The real tax bombshell

As the parties release their manifestos for the 2017 General Election (#GE17), Maurice queries the accuracy, and motivation, of some of the coverage of Labour’s tax plans.

The Daily Mail claims that 1.5m ‘middle class workers’ would have to pay an average £3,000 a year extra each under Labour’s proposed new tax plans – or rather, Labour’s tax ‘bombshell’ as they inevitably put it.

They say Labour “wants to raise an extra £4.5billion from workers earning £80,000 to fund Jeremy Corbyn’s spending spree”.

Really? Let’s take a look. Here’s a chart Tweeted by the Institute for Fiscal Studies.

The IFS Tweet showing the cost of the proposed new tax thresholds

It turns out the Daily Mail’s first claim is deceptive. The second is simply false – there’s no other way to put it. Let’s take them in reverse order.

Does Labour plan to raise billions “from workers earning £80,000”? No.

If you earn up to £80,000 you will not pay a single extra penny. Even if you earn exactly £80,000 you will pay an extra…zero. Nothing. £80k is the proposed new threshold. You don’t suddenly get hit with a big tax bill for your whole pay packet as soon as you earn that amount. You get taxed just as you always did on the first £80k of your earnings (though obviously for the vast majority of us, this just isn’t an issue), and then pay a bit more, in increments, on the top slice of your income. So no, Labour do not plan to raise extra £4.5billion from workers earning £80,000. Simply false.

Which brings us to the other claim – that ‘middle class’ families will have to pay an extra £3,000 a year each, on average. This is deeply, perhaps deliberately, misleading. In fact, something like 95 to 98 percent of the adult population of the UK will not have to pay an extra penny under the Labour plan. The Mail appears to have added up all the extra tax to be levied on the top slice of the earnings of the top 2 percent – including that on hyper-wealthy multimillionaires – then averaged it out.

It reminds me of the joke where Bill Gates walks into a bar with fifty ordinary workers in it, and one of them shouts “Hey, good news guys: everybody in the bar is now a billionaire on average”.

To use the crude average (mean) figure when there is a massive disparity across the incomes of the top two percent, with many at the lower end of the range and a very few people earning multiple millions, is as absurd as it is disingenuous. To do so when perhaps 98 percent of the population will not have to pay an extra penny, and when the average person’s wage is about a third of the new threshold, begins to look like more than carelessness.

Let’s look at how it really works. For every £1k over and above the £80k threshold, should you be lucky enough to earn that much, you will have to pay an extra…£50.00. So if the average person suddenly found their pay packet more than tripled, to the point where that they were earning £81k, the Labour ‘tax bombshell’ would be…fifty quid. A hundred quid for those earning an extra thousand on top of that, and so on. You’d have to earn quite a lot more than the £80k before you reached the Mail’s ‘average’.

Look at the IFS figures again and you will notice that you have to be earning fully £20,000 a year above the threshold – so £100k in total – before your additional tax bill even hits the £1,000 mark.

I guess if you think a family with three members all earning £100,000 each is a ‘middle class’ family then, yes, they will be hit with an extra £3k tax bill. Then again, out of their collective income of £300,000, I’m not sure that will be catastrophic.

In fact, according to the IFS, as an individual, you would have to be earning more than £123,000 to be billed for the extra £3k the Mail trumpets. That would put you in the top 1 percent of earners.

Yes, that’s right: fully 99 percent of the adult population of the UK would be charged less than the Mail’s ‘average’ for ‘middle class’ families.

That would probably include, I imagine, 99 percent of the Mail’s readers. So why is the paper pushing this line? Why issue such a stark warning when your readers are not going to be affected by the charge – and indeed may well benefit from the extra funding for the NHS and education system it releases? Does this not show a callous disregard, even a contempt for your own readership? Why try to deceive them into opposing tax-funded investment in public services? Sheer malice?

Could it be anything to do with the fact that the editor of the Daily Mail, Paul Dacre, “took home £1.5m in 2016, maintaining his position as Britain’s best-paid newspaper editor”?

I’ll leave you to work out the maths.

In the end, tax is how we contribute to a common pool of resources from which we all draw, sooner or later, across our lifetimes.

If the wealthy want to set themselves apart, over and above the common people, that’s one thing.

If a newspaper’s rich owners and editors set out to deceive their relatively low-paid readership into voting against their own interests and against the common good in order to avoid a tax hike for themselves, that’s quite another thing.

Indeed, there’s your real bombshell.

 

Maurice Macartney

20 May 2017