government back into the local economy it doesn’t really matter how much is actually funnelled through HMRC.
No one has raised any similar concerns over the increased volume of monies passing through the bank network and companies such as VISA and mastercard.
It worth reminding people that it was the long Tory controlled Nothamptonshire CC that went bust because it adhered to Tory ‘pennywise pounds stupid’ economic belief…
@PM – I understand what you are saying with respect to Base Rate. I was referring to the general public perception that somehow the BoE Base Rate is linked to the cost of borrowing as the banks use it as an excuse to increase loan repayment interest rates, even though there is no formal or legal connection, other than people signing agreements containing words to the effect “the interest rate will be Base Rate + n%”.
By having a duty on loan repayments we removing this misrepresentation of Base Rate.
“the general public perception that somehow the BoE Base Rate is linked to the cost of borrowing”
This is because it is.
The banks can always lend money, to the BoE risk free, at the relatively low level of interest which we call the base rate. Currently this decided by a monetary committee in the BoE to be 3.75%. If banks lend to anyone else it isn’t going to be risk free.
So naturally they aren’t going lend to anyone else at lower than 3.75%.
We could have lower interest rates if the govt/BoE choose to have them. The problem is that the pound will fall. This could be good for the economy and employment generally but it will come at a cost so it wouldn’t be popular in the short term.
Adding a duty to loan repayments will only increase the level of loan repayments.
For recent recruits to the party, Lib Dem MP Alan Beith played a leading part in establishing base rate changes to be under the Bank of England.
It just isn’t true to say we used to tax the rich more. The richest 1% now pay more than twice the proportion of income tax that they did in the 1970s. Although the tax rate was 83%/98% in that era virtually no-one paid it because of loopholes. For example, you paid all of your mortgage and other borrowings out of pre-tax income, there was no tax on a company car etc etc.
More facts here – https://taxpolicy.org.uk/2025/05/08/tax-rich-1970s-loopholes/
There are numerous untried ways to generate more tax
Heres a few
1. Change NIC for employers to a tiered system like PAYE ie 0% for low paid 200% for high earners, encouraging more employment, discouraging ridiculous high pay
2. Tax internet sites that are harmful to society ie social media sites, tax per minute usage etc. (yes it can be done)
3. Tax everything thats harmful to health or society, already being done to cigarettes , alcohol, sugar in drinks, etc
@ColinMurphy. Yes and you could close all the tax loopholes and greatly reduce the huge number of pages in the tax codes that take a highly qualified accountant to begin to understand. Danny Alexander, for all his faults, did make a start on this during the coalition but it was abandonned by the Tories.
@ Tim,
You may be technically correct with your argument but it doesn’t change the fact that we have become very much more unequal in recent decades.
The biggest rise is not in wealth related to productive assets but passive wealth – basically rising house prices. In recent decades the ratio of wealth to income has more than doubled. An economy that has done better at increasing paper wealth rather than productive output. This growth in wealth and house prices has disproportionately benefited the richest 10%, who are more likely to own expensive property and investments. In fact the country’s 10 wealthiest families have seen their wealth increase 281% since 2008.
Do you have any suggestions for what to do about it or are you happy with current inequality levels?
The rising property market contributed more to the impoverishment of the poor than the enrichment of the rich. It is owner occupiers who hold the greatest proportion of their wealth as property (sometimes as much as 2000% of their net wealth). The big divide is between them and renters.
In terms of what we can do about equality, at the upper end of the scale, the article Tim linked to suggests that the most effective policy is eliminating the loopholes and the differential rates on different types of income. At the lower end it would be UBI.
and building more houses of course.
@PM. Yes, allowing a LOT more houses to be built would reduce wealth inequality dramatically. We should aim to return to the c1997 price to income ratios – which means that, in today’s terms a 3 bed house in Chatham would be £70k. That means a single earner on minimum wage can buy that family house, and pay off the mortgage relatively quickly. The vast majority of people would then also inherit a property, albeit not one worth a fortune.
Tim,
What would happen to the economy if the price of your Chatham house fell to £70k? There’s quite likely someone living there with a mortgage of quite a lot more than this. And the same for many similar houses in the country. Would a price crash create more benefits than problems?
As Peter Davies says: The big divide is between {property owners} and renters.
If you are serious about tacking inequality we’d need to factor in the economic benefits to those who live rent free by virtue of owner occupation. So we’d have a tax on the net ownership of property. This wouldn’t be much for young people who’d borrowed to buy their home but it would increase as their equity increased.
It’s probably not going to be too popular with many LibDem voters though.
Also, you’d need to tread carefully to avoid crashing property prices. Even though many of the younger generation do need them to be much lower.
I don’t think we have the construction capacity to engineer a crash in house prices. The highest realistic target would probably only bring prices down by about 2% a year (absolute) and that’s about the rate that it can be done without creating a negative equity crisis.
I had expected Sir Vince to mention Land Value Tax as Honorary President of ALTER. Especially because the PM is a fan of the idea and there’s no “red line” drawn in Labour’s 2024 manifesto to prevent it.
I’ve not given up hope his Chancellor might take baby steps towards LVT. Perhaps a reform of Business Rates based on our Commercial Landowner Levy (CLL). Businesses don’t vote and this would help vitalise commercial districts.
I wrote an open letter to Andy Burnham urging him to do just that. It was published here. A reply from No. 10 is still awaited.
Surely it’s immoral and also senseless economically to continue allowing landowners to pocket almost 100% of unearned profit from land deals while taxing those whose earnings are the just rewards for work – or entrepreneurs who carry the risks of business.
Without LVT in the mix there’s very little chance we’ll get growth. With it we’d more justly obtain it.
This is a very good article in terms of highlighting the dilemma facing any chancellor. There are few good ways to raise money, and endless demands to spend more and more of it. Vince isn’t offering any solutions, but I guess that’s not the point of his article.
@Nick Baird: I don’t think corporation tax is painless in the way you imply: A corporation tax increase will hit the income of anyone who runs their own small business. And for all companies and entrepreneurs, it changes the calculation of whether it’s worth investing: Less point risking your money to invest if any profits you might eventually make will just get taken away in tax.
@Mick Taylor: The 98% effective top rate of tax only ‘worked’ in the 1960s and 70s because at the time international travel was much harder and exchange controls made it very difficult to move money between countries. In any case, I’m not sure anyone today would seriously look at the moribund, inefficient, strikebound, largely nationalised and monopolistic, state of much of British industry in the 1970s and say that ‘worked’.
@Cllr James Moore The 40% marginal tax rate kicks in only on income that puts someone in tje top 20% of earners.
Surely any Lib Dem tax cuts should focus on the nurse earning £30K, not the hospital manager esrning £80K?
The more serious flaw in James Moore’s argument is that it is not the 40% (42% on earned income) rate that “kills enterprise, cripples growth and exacerbates the cost of living crisis”. Its payees are not in a cost of living crisis. To have a serious effect in terms of disincentive to enterprise or willingness to work harder or take on extra responsibilities you need marginal rates over 50%. We have those in several areas: cliff edge benefits (infinate rate), Pension Credit (100%), Universal Credit (55% or 68% above the tax threshold), Child Benefit (53% for 2 children combined with 42% tax) and withdrawal of personal allowance (63% combined with 42% tax). These kick in at a variety of income levels so moving to a position where you always keep at least half of what you earn would not be an obvious attack on the poor or the rich. It would probably require that everyone paid at least a third of each pound they earned.
@Mick Taylor
“The claims of tax bring a disincentive to work are pure right wing propaganda.”
So what exactly is the point of earning a £1 an hour extra if the government takes away 83% of it – as Labour did in the 1970s? What is the point of making your capital available for others to use if the government takes away 98% of the payment (dividend) you get for doing so AND you face the risk of losing that investment?
And for those who think Liberal and Liberal Democrats must be and always were a high income tax party here is the Liberal manifesto of 1979 where the party (rightly) campaigned for a reduction in income tax rates to 20% and 50%. I suspect some posters here campaigned on this manifesto.
http://www.libdems.co.uk/manifestos/1979/1979-liberal-manifesto.shtml
“There is another way of looking at progressive taxation. The better off should pay more to fund common services than the poor and not so well off”
The better off do pay more to fund common services. It’s legitimate to argue about how much is “to much/enough” but it’s not legitimate to suggest the well off/rich don’t pay more.
I share your concern about indirect taxation. That said, at least some basic necessities (eg food) are exempt from it, and the rich pay more of it (because they spend more).
@Tim (24th Oct ’26 – 4:32pm – “More facts here –” Interesting background read, it probably explains why the IFS and the super-rich would like to go back to a 1960s style tax system.
@Tristan Ward
“The claims of tax bring a disincentive to work are pure right wing propaganda.” So what exactly is the point of earning a £1 an hour extra if the government takes away 83% of it…
I recommend you read the article Tim references, as whilst the salary was taxed at 98% there were other ways (before 1979) of taking the monies tax free.
The issue is one of degree. we know at the Additional Rate the difference between 50% and 45% is sufficient for those earning under £1m pa to invest in active avoidance schemes; hence why the rate was quickly reduced from 50% to 45% and the amount collected went up. with the 20% and 40% tax bands a 2% or 4% rate reduction would not have the same effect.
There are other areas of study that might be helpful in gaining an insight into matters. For example where coursework represents 30~40% of the final mark, students take the coursework seriously, when it is 20% or lower many will skip the coursework, increase the coursework to 60~80% and many will do it, but regard it as burdensome and will spend less time attending lectures and doing wider studies in their chosen subject…
BTW for much of the last couple of decades my effective tax rate has been circa 61%.
When we produced (software) products our take was circa 30% of the RRP, the rest being consumed by ditributors and retailers.
“we know at the Additional Rate the difference between 50% and 45% is sufficient for those earning under £1m pa to invest in active avoidance schemes” If you increase the differential between taking your income one way and another then it will undoubtedly cause more people to take it in a way that pays lower tax. That’s not the same as causing them to invest less let alone to work less. Raising the lowest level of tax people have the option of paying increases tax revenue. Raising optional higher taxes doesn’t. The biggest boost to income tax receipts would be from increasing CGT.
@Roland
“whilst the salary was taxed at 98% there were other ways (before 1979) of taking the monies tax free”.
I’m not really sure what your point is.
Are you saying that very high rates of income tax are OK provided there are plenty of loopholes for people to exploit? I doubt it.
I read the article Tom refers to. The last paragraph of the article is: “The lesson of the decades since the 1970s is that the best way to tax the wealthy is by expanding the base and closing loopholes. That makes a less snappy soundbite than sending rates sky-high, but the evidence and the history shows that it’s fairer and much more effective.”
The claim from Mick Taylor (who seems to advocate much higher rates of income tax than we currently have) is that “tax bring a disincentive to work are pure right wing propaganda”. He also wants to close tax loopholes.
So, assuming there are no tax loopholes, what is the point of earning another £1 if the government take away 83p of it?
@PM
“The big divide is between {property owners} and renters.
If you are serious about tacking inequality we’d need to factor in the economic benefits to those who live rent free by virtue of owner occupation”
Don’t forget to factor in those costs of repair, maintenance and upgrading paid by owner occupiers and landlords that tenants don’t pay (indeed are not allowed to pay – see ss11 and 12 Landlord and Tenant Act 1985) or the cost of acquisition of the house. A tenant doesn’t pay those either.
@Tristan Ward – “So, assuming there are no tax loopholes, what is the point of earning another £1 if the government take away 83p of it?”
Depends on what those .07p’s add up to. As I alluded to businesses tend to work on low margins (Tesco’s circa 3% after tax). Hence much depends on your mindset.
Yes it is irritating when it seems you are working to pay the government, but by achieving a reasonable level of work, I get a comfortable lifestyle. Also there is a degree of fairness – I pay in so I expect to get a (fair) payout.
So high taxes, even at 83%, are only a disincentive if you choose to make it a disincentive. I expect it all goes back to whether you have a cup half-full or cup half-emtpy mindset.
@ Tristan,
“Don’t forget to factor in those costs of repair, maintenance and upgrading paid by owner occupiers….”
OK. The biggest cost faced by owner occupiers is the interest on mortgage payments and I agree we should factor this in.
I’m not sure how we factor in maintenance and repair costs though. If a house is bought in poor state of repair and is brought up to standard by a combination of human effort and capital spending then its market value will increase too. Many part time builders and renovators seem to Ok by doing exactly this. Either they live in the property themselves, rent it out or sell it later at a tidy profit.
Do you have a suggested method of handling this?
“For example where coursework represents 30~40% of the final mark, students take the coursework seriously, when it is 20% or lower many will skip the coursework,”
Is there evidence for this? If a coursework is worth 20% of the overall mark and you get a middling 2:1 type mark of 62% that’s 12% on the overall grade which is (at least in my day) more than a full classification boundary. it seems inherently unlikely that a student would voluntarily disadvantage themselves in that way.
Put another way. Get zero for the coursework and you’d have to get 75% in the exam for the other 80% to get the 60% that is a standard 2:1. I’ll seize the opportunity, modest as I am, to point out that getting 75% in a final exam is possible but you have to be very very good 🙂
@Tristan Ward. I do think that we do need higher tax rates than we have for the very rich and some way of taxing wealth, probably through land or property taxation. It is also fairer to tax income than have a myriad of hidden indirect taxes that bear down on the poor.
By the way, the chancellor added several pages to the tax code today and made it more difficult to understand. Think about how the new tax exemptions for (some) pensioners (and not others) are going to work. There really is an urgent need to greatly simplify tax rules and get rid of exemptions.
I agree with the comment by Peter Davies about CGT. Labour hadn’t promised not to increase it and it is now one of the major ways the rich avoid paying higher rate income tax.
One other point not made so far. The UK isn’t broke, nor has it maxed out the credit card. A currency issuing country cannot go broke and the so-called debt is effectively money owed to the Bank of England, which means of course that one branch of the state owes another branch money. It really isn’t helpful for our economic spokespeople to keep repeating something which is untrue.
@Roland. Yes strictly speaking you are correct that it’s the individual who chooses to view high taxes as a disincentive. But realistically, the vast majority of people are going to see something like 83% as a huge disincentive.
Imagine you’re working and living reaonably comfortably. You get offered a promotion, which means maybe working a bit harder or more stress but you get 20% more salary. A lot of people will take that. Now imagine that the Government takes away 83% of that, leaving you with just 20% * 17%, so 3% more salary. Are you going to go for it? I probably wouldn’t and I’d expect most of the population wouldn’t.
And you don’t need a huge disincentive to cause damage. Let’s say for the sake of argument, high taxes, by disincentivising people and businesses, cause people to do just 2% less work. Well congratulations – you’ve just reduced GDP by 2%. Enough to completely wipe out growth in a typical recent year.
@Simon Robinson. Your example doesn’t work unless they were on the threshold between 0% tax and 83% tax. If they were paying 83% tax on all their income, a 20% rise in gross pay would yield a 20% rise in net pay. What’s more, they probably wouldn’t be comfortably off and would have little choice but to take the crumbs offered.
What you did get right is talking about incentives in terms of the amout you keep rather than the amount taken in tax. A percentage point rise in a 20% tax raises 5% extra revenue and reduces your incentive rate (the amount you keep) by 1.25% while on an 80% tax it raises 1.25% extra while reducing the incentive rate by 5%.
@Peter Davies: Thanks and well spotted. I’d calculated the increase as a % of gross salary. More realistically we’d consider the % increase of take home pay. As an example, on a quick Google, someone earning £100K with no special allowances/deductions currently loses roughly 1/3 of their total income to tax and NI. If they were taxed at 83% on subsequent income, then at 20% salary increase would result in their take home pay increasing by 0.2 * 0.17 */ (2/3) = 5.1%. Still quite a disincentive to taking on additional work if a person isn’t really desparate for more money.
In practice I imagine most people will reason in a simpler way: Something more like, I’m being offered and additional £20K salary to take on additional responsibilities, but after tax I’ll only get an extra £3400. No thanks!
Though someone on £100K (take home ~£65K) is already in the position, tax or otherwise, where they are living extremely comfortably compared with the national average (gross pay at over four times minimum wage, top 5% individual earnings), should not be in any way short on money, and might well not feel the need to take on additional stress for extra pay anyway. (Certainly if I was on anything like that sort of salary my first question would not be “how can I earn even more?” but “can I still keep that hourly rate on half the weekly hours?”)
Conversely, if they’re on £100K they might already be extremely money-motivated compared with the average person, and the state taking 80% of earnings above that will simply motivate them even further so that they then go for *two* promotions where on a 40% tax rate they might have been happy with just one.
@ Simon Robinson – ”But realistically, the vast majority of people are going to see something like 83% as a huge disincentive.”
This “perception”/“taste-left-in-the-mouth” I suggest is the real problem – just as we are seeing people wanting to frame any negotiation with the EU to improve UK relations and access as “reversing Brexit” and so hindering efforts to improve matters.
As for disincentives that have the biggest impact, I suggest attention is better given to the downside to the following transitions – in the order given:
1. Benefits to Employment
2. Basic rate to higher rate tax payer
3. Higher rate tax payer to Taper threshold (currently £100k)
We don’t actually have a shortage of people prepared to take on middle management jobs and it’s not obvious why better incentives would result in better people getting the job than those that get them now. Where people have a real choice over how much (or whether) they work is in the upper and lower ends of the pay range. That’s people who are their own bosses and rich enough to set their own hours or to retire. It’s also people at the bottom end of the payscale deciding whether to take a short term job and finding they would be no better off after withdrawal of Universal Credit and the various cliff-edge benefits that come with it on top of the cost of working.
@Cim – ”Though someone on £100K … should not be in any way short on money”
Trouble is people like to “live it up”…
Talking to friend who had worked in the city, he observed there were a lot of “poor” people in the £1m~10m bracket, because they couldn’t afford the lifestyle they thought went with this level of wealth…
BTW the household with a single £100k earner is less well off financially than a household with two £45k earners…
Demos have proposed two tax changes that they say are relatively easy in their
Taxing Extraction Report . These are, of course, contestable but I do like the proposed change to Crypto Currency profits. That activity is harmful to the environment as well as being wholly unproductive.
Yes. Cryptocurrency is not currency and should be treated as a speculative asset. In order to apply CGT, you should be required to register all crypto holdings. That would have the added advantage of making it harder to use for its other main purpose namely finance of crime.