Monday, January 27, 2014

Putting a 50% tax rate into a little perspective...

I am not exactly young, a point that I am reminded about every morning when I wake. However, one of the advantages of age is that you do tend to gather experience, and if you are blessed, as I am, with a pretty good memory, some of it sticks.

Like tax rates, for example. When I started work, in the mid-eighties, my speciality was income tax and, because computers were only really beginning to come into use, a lot of the work was done manually, meaning that it was much easier if you knew things like tax rates, bands and allowances. But, for those of you in younger age brackets, it has become rather easier over the years. Most people get a basic personal allowance these days, altered for various allowances, true, but relatively simple, and, until recently, there were relatively few tax rates to play with.

So, having taken a stroll down memory lane, one is reminded that, in 1986/87, there were six tax rates, wives were still treated as though a chattel of their husbands, the basic rate was 29%, and the top rate a fairly penal 60%. And for those who revere Margaret Thatcher, remember that she was still Prime Minister, and at the top of her game then.

But those sort of tax rates were only paid by the rich, right? Not so, indeed the 60% rate kicked in at what would be the equivalent of about £114,000 per year for a married man, something that makes Ed Balls' proposed 50% rate look positively generous. And we all paid a lot more income tax, rich and poor alike, as a proportion of our income.

Since then, for a number of reasons, the burden of taxation has shifted. New transactional taxes have emerged, the rate of VAT has increased, and the system has become increasingly complicated. Taxation seems designed almost to extract money from us without our noticing.

So, if Ed Balls is serious about reintroducing a 50% tax rate, don't buy the hype about French-style levels of tax. Yes, there is a debate to be had about whether or not it actually increases revenue, and at what medium or long-term cost, but, in historic terms, it isn't all that penal.


2 comments:

  1. The top rate is actually 60%. It is referred to as withdrawal of personal allowance and next year it will apply to earnings between £100,000 and £120,000. Ironically, the number of people paying this will have risen enormously under this government because the start point is not indexed and the width of the band has grown in proportion to personal allowance.

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  2. Peter,

    No, that's a marginal rate and not an official one, which brings me back to my point that the tax system sometimes appears to be designed to extract money surreptitiously.

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