Labour’s plan to raise income tax on £80,000 earners doesn’t cut itby George Magnus / May 8, 2017 / Leave a comment
It’s not going to happen before the election, but one of these days, politicians will have to level with voters about tax.
Over the weekend, the Labour Party pledged to introduce higher rate income tax on people earning over £80,000, if it gets into office. That’s about 1.6m people. The party says 95 per cent of people will not pay higher income tax, and there won’t be a rise in VAT. This might make good politics for the beleaguered party, but the proposal is dishonest. So too is the Conservative Party—though for slightly different reasons. The party had previously pledged not to raise taxes, but Philip Hammond has now said that he doesn’t want to be bound by this, and it is thought that while VAT would not rise under the Tory government, income tax and national insurance contributions might, for some people.
Where is the honest debate about tax? The main economic issue, quite simply, is whether we have the tax structure right in this country, bearing in mind a) the deficits that aren’t going to away any time soon, especially as the economic costs of Brexit cumulate and b) the elephant in the room, which is age-related spending on healthcare, social care and pensions. When you consider these things, it becomes clear that taxes will, at some point, have to rise for most of us. Labour’s policy therefore does not go far enough.
We have been through almost a decade of public expenditure restraint or cuts already. The political climate for further restraint is difficult, especially as far as age-related spending is concerned.
But something will have to give.
According to the OBR, government spending on current laws will rise by 4.8 per cent of GDP by 2060. That’s about £80bn in today’s money, and it’s mostly due to age-related spending. Healthcare is predicted to rise from 6.4 to 8.5 per cent of GDP, and pensions from 5.5 to 7.9 per cent of GDP. By 2060, the OBR expects public debt will have risen to 230 per cent of GDP. Get the picture? Someone is going to have to pay for this, and that’s not just a few millionaires, FTSE 100 companies, banks, and those earning more than £80,000; it’s all of us.
Looked at another way, if we had to…