By Tim Stacey from The Equality Trust
This week is Budget week and there’s been plenty of talk about the tax and spending changes that could be announced.
These include increasing the personal tax allowance, which is talked about in terms of helping ‘low earners’, and raising the starting point for the 40p tax rate, which is believed to help those on ‘middle incomes’. The focus of these tax measures, and usage of these terms, suggests a slightly skewed view is present within the Westminster bubble. Talk of ‘low earners’ and ‘middle incomes’ may be politically expedient, but in reality both proposals help the richest more than others, and are more likely to increase inequality than decrease it.
Raising the personal allowance beyond £10,000 will do nothing to help the lowest earners. At its current height the personal allowance means that the lowest earners don’t pay income tax. Raising the personal allowance will bring more low earners out of tax but by the biggest beneficiaries aren’t households with low incomes. As a Resolution Foundation report has shown, increasing the personal allowance will help households in the top half more than it will help the bottom. In fact, the personal allowance being raised has a greater effect the higher up the income spectrum you go, with those in the top decile gaining most and those in the poorest gaining least.
Talking about the personal allowance as helping low earners is at least in some way true, as some people on low incomes will benefit from it. But discussions on the 40p tax rate dealing with those on middles incomes are entirely inaccurate. The 40p tax rate currently kicks in at just under twice the median income. The median income in the UK in 2013 according to the ONS is £21,905, in order to start paying the 40p tax rate you have to be earning over £41,451. To talk about this as a middle income tax is to miss the bigger picture of the UK’s financial situation.
These discussions focusing on the upper part of the income spectrum show the Westminster bubble’s complete incomprehension of the inequality gap that exists in the UK. This lack of awareness threatens to produce a Budget that fails to address the gap between the richest and the rest. More importantly, it is likely to have significant negative effects on the nation’s health, wealth and happiness.