Another week, another speech from David Cameron. This time it was on tax, and he had two headline announcements – that the tax threshold for the basic rate would be increased to £12,500 while the threshold for the 40p rate would go up to £50,000. This, Cameron said was a ‘reward‘ for putting up with austerity so obediently. Both these measures help the better off more than the lower paid, as those on the lowest pay already don’t pay income tax so raising the basic rate threshold does nothing from them.
For all the talk of lifting people out of tax and people being better off to the tune of £x000 a year, the reality is actually very different. This chart (click on it to enlarge) is taken from a recent publication from the Institute of Fiscal Studies, and it shows the net impact of the Coalition’s tax and benefit changes over the course of this Parliament.
It shows that for all income deciles, bar the 7th and 8th, any tax cuts have been less than other tax rises and benefit cuts, meaning nearly everyone is worse, not better off. While the top 10% have lost most in terms of £s, as a proportion of their income (light grey line), it’s the bottom 10% who have lost most, closely followed by the second bottom 10%. Indeed, even excluding benefit cuts, the bottom 10% have lost more than they have gained through tax changes. They have been hit hard by the VAT rise, but hardly benefited at all from the rise in the income tax threshold.
Cameron may talk about patting us all on the head with a nice ‘reward’, but beware of Tories bearing gifts. There are likely to be some nasty surprises in there as well should they win in May.