Tax promises under spotlight as Corbyn concedes low earners could pay more

Labour leader Jeremy Corbyn’s admission that some low incomes taxpayers could end up paying more under his party’s manifesto proposals has put the election focus on tax plans.

Here is a look at the issues and what other parties are promising:

– What tax promises have been made by different parties?

The Conservatives have promised a “triple tax lock” with no increases in income tax, national insurance and VAT for five years.

They would also raise the threshold for national insurance contributions to £9,500, with the “ultimate ambition” to increase it to £12,500.

Despite a pledge to raise the threshold for higher-rate taxpayers from £50,000 to £80,000 during Boris Johnson’s previous campaign to be party leader, there was no mention of it in the Conservative manifesto.

The Liberal Democrats would scrap the marriage allowance and establish an independent review to consult on how to set a “genuine” living wage across all sectors.

Labour has pledged to raise taxes for those on £80,000 and over with a new “super rich” rate for those on more than £125,000.

Mr Corbyn has described Labour’s plans, which also include a 5% pay rise for public sector workers and introducing a “real living wage” of at least £10 an hour while ending zero hours contracts, as bringing an end to an end a system “rigged” in favour of “the billionaires and the super rich”.

Scrapping the marriage allowance was also mentioned in Labour’s “grey book”, which sets out how it would pay for its spending commitments.

The marriage allowance is a tax break which lets people transfer part of their personal allowance to their spouse.

– What questions have been raised over Labour’s proposals?

Mr Corbyn was challenged during a BBC interview on Tuesday about people on incomes well below £80,000 potentially paying more under a Labour government.

Interviewer Andrew Neil asked Mr Corbyn about scrapping the marriage allowance, saying: “These people, there’s almost two million of them, are going to lose £250, and they earn a lot less than £80,000.”

The Labour leader said: “They will also be getting a pay rise when we bring in a living wage.”

Pressed further on the issue of this group paying more tax, Mr Corbyn said: “They won’t get the advantage, it’s actually taking away £250.”

Mr Neil also asked Mr Corbyn about Labour’s higher dividend taxes, citing the example of someone on a state pension with an annuity of £4,000 and a dividend income of £2,000 who could see their income tax bill increase from £9 to over £400.

He said: “We’re talking about people who are just on £14,000 a year.”

Mr Corbyn replied: “They’ll be taxed on the basis of their total income and it’s a graded tax so that is reasonable and fair to do.”

– What other questions have been raised about Labour’s costings?

Mr Corbyn’s BBC interview with Mr Neil also raised questions about how the estimated £58 billion cost of Labour proposals to compensate the Waspi women who lost out as a result of changes to the pension age would be covered.

When asked about the costings, Mr Corbyn said the issue was a “moral case” and later added: “We’ll pay for it because it has to be paid for.”

– Who earns more than £80,000?

According to the Institute for Fiscal Studies (IFS), Labour’s plans would raise income tax for 1.6 million people with taxable incomes over £80,000 a year.

They are the highest-income 5% of income tax payers – or the highest-income 3% of all adults.

– How much do the top 5% of income tax payers already contribute – and what do they get back?

The IFS said the top 5% of income tax payers currently contribute around half of all income tax revenues, up from 43% just before the financial crisis.

They receive a quarter of taxpayers’ income – similar to the share they had in 2007–08.

The IFS said the increase in the concentration of income tax at the top in recent years reflects a series of income tax increases since 2010 for those on high incomes.

These include cuts in income tax relief for private pension contributions and real-terms reductions in the higher-rate threshold.

– What impact could Labour’s tax plans have?

The IFS said the plans could go some way to reducing income inequality.

But it also highlighted the potential risks from being “extraordinarily dependent” on a small group of people for a large chunk of tax revenues.

Xiaowei Xu, a research economist at the IFS, said: “Labour are proposing a substantial tax rise on the highest-income 3% of adults.

“This could raise some money – about £3 billion a year as a central estimate – and could have some effect on reducing income inequality.

“But it comes with risks, as those with the highest incomes are likely to respond to the tax rise by reducing their pre-tax incomes.

“The likely extent of these responses is highly uncertain, though the more Labour reduces the scope to shift income into more lightly-taxed forms (like capital gains), the more revenue its income tax proposal would be likely to raise.

“It is worth noting that we are already extraordinarily dependent on this small group of individuals for tax payments – they account for half of income tax revenues today.”