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RChancellor Eckel Reeves is being pressured by some of his colleagues to break Labour’s manifesto pledge but with tax rises Only on the highest earners,
Independent It understands that changes to the top rate of income tax have been discussed by ministers, as the Treasury looks to close the gap between revenues and spending of between £30bn and £40bn a year.
Some of our sources have suggested that increasing the top rate of income tax, or reducing the threshold, would be considered by voters to be an “understandable” breach of the manifesto promise not to raise any headline taxes.
We are not sure they are right. Independent Argued that the government needs to be honest with the people and accept that taxes must increase. We believe there is some scope for reining in the growth of public expenditure in some areas. The disability benefits budget is a clear example, but the failed attempt to cut payments, including to existing claimants, was ignored. with some justificationBy a backbench Labor rebellion.
However, overall, if we want decent public servicesWe have to pay for them, and British tax levels are not particularly high compared to other European countries – especially for middle-income people.
It was a political mistake by Ms Reeves to cut her plan so far in last year’s budget that she had to come back for more tax rises 12 months later, and claiming to have “fixed the foundation” was foolish. But admitting that error doesn’t change the need to find more revenue.
The problem, of course, is that Labor promised at the election not to raise income tax, VAT, National Insurance or corporation tax – the four taxes that raise the bulk of government revenue. This has led the Chancellor to think about other taxes, or “stealth” forms of those taxes, such as freezing the income tax threshold in cash terms. Raising significant sums of money this way will always be difficult.
Last year, Ms Reeves resolved the dilemma by putting forward employers’ National Insurance contributions, arguing that it does not count as an increase in National Insurance because it does not fall directly on “working people”. An increase in the top rate of income tax would involve an even more obvious fallacy, with the effect that anyone earning more than a certain amount would be defined as “not working”.
However, despite such rhetoric, a tax increase for top-rate taxpayers would be bad policy. If the top rate were to be increased from 45p to 50p in the pound, this would raise a meaningless amount. The issue was debated and closed during the coalition government, when George Osborne reduced the rate from 50p to 45p.
If the threshold is reduced from £125,000 to £100,000 per year, it will increase the distortion of the tax system whereby earnings between £100,000 and £125,000 will be hit by a higher effective rate due to the gradual withdrawal of the personal allowance. Moreover, they also reach up to £100,000 per year losing child care subsidiesFurther tax increases on this group will discourage wealth creation and will only provide more work for tax lawyers.
If the Chancellor is going to break a manifesto pledge, she should do it openly, she should do it in a way that raises significant sums, and she should do it in a manner this is the proper wayIt should raise the basic rate of income tax, which would take money from a broader base of taxpayers according to their ability to pay. This would apply to all types of income, including rent, dividends and interest: anyone who can pay will pay, with those with higher incomes paying more.
The time for sophistry and secret taxes is over. Now is the time to tell people about the state of public finances and ask everyone do your work To fix the problem.