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Mon, 30 March 2020

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By IPSE

Britain’s top earners to gain most from 'expensive' Boris Johnson tax pledges, says IFS

Britain’s top earners to gain most from 'expensive' Boris Johnson tax pledges, says IFS
2 min read

Britain’s highest paid will benefit the most from Boris Johnson’s two key tax pledges, according to a major thinktank.


The Institute for Fiscal Studies (IFS) found that the top 10% of earners would gain an average of nearly £2,500 a year under the reforms pledged by the Tory leadership frontrunner.

Mr Johnson has vowed to increase the income tax higher rate threshold (HRT) from £50,000 to £80,000 if he wins the race to take over from Theresa May next month.

He has also pledged o raise the point at which people start paying National Insurance contributions (NICs) in a bid to help low earners.

However, the thinktank says those who gain the most under Mr Johnson's combined policies will be high income pensioners, who will not be affected by the increase in the National Insurance ceiling.

Researchers found that boosting the HRT - the 40% tax rate - would cost about £9bn and benefit the four million income tax payers with the highest incomes.

Making the move straight away, they say, would take about 2.5 million people out of the higher rate tax bracket - to its lowest level since 1990.

The group added that while just 8% would gain in the short run, "probably at least a quarter" will at some point either become or live in a household with a higher rate taxpayer.

The pledge to pull back the earnings requirement on NICs was “probably the best” policy for trying to help low earners through the tax system, the IFS said, although it would still offer “most benefit” to high income households.

While Mr Johnson has not set a new threshold, the think-tank found that raising it to the current income tax personal allowance of £12,500 would cost at least £11bn and would take 2.4 million workers out of NICs altogether.

Tom Waters, a Research Economist at IFS, said: “These are expensive pledges to cut tax.

“Raising the higher rate threshold as far as £80,000 would be a radical change benefiting high income households only, though it is important to be aware that the numbers paying higher rate tax have crept up over time, largely unannounced.

“There are now more than four million higher rate taxpayers compared with 1.5 million 30 years ago. Raising the floor for NICs helps low earners, though raising tax credits would be much more effective and better targeted if that were the key aim.

“These pledges between them will cost many billions of pounds. It is not clear that spending such sums on tax cuts is compatible with both ending austerity in public spending and prudent management of the public finances.”

Read the most recent article written by Nicholas Mairs - Public sector workers to get 5% pay rise from April if Labour wins election

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