Boris Johnson has suggested that the income level at which 40% tax should start in England, Wales (for now) and Northern Ireland should increase from £50,000 of taxable income to £80,000.
The suggestion does, like all his policy offerings, only make sense if you are in that very specific population who this is targeting, those who will vote in the Tory leadership election. In other words, most likely a well off, and probably elderly, member of the Tory party.
In compensation for this tax cut Johnson has said he would increase national insurance charges on those who work for a living. At present these reduce from 12% at £50,000 of earned income (which may not be the same as taxable income) to just 2%. Johnson is now suggesting this should not happen until income reaches £80,000. So it would appear that he is giving a tax cut of only 10%. But let’s not get ahead of ourselves in thinking that. Some facts are needed here.
First, using the most recent HM Revenue & Customs tax estimates, about 4.2 million people have earnings of more than £50,000 a year. That is 13.5% of taxpayers. What is immediately obvious is that this tax cut is biased to those already well off in the UK (excluding Scotland, which sets its own higher rates of income tax, a fact that appears to have passed Johnson by).
Second, at least 11% of income of people in the £50-100k range comes from savings sources (including dividends, interest and rents), and so is not subject to national insurance. Some too will be either pensions, or the earnings of those of pensionable age, and they are also outside the scope of a national insurance charge. In that case it is not true by any means that the cut in income tax rates will be compensated for by the increase in national insurance charges. Given the age of many Tory members, this is likely to apply to many of them.
Third, Johnson can and will set national insurance rates for Scotland from Westminster if prime minister. But he will not set income tax rates. As a result his plans are, perversely, actually a significant tax increase of 10% for in this income bracket in Scotland. It can be presumed that he thinks there are few Scottish Tories who will vote for him anyway.
The consequence of these facts is that for a significant number of elderly, wealthy, high income earners, the likely marginal rate of income tax in England, Wales and Northern Ireland might reduce from 40% to 20%. The maximum saving would be £6,000 a year (for those for whom a significant portion of their income comes from non-National Insurance sources such as dividends, interest and rents), less (perhaps a maximum of £3,000) for those whose income comes from wages. In both cases, it reality it will likely it will be less than that, because HMRC’s statistics show that there are many more people who have incomes close to £50,000 than £80,000. But whatever the precise sum the consequence will be that taxes for an already well off group in society will be reduced significantly. The numbers involved cannot be precisely known but HM Revenue & Customs statistics suggest that maybe 2.3 million people could benefit
The Institute for Fiscal Studies suggests that the total cost may be £9.6 billion. I think that may overstate things, but a cost of more than £7 billion is the minimum likely.
A number of very obvious questions arise. The first is whether Johnson is serious. It is very hard to see a minority government – which he would be heading if he becomes prime minister – enacting any such measure, particularly when fellow Tories have been quick to voice opposition to the plan. It has to be asked whether or not this is simply irresponsible posturing which appears so typical of Johnson.
Second, it has to be wondered what those who voted for Brexit might think about a large part of the supposed benefit arising from that action (itself a dubious claim) being used to provide a substantial tax benefit for those already very well off in some parts of the UK. That this might be a gift to the Brexit Party is an idea that is hard to avoid.
Third, that this move might alienate Scotland still further from anything to do with the Tories and Westminster is a possibility that seems very real, and one that Johnson has ignored.
And fourth, almost anyone can imagine that there are better uses for more than £7 billion than this. Even if Johnson wanted to appease his own target audience he would have done better to consider the costs of care in old age or relieving the burdens on students, which many of those he is trying to win over have to bear on their children’s behalf. I would tackle universal credit, the bedroom tax, disability benefits and other such essential issues. But no doubt those issues never crossed Johnson’s mind.
And of these options which is the one I think most likely? I think it’s the first. I suggest Johnson is simply dissembling without any care about whether what he is saying is deliverable or not. And that is perhaps the most worrying aspect of this. We have a man seeking to become prime minister who simply does not care about the truth, or anything much else come to that.