Wednesday, December 08, 2010

Income tax changes - something really progressive to enthuse over

Whilst there has been a lot to ponder over of late - tuition fees and the spending review merely top the list - it is easy to lost track of those acts which have truly reflected a uniquely Liberal Democrat view of society.

For all of the figures, click here, but here are some of the key numbers;
  • Personal allowance up £1,000 to £7,475 (up 15.4%), 
  • Basic rate band reduced from £37,400 to £35,000 (down 6.4%),
  • Starting level for the 50% rate band frozen at £150,000
So, what does this mean?

Firstly, it should be borne in mind that indexation of allowances was based on the inflation figure for September (4.7%) so, had everything gone up accordingly, the tax bands would have been;
  • Personal allowance up £310 to £6,785
  • Basic rate band up from £37,400 to £39,200
  • Starting level for the 50% rate band up from £150,000 to £157,000
So, those earning between £7,475 and £42,475 will be £138 per annum better off in real terms. Those earning between £46,675 and £157,475 will be £702 worse off in real terms, and those earning over £164,475 will be £1,402 worse off, if my arithmetic is correct.

You might agree or disagree with the notion that the heaviest burden should fall upon the broadest shoulders, but there can be little doubting that, in isolation, this does look pretty fair. And taking the best part of 900,000 people out of the income tax net altogether is certainly a contribution towards a more just society...

2 comments:

previouslysilent said...

people who earn more pay more tax - it's a percentage. I question the entire notion that the more you earn the higher the percentage should be, I suspect it's because people don't understand percentages!

Mark Valladares said...

previouslysilent,

There is certainly an interesting case to be made for a unified tax rate. However, given the array of tax breaks for the wealthy, and their greater opportunity for fiscal engineering to legitimately reduce their tax liability, levying higher rates on those earning above certain cut-off points makes sense.

There would certainly be a strong case for simplifying tax law in the United Kingdom and, as non-personal allowances are reduced, altering the tax rates so as to ensure that the balance of revenue gathering remains across income bands.

Unfortunately, the idea of flat rate tax has suffered from association with some fairly weird supporters. Steve Forbes, who made the idea a central plank of his campaign for the US Republican nomination, was otherwise considered too strange to be taken seriously by the American public.