25 November 2019

Labour’s high tax plans

We’ve all seen it - Labour will put up Income Tax on those who earn over £80,000 per year.

Apparently that’s the top 5% of earners - but many Labour apologists and spokespeople have been conflating earnings with wealth, and saying these are the top 5% richest people, or wealthiest people. This isn’t the case - just because you earn a lot doesn’t mean you’re a wealthy person.

Say you earn £100k in London, but also stay within Zones 1-2 - you’d be spending a fair chunk of that income for somewhere to live in, as well as spending. All this expenditure attracts tax so…tax is being paid.

A similar person outside of London, maybe in, say, Liverpool, or Newcastle, would have far more disposable income - and may save some money to increase their wealth.

But let’s take that Londoner - a small increase in tax could seriously dent their disposable income.

What is current taxation like?

These are the current direct taxation rates on income, including National Insurance, from £50k upwards.

National Insurance is 2% unbounded, first introduced by the Labour government in the late 2000s as 1% unbounded, and added to by the subsequent Tory/LibDem coalition)

Income band Direct taxation rate
50,000-100,000 42%
100,000-125,000 62%*
125,000-150,000 42%
150,000+ 47%

* Above £100,000 of earnings you lose £1 of your taxable allowance for each £2 you earn - assuming a tax code of 1250L, this makes this tax band. This mechanism was introduced by the Labour government in the late 2000s. Note that the £100,000 threshold hasn’t increased in the last decade under the Tories, so this has brought more people into this area - fiscal drag is a nasty thing.

What would Labour like to see?

Income band Direct taxation rate
50,000-80,000 42%
80,000-100,000 47%
100,000-125,000 69.5%*
125,000+ 52%

* The same band applies, but as you lose your taxable allowance, your effective direct taxation then increases.

Not much of an increase you might think? And not much to worry about should your current income trajectory not be getting towards £80,000 any time soon.

What is it in real terms?

Let’s turn the numbers on their head - for every £1 someone earns in a tax band, what do they take home?

Income band Direct taxation rate Take home per £1 after tax
50,000-100,000 42% 58p
100,000-125,000 62%* 38p
125,000-150,000 42% 58p
150,000+ 47% 53p

Now let’s factor in the reduction that someone earning in these bands will experience under Labour’s plans:

Income band Take home per £1 after tax Take home per £1 after tax
  (before) (after)
50,000-80,000 58p 58p (0%)
80,000-100,000 58p 53p (-8.6%)
100,000-125,000 38p 30.5p (-19.7%)
125,000-150,000 58p 48p (-17.2%)
150,000+ 53p 48p (-9.4%)

So as you can see - it is quite hard hitting. A big dent in the incremental £1 that those working hard will have to stomach.

But a sure way to alienate 5% of high earning PAYE tax payers, whilst not really effecting the top 5% of high wealth individuals.

Way to go Labour, thanks but no thanks.



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