The most disappointing thing about the new coalition is that it hasn’t had the gumption to tackle tax reform head on; in fact, it has fallen straight into the fudgepit in order to get the headline LibDem aspiration of a £10,000 income tax threshold.
There will be no such thing, any time soon.
Question: What is the marginal rate at which employment income is taxed in the UK for “basic rate tax payers”?
Clue: the answer is not 20%.
It’s actually 43.8%. Now, before any new budget comes into play. And it won’t be much different after 2011 either.
The stealth tax is National Insurance Contributions – which most people pay at 11% on their salaries. But their employer also has to pay an extra-stealthy 12.8%. Now you see where the 43.8% figure comes from. It’s a big lie that income is taxed at 20%. We might pay Income Tax at 20%, but it’s not the only tax our our income. If the new regime were really interested in being fair and transparent about taxation, it would be taking immediate steps to merge Income Tax with National Insurance Contributions, so that there was just one tax on income.