750,000 will be dragged into higher tax bracket

January 31, 2011 3:07 PM

The IFS released a chapter of their upcoming green budget this morning. They’ve calculated that 750,000 taxpayers will be pulled in the higher band, to mitigate for the loss of revenue from lifting the personal allowance. Millions of people have moved in to the higher band over the years through fiscal drag anyway, with the threshold rarely keeping pace with wage increases. This has meant that people who are far from rich have been pulled up to pay more tax. I wrote about this last year after the Budget, and it raked in an extra billion for the Treasury from taxpayers last year. This change is a little bit like a formalisation of that process.

But with the VAT hike and the increasing burden of fuel duty, the cost of living is already high. Add inflation to that and you have some seriously tough conditions for the 750,000 individuals that will dragged up. An average of £200 a year less through these tax changes will make things even tougher.

Cutting the deficit by reducing spending is the right thing to do, but there are other significant pressures on household budgets, especially from huge capital spending in the energy sector. It’s often said that the Chancellor is a ‘tax-cutter’ so it would be good to see him in action, to lighten this load on taxpayers. But too often, ad hoc concessions used as political gestures breed complexity, as they establish more reliefs or loopholes. A radical simplification of the tax system is badly needed alongside lower taxes. The 2020 Tax Commission will be exploring ways to do that throughout the year.The IFS released a chapter of their upcoming green budget this morning. They’ve calculated that 750,000 taxpayers will be pulled in the higher band, to mitigate for the loss of revenue from lifting the personal allowance. Millions of people have moved in to the higher band over the years through fiscal drag anyway, with the threshold rarely keeping pace with wage increases. This has meant that people who are far from rich have been pulled up to pay more tax. I wrote about this last year after the Budget, and it raked in an extra billion for the Treasury from taxpayers last year. This change is a little bit like a formalisation of that process.

But with the VAT hike and the increasing burden of fuel duty, the cost of living is already high. Add inflation to that and you have some seriously tough conditions for the 750,000 individuals that will dragged up. An average of £200 a year less through these tax changes will make things even tougher.

Cutting the deficit by reducing spending is the right thing to do, but there are other significant pressures on household budgets, especially from huge capital spending in the energy sector. It’s often said that the Chancellor is a ‘tax-cutter’ so it would be good to see him in action, to lighten this load on taxpayers. But too often, ad hoc concessions used as political gestures breed complexity, as they establish more reliefs or loopholes. A radical simplification of the tax system is badly needed alongside lower taxes. The 2020 Tax Commission will be exploring ways to do that throughout the year.

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