While party apparatchiks are still dotting the Is and crossing the Ts of their manifestos for the General Election, it is clear they will contain major differences when it comes to policies on taxing the rich.
Labour leader Jeremy Corbyn has made no secret of his ambition to increase taxes for the wealthiest in society, in order to pay for an increase in public spending – indeed the party’s “for the many not the few” motto is a bit of a giveaway.
Prime Minister Boris Johnson, on the other hand, promised during the Tory Party leadership contest over the summer to cut taxes for higher earners, as well as raise the point at which everyone starts paying National Insurance contributions.
What do the Conservatives think?
If his leadership campaign is anything to go by, the Conservatives’ manifesto might contain plans to cut income tax for middle to higher earners.
This would be done by increasing the income tax higher-rate threshold from £50,000 to £80,000. In turn, this would mean the basic rate of income tax at 20p for earnings between £12,501 to £50,000 – presuming the personal allowance threshold remained the same.
How much would this cost?
The Institute for Fiscal Studies (IFS) estimated this would benefit about 8% of taxpayers in the short term, and take 2.5 million people out of higher-rate tax altogether, with the number of higher-rate taxpayers down to its lowest level since 1990.
The IFS predicted this would cost the Exchequer £9 billion annually.
Raising the point at which people start paying National Insurance contributions to the current income tax personal allowance of £12,500 would cost at least £11 billion a year and would take 2.4 million workers out of national insurance contributions altogether.
How about Labour?
In its 2017 manifesto, Labour pledged not to raise income tax for those earning below £80,000 a year, not to increase personal National Insurance Contributions or VAT.
The manifesto stated: “Only the top 5% of earners will be asked to contribute more in tax to help fund our public services.”
This would be achieved by lowering the threshold for the 45p additional rate to £80,000 – from £150,000 – and introducing a new top 50p rate on earnings above £123,000.
The additional rate was 50p for earnings above £150,000 from April 2010 until it was lowered to 45p in March 2012.
The IFS forecast this would result in a tax rise for 1.3 million people or 4% of those who pay income tax.
How much would this raise?
The IFS estimated that if there were no change in taxpayers’ (pre-tax) incomes as a result of Labour’s proposed income tax rises, it would raise about £7 billion per year.
However, the IFS warned that behavioural changes from higher-rate payers – such as an increase in early retirements, or legal and illegal tax evasion – could reduce this figure.
Labour also said it could raise £3.7 billion a year by reversing “tax giveaways” on Capital Gains Tax, Inheritance Tax, the bank levy and scrapping the marriage allowance.