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The Daily Mirror has missed the real scandal: the tax on the low-paid is 84pc, not 36pc

11 July 2013

9:01 AM

11 July 2013

9:01 AM

Today’s Daily Mirror has exposed half a scandal: that the tax changes under this government have hit the poor harder that the rich. That’s what you get when you jack up VAT: it hits everyone, but will hit the poor proportionally harder. But this year, the lower-paid half of British workers will be asked for less than 10pc of all income tax collected, the lowest proportion ever. The richest 1pc will contribute almost 30pc, the highest in recorded history. Osborne is actually squeezing the rich harder than any Labour Chancellor ever did (that’s what you get when you cut the top rate of tax). The ONS yesterday published figures suggesting that the top 20pc pay 35pc of their income in tax, and the poorest 20pc pay 36pc, when all taxes etc is considered. That tiny difference is enough for it to justify a cover story.

But here is the real scandal. If you’re doing low-paid, part-time work – and many millions have no choice but to do that – then the government will impose a de facto tax rate of up to 84pc on extra earnings depending on your circumstances. Here’s an example:-

Screen-Shot-2012-12-16-at-12.18.45-582x400

[Alt-Text]


Screen-Shot-2012-12-16-at-12.18.38-574x400

Would you do extra work at a 84pc tax rate? I know I wouldn’t. No wonder immigrants (who get to keep most of the extra money they earn) are still coming in such numbers. The fault does not lie with lazy Brits but a cruel and purblind welfare system which is being reformed far too slowly. The above graph shows the real situation confronting Daily Mirror readers and others, yet it is never replicated by governmental authorities. Its a graph that shows a deeply inconvenient truth. As a result, our political leaders are – in the most part – blind to this hideously unfair system which is still, three years into the government, keeping the poor down. In fact, if you look at it a certain way, some marginal rates are as high as 98pc. David Cameron once said something to say about this.

“Thirty years ago this party won an election fighting against 98 per cent tax rates for the richest. I want us to show even more anger about 98 per cent tax rates for the very poorest in our country!”

Precious little sign of that anger now. Osborne has lowered the marginal rate for the rich, and it has worked. The effective marginal tax rates confronting the poor, meanwhile, are higher than ever. There doesn’t seem to be as much urgency.

This, of course, is the problem which Iain Duncan Smith’s Universal Credit is intended to solve. That is why it’s so sad that the project is moving at such glacial pace. It has never been more urgently needed.

PS Ryan Bourne, my colleague at the CPS, gives his take here. And here’s what the 1pc pay in tax, over the years:-

Screen Shot 2013-07-11 at 10.18.58

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Show comments
  • mark williams

    Has the Mirror got the figures wrong or are they just like IDS the
    figure for tax is 86% for the poor and the 35% for the rich so the poor
    are paying more they are being hit by this government in every way and
    the government has and is only looking after their friend to make them
    richer so the can donate more to them and this is so called tax justice
    don’t think so Tories only ever look after the rich and hit the poor sick and disabled

  • thanksdellingpole

    What we really need is a flat rate tax.

    End of.

  • Daniel Maris

    We need to move towards progressive solutions to our current problems rather than reinventing serfdom.

    1. We should be cutting the working week, moving to a four day week within 10 years. It is ludicrous that the working week remains what it was 40 years ago despite productivity having risen something like 30-40% in the same period.

    2. We should give a guarantee of paid employment to all school and college leavers.

    3. We should enforce some maximum hour limits at the upper end of the age scale.

    4. We need ratio rules for pay within companies.

    5. We need to ban unpaid internships and ensure there is fair competition for the internships e.g. they should not be open to the sons and daughters of employees.

    6. We should have a proper universal credit – that applies to all adults – a flat rate of income tax. Progressive taxation should move to property and sales.

    • the viceroy’s gin

      …and might as well initiate the necessary secret police and relocation and reeducation camps, while you’re at it. You’ll need ’em.

      • Daniel Maris

        Didn’t the Francoists have secret police, relocations, and re-education camps? And aren’t you a Francoist?

        • the viceroy’s gin

          …is that what the voices are telling you?

          • Daniel Maris

            No, that’s what your tropes are telling me.

            • the viceroy’s gin

              …no, it must be the voices in your head again, laddie.

    • Abhay

      Where did you import these rules from?

      • the viceroy’s gin

        Well, a number of possibilities come to mind:

        Havana

        Beijing

        Pyongyang

        Rangoon

        Teheran

        • Daniel Maris

          So the reduction in working week from the standard 72 hours in the mid 19th century to the standard 40 hours or less now was all a Marxist plot was it? Maybe you think the reduction was a bad idea. Perhaps you prefer to go back to the days of child labour and long, long hours. They are keeping up that tradition in Pakistan – perhaps you’d be better off there.

          • the viceroy’s gin

            …we’re not talking about the mid 19th century, laddie.

            We’re talking about your proposed NSDAP paradise of today, the one you’re desperate to inflict on people.

      • Daniel Maris

        It might have escaped your notice we have rules on the working week, hours worked and so on. I am just proposing we have different rules to those appertaining now.

        Life is lived at a much more hectic pace now than 40 years ago. People would derive enormous benefit from an additional day’s rest and recuperation at the weekend. The idea that we cannot afford it when productivity has increased by abotu 3% per annum since the 1970s is ridiculous.

        • the viceroy’s gin

          …and your secret police will be sure to instruct them on how ridiculous they are, no doubt.

    • HJ777

      “We” shouldn’t be doing anything.

      It should be left to individuals, not state coercion.

      • Daniel Maris

        OK “we” shouldn’t have any laws at all on the working week, the age of employees or any other matters pertaining to employment…

        • HJ777

          We should have rules to protect minors, otherwise I agree.

          That’s pretty much the situation in California and it works fine there.

          • Daniel Maris

            Pretty much? Only problem is I just had a look at California’s Labor Code: all 9100 clauses of it.

            http://www.leginfo.ca.gov/.html/lab_table_of_contents.html

            • the viceroy’s gin

              …and they’re about to declare bankruptcy, and business is fleeing the state in droves. Perhaps they should follow your comprehensive NSDAP plan, and have the secret police set up shop and stop them leaving?

  • TonyB58

    A major problem for the low waged has been the enthusiastic adoption of “flexible” contracts over the last thirty years, now taken to its logical conclusion with the “zero-time” contract. We have some shamefully low rates of pay in this country, as well as the highest differentials between the poor and rich outside the USA, but this evil is compounded by chronic job insecurity. I may chance taking a low paid job that pays marginally more than benefits so as to free myself of the tyranny of government bureaucrats, self-esteem and for the possibility of moving onto a better paid job later. But if the new job can end within a relatively short period of time and I am left destitute between starting the job and the first pay packet such a move makes little short term sense.

    Of course to migrant labour, even those who pay taxes, a year our two living three or more to a room on low wages is bearable as the money earned makes a real difference back home. The incentive is there to take on low wage jobs and who can blame those migrant workers who do but, equally, it is wrong to condemn British subjects as lazy and scroungers who don’t do so. They cannot survive both low wages and job insecurity plus the prospect of a life under such conditions can make even the hardiest reach for the vodka and sleeping pills!

    There has been a very nasty campaign in the press to try and turn those of us just clinging on in our free market society against those who have fallen due to age, bad luck and ill health. From my experience most people want to work but it is low wages combined with chronic job insecurity that prevents them from doing so.

  • HJ777

    As for NEETS, one reason why the rate of unemployment is so high is down to the cost of transport and unsuitability of much public transport. We have prioritised car use and made it difficult for people to get around without a car. If you are young and poor and want to take a low paid job, it just isn’t feasible unless the job is very very local. You can’t afford a car and buses/trains work poorly for local commuters in many towns and are expensive. Cycling – the obvious solution – is unpleasant and dangerous in much of the UK.

    In contrast, in the Netherlands young people regularly cycle to work over a decent radius from their homes – and they have much lower NEET unemployment, partly as a result.

    Spending on transport infrastructure for cycling (rather than the ridiculous £42bn on HS2) would produce great economic and social returns (as well as reducing congestion for cars, as it has done in the Netherlands)

  • HJ777

    Fraser Nelson makes a good point about effective marginal taxes on the low paid, although, to it’s credit, the government has raised personal tax allowances which helps.

    However, he’s incorrect about VAT. The poor spend more of their money on VAT-exempt or low-rate VAT goods (food, domestic fuel, housing). Analyses show that if you look at spending and not income, the poor do not spend a greater proportion of their money on VAT. The IFS argues that looking at income distorts the picture since many of the lowest 10% in terms of income are not actually poor. They may be retired and living on large savings, temporarily without income, etc. but not actually poor.

    • JamesdelaMare

      HJ7777 – It’s always been sound financial practice to treat income and capital separately. You don’t use capital as income. Capital in your comment would be assets that might sold to pay day to day expenses – including tax. The “poor” are poor in different ways and it’s in the government’s interest to blur the distinction. It can levy more tax and pay less benefit by blurring the distinction. However it would never openly apply that to public finance without public condemnation. Far, far better to treat the two quite separately and only expect to tax what is strictly income – unless of course the govt. intends us to become victims of yet more social engineering by penalising assets as well as income.

  • Matt Langley

    Your graphs are confusing, but as far as I can make out, they don’t include personal allowances with regard to income tax and NI, which means that neither of your examples pay PAYE or NI.

    Also, not paying charity to those who don’t need it, isn’t tax. It’s a fair point that the provision of needs based benefits can compete with with low end earnings, but to phrase it as you have, is misleading. Maybe a citizen’s basic income would be the best solution.

    Also, by the time you factor in employer’s NI, TV license, car tax, insurance taxes, and VAT etc., the total tax take at the bottom end is much nearer 100%.

  • Smithersjones2013

    This, of course, is the problem which Iain Duncan Smith’s Universal
    Credit is intended to solve. That is why it’s so sad that the project is
    moving at such glacial pace.

    Well it’s a good job that Nelson doesn’t run IT projects. Replacing the welfare system is not like an magazine editor’s article. It cannot be dreamt up overnight. It is a highly complex exercise involving thousands of people not a simplistic concoction of misinterpretation, glossy sound bites and over expectant aspirations taking up a few minutes (seconds in some cases) of thought from a single individuals time,,,,,,

    It’s not sad. It’s life and its about time those wrapped up in the Westminster Freakshow started to realise it…….

  • sarahsmith232

    £9 billion spent on Olympics, made zero % difference to local unemployment rate. this should be rammed at Labour every time they say ‘spend, spend, spend, will get unemployed working’. reason why, ’cause benefits too generous, who would get up early to break your back on a building site all day for a standard of living you can acquire for nothing more than signing on every 2wks.
    Fraser Nelson could you do us all a favour. tonight the BBC is going to broadcast a licence fee payer funded, celeb’ fronted, one hr long party political broadcast on behalf of the Labour party. they’ve employed economists to ‘enlighten’ e.g’s of we led by the nose Daily Mail reading ignorant masses about our cluelessness when it comes to the recipients and level of benefits. I think it’s hardly in doubt that this will be all claptrap and nothing more that licence fee payer funded pro Labour propaganda. we need an expose, can we rely on the Spec’ to blow a hole in their ‘facts’. please.

    • anyfool

      No one will blow a hole in any of the lies and deceit by the BBC because, almost all suck at her teat or are shuffling to get at it.

  • R2-D2

    These scandalously high marginal tax rates are what you get when you make the benefits more targeted. Instead, benefits should be universal whenever possible. Then we wouldn’t need to employ vast numbers of bureaucrats whose only job is to monitor to income of these people.

  • Chris lancashire

    If I may add an anecdote which perfectly proves the point. My company is now moving into one of its busiest times of year and it is totally impossible to get anyone to work overtime – except three Polish workers. And, no, we don’t pay minimum wage – most of our workers are on £9+ per hour.
    Thanks a lot Brown.

    • Mynydd

      Why not re-organise your work flow such that overtime working is not required, or, on the other hand you could hire addition staff for the additional work load, or stop reading newspapers during working hours.

      • Chris lancashire

        I suggest you stick to commenting on topics you know something about.

        • JamesdelaMare

          Chris – In fairness to him, you didn’t tell us what the business was, or what circumstances it faces? He’s made a general point which is a valid point for any business.

          • Chris lancashire

            A fair question – it is a manufacturing business that in the period July through September can (and happily this year does) face a rough doubling of demand. To “re-organise work flow” is just plain stupid; our “work flow” is already well organised. We do hire additional staff – we have just taken on 8 workers. The problem here is that you are taking on labour which is not familiar with our products and who take longer to produce it – thus increasing costs and risking quality. It would be far preferable as a first step to pay the premium and increase production through our own workers. Another ill-informed offering was to increase our overtime premium. If somebody will not do overtime at time and a third (because of Brown’s tax credits) they will equally not do it at time and half. Double time would, arguably, do the trick but at that rate it is certainly better to take on temporary labour. By the way – it’s best to sack your temporary labour at thirteen weeks otherwise the employer becomes liable for holiday pay and other benefits (thanks to the EU and Brown again).
            I welcome any more suggestions from armchair manufacturers.

    • Dogsnob

      What’s your overtime rate?

      • Chris lancashire

        Time and a third in the week, time and a half Saturdays, double time Sundays. Want a job?

        • the viceroy’s gin

          Well, for starters you could be at time and a half through the work week, and push it up to double on the weekends, and triple for holidays if necessary. All conditional on perfect attendance through the regular work week, would be the suggestion. Offer bonus for those who contribute additional efforts.

          If your regulars aren’t accepting the overtime, you’re not offering them enough for it. Simples. Don’t whimper about it, and blame it on others. Pay them.

          • Chris lancashire

            As with Mynydd, I suggest you stick to commenting on a subject you know something about.

            • the viceroy’s gin

              Actually, my comment is based upon my direct experience in these matters.

              Again, suggest you stop blaming and whimpering about others having caused your problems, and work on addressing them yourself.

        • Dogsnob

          Seriously, what line of work is this? What location?

          • Chris lancashire

            Seriously, furniture manufacturing. Seriously Lancashire. Now mind your own business.

            • the viceroy’s gin

              Ahhhh, it’s becoming clear now. So basically, what it is you’re saying is that you’re incapable of modulating a known and recurring demand spike, and spreading it out across a more-extended production schedule, as is commonly done in durable goods manufacturing. Further, you’re blaming your management incapacity on others, including government officials and employees for their wage demands.

              Have we got that right, then?

              • Chris lancashire

                You clearly have a lot of manufacturing experience so perhaps you can help me and my team with a problem we are struggling with.
                We have the opportunity to purchase a CNC machine which would replace 4 heads each costing £16k, fully accounted. Question is, what is an acceptable payback and hence the price we should pay for the machine?

                • the viceroy’s gin

                  Yes, it’s better to dodge, once you’ve been caught out naked. The special pleading was quite distasteful, lad. You should quit while you’re behind.

                  Oh, and I’d be pleased to provide you with an engineering economics analysis for your proposed equipment. I can send you my fee structure, if you wish. Furniture and household goods are not my normal bag, mind you, but I can manage in a pinch.

                  But just as a business process suggestion, you shouldn’t dodge your manpower issues, by using equipment as a distraction. Your next equipment investments should be fully overlaid onto that long established manpower constraint, the one you’ve been long ignoring, apparently.

                  And for Gaia’s sake, don’t blame the government and the workers for your own incompetence. That’s always a tremendous mistake.

                • Chris lancashire

                  Thought not.

                • the viceroy’s gin

                  Yes, you thought not, and thus your special pleading.

                  Let me know about the fee schedule, lad. 😉

            • Dogsnob

              Charming. I’ll put the old interview suit away then?

              • Chris lancashire

                You won’t need the suit.

                • Dogsnob

                  Without you even asking one civil question as to my suitability for a post; and with not one word out of place from myself (btw an in-work joiner/carpenter, near Lancs) you resort to that attitude?

                • Chris lancashire

                  Terribly sorry. If you would kindly let me have brief cv on here I wil happily look at it. Still don’t need the suit.

                • Dogsnob

                  Now be fair, you can’t expect a CV here surely? A PO box number or similar and I’ll pop it along.

                • Dogsnob

                  Thanks very much for your response.

  • DWWolds

    Wasn’t this welfare trap put in place by Brown and not the current government?

    • Abhay

      Successive governments have contributed in various ways and to varying degrees including Brown’s and the current one.

  • OldLb

    So the welfare trap is responsible for NEETS.

    How about migration? If you ship in lots of workers who work in Starbucks etc, they aren’t highly skilled jobs. The jobs that would have gone to the NEETS, have gone to migrants.

    Can’t mention the impact on the low skilled of unfettered migration can we Fraser.

  • OldLb

    12,000 a year – 512 pounds in income tax.

    120,000 a year – 41,598.00 a year in tax

    That’s 8,124% more tax if earn 1000% more.

    There you are Fraser, yet another set of percentages designed to spin a point.

    • HookesLaw

      1000% more?

      • Matt Langley

        Yup, as in 10x as much, or and extra 0, or order of magitude, or £10 for each £1, or £1000 for each £100…

        • the viceroy’s gin

          Good luck trying to get through to that innumerate socialist.

          • dalai guevara

            ‘1000% more’ will net you £132,000, you maths genius.

            • the viceroy’s gin

              The ” 1,000% more ” figure is given in relation to the ” 8,124% more tax ” figure given in the hypothetical, which figures are both unrelated to the 12,000 and 120,000 figures mentioned in the first 2 sentences of that post.

              You wouldn’t know that, because you didn’t check it. Plus, you’re an innumerate socialist, like the other guy, so you may not know how to do so.

            • Matt Langley

              Fair point, actually. :s

              I read it as ‘1000% as much’. My mistake.

              I’m still not sure of the significance to the point made though.

              • dalai guevara

                Well, perhaps only in as much as that the entire purpose of Fraser’s article was to demonstrate that percentage calculation (and its real effects on everyday life) is a closed book for some.

        • Abhay

          I understand your frustration, mate!
          Don’t be tearing all your hair out. Leave some.
          🙂

  • Tom Tom

    What proportion of Benefits are paid “in Work” and what proprtion to “non-Working” ?

  • Magnolia

    “Osborne is squeezing the rich harder”
    It depends on your definition of ‘rich’ and I suggest to you that he is doing it by putting up their tax rates.
    Firstly the reduction in top rate of tax is for the very wealthy only, those earning above £150,000 per annum, and the reduction of 5% tax on income has only been in place for 4 months.
    There remains some other ‘wealthy’ people who have seen a relentless tax rise from the lowering of the higher rate threshold band together with very high marginal rate cliffs at £100,000, where the free personal allowance is withdrawn, and around the ‘Child Benefit’ (relief) withdrawal level.
    Are this group also rich?
    I’m not saying that the poor don’t have nasty tax cliff edges to face as well but I am saying that it is disingenuous to present the case as one which the so-called rich do not face and to say that Mr Osborne has lowered tax for the ‘rich’ without more clarification.
    Financial drives to behaviour work for most people.
    Tax is a disincentive to working regardless of its merits to society.

    • Fergus Pickering

      You are assuming that all rich men actually work. You can take a huge salary and do sod all. Many do.That’s what directorships are for. Shooting a few of the idlest every now and then would keep others up to the mark.

      • Magnolia

        I’m just asking what is ‘rich’?
        Those who earn an income above the higher rate tax threshold but below the highest rate are quite ‘wealthy’ by most people’s standards and they have seen only stealth tax increases.
        I admit that this group would include the so-called working professional middle class but they have been on the receiving end of nothing but punishment from Mr Osborne.
        This gives the Conservative Party a bad image because Osborne will be portrayed as having given his rich mates a deal while the Lib Dems will take credit for the work on personal allowances at the lower end and the Party of the middle classes will have given them a financial kicking.
        Some might say that it is the middle class who keep the country going and they are being told, in behavioural terms, that their work results in punishment.
        Not a good way to win elections or improve economic performance.

        Nick Robinson presented a good programme for the BBC about government finances and gave a clear explanation of how the percentages of earners relate to the percentages of income tax paid.
        Fraser needs to dig out something along those lines because otherwise we are debating blind.

        • Andy

          ‘Rich’ is anyone who earns a quid more than you do. Get with it dear.

  • HookesLaw

    So you are talking about a welfare trap, not tax rates. You are claiming 84% on ‘extra’ earnings not total earnings.Your headline is misleading, indeed your article says the poor are paying less than ever. Not surprising given the large increase in tax allowances.

    The issue is benefits not tax and given that benefits are meant to help the poor then its inevitable that they will be withdrawn once wages rise. Abolish benefits and you will abolish the benefit trap. Is that what you want Mr Nelson. Your article is also unfair since this govt is being criticised on the left for in effect doing just that and trying to make work not benefits worthwhile. Should it make itself more unpopular with stories emblazoned across the BBC showing the poor eating dog food ?

  • Nkaplan

    Whatever merit there is in complaining about the incentive effects of a withdrawal of benefits as the ‘poor’ enter work (and there is a lot of merit in such complaints) can we please not make the socialist error of confusing a reduction in benefits payments with an increase in tax. Next you’ll be accusing Osborne of ‘writing cheques’ to the richest by reducing their tax rates.

    • Curtis Nixon

      lol..you’ve heard of subsidies right?

  • James Chandler

    “But this year, the lower-paid half of British workers will be asked for less than 10pc of all income tax collected, the lowest proportion ever. The richest 1pc will contribute almost 30pc, the highest in recorded history. Osborne is actually squeezing the rich harder than any Labour Chancellor ever did”

    That has nothing to do with Osborne whatsoever. The only reason the poor are paying less tax and the rich are paying more is because the latter have continued to give themselves huge pay rises, while the rest of us have to deal with falling real wages.

    You know this, Fraser. I understand you’re paid to have certain opinions but I wish you were a little less intellectually dishonest. But then again, you are a journalist after all.

    • Fraser Nelson

      The rich don’t set their own pay. And top 1pc account for something like 18pc of salaries paid, yet 30pc of income tax paid.

      • Daniel Maris

        That has got to be one of the funniest lines you’ve ever come out with Fraser…so it’s poor people sitting on all those remuneration committees and awarding bonuses is it? As I indicate below – your figures only relate to declared income. They don’t take account of all the many tax avoidance scams that allow people not to declare income.

    • HookesLaw

      The poor are paying less tax because tax allowances have gone up. The rich, like Jimmy Carr and other millionaire lefty comics, are paying more tax because Osborne unlike Brown has shamed them into it.

      Britain can do without class bigots like you.

  • Daniel Maris

    Should that read “…of their DECLARED income” – not their whole income that they control through trusts and the like.

    • Andy

      A ‘trust’ is a legal entity. You obviously understand diddly sh*t about Trust Law.

      • Mynydd

        I may not know in ins and outs about Trust and offshore accounts, but Mr Cameron does, his father showed him how the managed the family’s affairs, which give him £300,000 tax free.

        • Andy

          Neither you nor I have details of the Osborne family’s finances but what has been done is entirely within the spirit and the letter of the law.

          When you paid the window cleaner in cash you were not.

      • Daniel Maris

        Er – I know enough to spot a tax avoidance scheme when I see one. The point is that Fraser is only talking about declared income. With the proper advice, lots of rich people manage to avoid declaring income, in the same way Starbucks avoids declaring profit for corporation tax.

        • Andy

          You said ‘Should that read “…of their DECLARED income” – not their whole income that they control through trusts and the like.’

          A Trust is a separate legal entity and as such any income derived by a Trust is not YOURS. It is the Trusts. And Trusts pay taxes. Nor are the assets of a Trust yours: they belong to the Trust. Any income you personally derive from a Trust (which you probably do not control) is taxable and you have to declare that income on your tax return. Go and look – one assumes you fill in a Tax Return. Until 1979 (from 1946) the tax on Foreign Trust Income was 98%, which is not taxation but confiscation.

        • HJ777

          I don’t think you know enough about anything to be in a position to pontificate.

          • Daniel Maris

            The Public Accounts Committee put the figure for tax avoidance at around £5billion per annum. If say 500,000 are engaged in the avoidance schemes, that would mean that on average they are benefitting to the tune of £10,000 each.

            • HJ777

              Even if that is true and even if it is somehow reprehensible, that works out at around £80 per person in the country annually. Hardly going to change the public finances, is it?

            • Andy

              And they are doing nothing illegal. I would wager you do your own bit of tax avoidance.

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