George Osborne claimed to cut the top rate of tax in the budget.
But he didn't. He made a new one.
He announced that for families with child benefit with a person earning between £50,000 and £60,000 in the household 1% of the benefit would be earned for every £1oo earned over £50,000
Child benefit is paid this year at the rate of £20.30 for the first child and £13.40 for each additional child.
Now let's take a family in this income bracket with two children. For each £100 earned they will pay £40 in tax. And they will lose £17.52 (on a 52 week basis) of child benefit. That's a tax rate of 57.5%.
Try a 4 child family and the rate goes to over 71%.
Of course some on around £10,000 suffering benefit withdrawals because of the increase in the personal allowance will also suffer this sort of marginal tax rate as well. But ket's be clear, George did not get rid of the highest rate of income tax in this budget, he made a new one.
Curiously, the IFS says 48% is the highest optimal rate of tax in the UK. Candidly, their logic is based on fantasy land maths, but instinctively I have a gut feeling anything much over 50% is high. However looked at a large swathe of families right in the 'hard working families' bracket where incentives to work are meant to have a big impact are now going to be suffering a rate much higher than that.
Well done George! And all for the sake of your dogma driven wish to get rid of universal beenfits.
They'll thank him even less when they realise that they now have to do tax returns and refund this case - which they'll have spent - at the end of each year too. Oh, what a fine mess George can make.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Personally I don’t see why people earning £50-£60,000 should be getting any child benefit at all.
I’d even question it at £30-£40,000 levels of income too.
Below that seems reasonable.
Universal beenfits work
Nothing else does
The scandal in the UK is the vast amount of unclaimed benefit
If children are to be supported universal benefits are essential – and they’re for children, not their parents
A slight aside, but why is that you believe that universal benefits work? Are you talking about the rerlative cost of administrating a universal versus non universal benefit?
Three reasons
1) They get to the vast majority of intended recipients – nothing else does
2) They are cheap to administer
3) They bind us all in a common purpose
If the intention is for higher rate tax payers yo get less make them taxable on those people – basic rate tax being deemed to have been paid
But pay them come what may
I can’t argue with those three reasons, seems a much better way to organise it.
But it’s not even. My friend is a school head and gets £60k. She is a single mother and gets next to nothing from her ex. Pays 40% tax and will lose her CB. Yes she isn’t poor. But as a public servant her pay is also being frozen & her pension conts going up. No bonuses there either.
Contrast that with my sister. Both her and her husband earn about £80-90k between them. Both lower rate tax payers. Both in the private sector, both get a yearly bonus.Both had pay rises this year. One of them has a non-contributory pension. Two tax free allowances. And they keep the CB.
Where is the parity in that?
If it is to be means tested it needs to be properly means tested.
Agreed
But actually, it should not be means tested
A universal threshold below which no citizen can fall below is the way to go. If a millionaire is receiving £200 per week from the state and a single mother is receiving the same no-one can complain that they are being ripped-off.
Of course that’s only if we all admit that we live in a society where we are all in it together.
The idea is implicit in all my thinking in The Courageous State
“the IFS says 48% is the highest optimal rate of tax in the UK. Candidly, their logic is based on fantasy land maths”
I’m sure their logic is a damned sight more robust than yours, Richard.
And why is the title about what George believes to be the optimal tax rate, when it is the IFS who came up with the 48% figure?
It would help your credibility if you could get basic things like this right.
HMT say the same – but then they use the same assumptions
So my headline was right – just go look at the budget documents
But for your pedantry you’ll now be hitting the spam box from now for time wasting
“Mr Osborne said he will tax rich people when they stop consoling themselves with luxury goods every time they feel a bit sad”
http://www.thedailymash.co.uk/politics/politics-headlines/burden-should-fall-on-those-with-the-most-character%2c-says-osborne-201203225045/
Or:
“Margaret Gerving, a retired headmistress from Guildford, said: “Personal allowances? I shit ’em. You’ll have to do better than that you pointless little fart.” ”
Anyway, all thise hot pasties and tarts were making me fat. The budget is going to be good for weight loss !
If a couple don’t get child benefits any more (at say £60,000 income) they don’t pay any more tax, they just don’t get a tax refund in the form of benefits. So their higher tax rate stays the same at 40%, not increase to 71% .
That’s true at £60,000
But it sin’t between £50k and £60k – so you’re not addressing the truth but a straw man of your own making
Surely it is equally true between  £50,000 and  £60,000 – except that a small percentage of tax will be refunded in the form of child benefit, depending how close you are to the  £60,000 mark. So, for your four-child family example, they would receive a rebate of between £3146 and zero depending on how close they are to the upper limit. Sorry Richard but I cannot see how your assertion of someone not receiving child benefit somehow equates to them paying a higher rate of tax.Â
Respectfully, I think you’re being obtuse
You’re also using a false email – a sure sign of a troll
You won’t be commenting again
Johnson,
Richard is talking about the marginal tax rate, which is the rate charged on an additional £ of income. Where benefits are withdrawn as a consequence of that additional £, the marginal tax rate increases even if the income tax rate remains the same. I believe the highest marginal rates actually fall on young single unemployed men when they find work: withdrawal of out-of-work benefits can mean that they face marginal tax rates in excess of 90%. Obviously this can act as a major disincentive to those young men to bother to look for work, because any job has to pay a LOT more than benefits to be worth their while. In the case of middle-income earners facing withdrawal of child benefit, I think we might see couples rebalancing their working lives, maybe towards two part-time incomes, to avoid the high marginal tax rates that Richard correctly identifies. It is not good news for people on that level of income who are the sole earners in their families. The only good thing about it is that it comes into play at a higher income level than was previously planned and on a taper basis rather than a cliff edge. But I agree with Richard that child benefit should remain a universal benefit: there are other ways of clawing back money from the richest, who don’t need it.
It’s a philospophical point, I know, but having a benefit withdrawn is not the same as paying tax. Also, if we’re taking this sort of line then the top rate of tax was never 50% anyway, it was (and is) the effective 62% being paid between £100k and £115k as the personal allowance was withdrawn.. and that IS a tax rate. However, even though I believe a tax free allowance should be universal.. my heart wasn’t bleeding for the impoverished affected.
Many benefit withdrawl rates are higher, though, and at the level where benefits are essential then that’s something to be fixed. Of course, they’re a legacy of years/decades of tinkering around with benefits for the good of nobody but the people being paid to do the tinkering. The rhetoric from IDS on sorting this out is promising, but I’m not sure how it’ll work out in practice. (Are there any examples yet where tory policies have worsened withdrawl rates? That would be rather embarassing for them.)
Unfortunately, many seem determined to only focus on the negative sides of a policy.. even where a positive side outweighs it (see, for example, mass hysteria about ‘granny tax’ after a budget in which promised to make granny better off). In such an atmosphere it will be very difficult to deal with complexities in the system because there are too many people actively seeking out things to be outraged about. That’s our politics.. I know it was just as bad when Labour were in power and it was the right who were always sniping.
Re. your point on tax returns.. surely it’s now time for HMRC to provide a greatly simplified tax return for those people with relatively straightforward affairs? I think their online system is pretty good, but a full tax return is a daunting document. A condensed and user friendly option for people with ‘ordinary’ things to include would be great. I actually think that the more people do tax returns the better.. it’s good for society for people to understand how they’re taxed.
Hence my article in the Guardian yesterday
Although don’t take that as agreement with you – as it isn’t
You didn’t factor in the National Insurance on the £100, so arguably the marginal rate is higher. Furthermore if you have 7 children the government will take about £1.01 off you for every £1 you earn. A very encouraging thought!
You’re right!
Actual NI is only 2%
I personally believe a far better approach is universal child benefit, but to make the child benefit taxable. The government could increase the amount paid to leave it the same for basic rate taxpayers and make things better for the poorest (ie non-taxpayers). Those who fall into the tax brackets would receive less.
Admittedly you may have an additional rate taxpayer who has a spouse who is a non-taxpayer, but the splitting of income in that family would be so inefficient that you might want to forgive the payment of child benefit.
If you deemed the payment net of basic rate tax and simply required a higher rate payment you’d solve a lot of problems
But universal it should be
“Actual NI is only 2%”
I understood NI to be only 1% for high earners. Was I wrong or has it gone up?
2% now….
Sorry, 1% is a memory now
There is another point you are all missing. CB was originally paid to the mother to make up for husbands that kept all their money. What will happen there now?
I remember well – my mum got it when it was family allowance – and it was intended to get round the wages being drunk before father got home
Not that that happened in my home, I hasten to add
http://www.mindfulmoney.co.uk/wp/shaun-richards/why-the-debate-over-the-50-income-tax-rate-in-the-uk-and-its-subsequent-reduction-shames-us-all/