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Daily View: Change in tax threshold

Clare Spencer | 10:14 UK time, Tuesday, 1 February 2011

Money

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Commentators discuss the change in income tax thresholds meaning an estimated 750,000 more people will find themselves paying 40% income tax from April.

who will benefit from the change:

"The threshold for paying ordinary income tax is to be increased. This will mean that around 500,000 low paid workers will be taken out of paying income tax. It is said that the main winners will be lone parents who do not work and middle income families, particularly those with no children. This is because other changes such as those to Child Benefit and Tax Credits will affect many people negatively."

Nick Clegg's pledge to raise the tax threshold to £10,000 will mean more taxes elsewhere:

"As the basic threshold is increased progressively towards £10,000, it is likely that the Treasury will fund the rise at least partly from adjusting other thresholds, so that by 2015 more middle-income earners could find themselves paying the 50p top rate. Many families who already find themselves squeezed by wage freezes will not only see their taxes increased but will find their child benefit axed too, even though they don't see themselves as high earners.
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"The Chancellor will be under pressure to find money from other sources too. Airline travel is likely to become more expensive under new green taxes. A debate is going on about whether the Government can really afford to cancel the planned 1p rise in fuel duty due to take effect in April - although Mr Osborne is said to be keen to head off the anger of motorists who have seen the cost of a tank of petrol soar because of high oil prices combined with the increase in VAT."

Conservative MP that spending should be cut instead of taxes raised:

"The increases in Income Tax, CGT, National Insurance, VAT, and fuel duty always meant the private sector was going to take a big cut in spending power as its share of the deficit reduction. This has been made worse by the rapid rise in inflation, with big increases in fuel prices which in turn extracts more tax revenue and by the large increases in various public sector fees and charges like rail fares.
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"The public debate has spent too much time talking about the spending reductions, implying they hit the economy at the end of last year and caused the poor GDP figures, when they haven't begun, and ignored the squeeze on family incomes. The government needs to take action to cut the public sector's contribution to the squeeze."

that the numbers in the deficit are just too huge to be covered by the tax rise:

"The shocking bit is that not only will this tax hike rake in £150,000,000, but that this represents only just over half of 1% of the banks' annual profit of £24,000,000,000. Worse still, if you compare this extra tax take against the UK's structural deficit of £160,000,000,000, the chancellor still needs to find an extra £159,850,000,000 to soak up the country's annual overspend!
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"Those are the real figures with all the noughts on. Don't know about other people but I find the reality of it all really terrifying, and maybe it's no wonder people use the words 'millions' and 'billions' next to quite modest numbers when talking about the economy. It also makes me wonder whether or not people would be quite so keen to stand up in public and continue to argue that the answer to our problems is to spend more if they weren't able to block out the sheer size of the problem."

that the way income tax is administered is key to explaining how the government will be able to change the tax boundaries so smoothly:

"The way PAYE is administered is one of the great scandals of modern government. To begin with, it has facilitated "tax creep". Before the Second World War, the tax burden in Britain was around 22 per cent; today it is above 40 per cent, largely because of the expansion of the welfare state, the NHS and state education...
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"But stealth taxes are also so much easier to inflict if allowances can be subtly adjusted to draw hundreds of thousands of extra people into a higher tax band without their really noticing."

The politicians need the support of voters who have worked hard to "drag their families up into the middle class":

"[I]t will overturn a received axiom of wisdom since Mrs Thatcher's day, by putting a tax on what Mr Blair called "aspiration". Three-quarters of a million workers will be pushed into the 40% tax bracket, while tax credit withdrawal will leave 175,000 working parents exposed to effective marginal rates of over 70%. In the theoretical worst case, which will be rare but no doubt apply to someone, Middle Englanders could be exposed to the 83% rate that old Labour levied on the super-rich. Factor in the removal of child benefit from higher-rate payers in 2013, and there are a group of middling professionals who could soon find they are little better-off - or even worse off - after a promotion."

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