Opposition to drop tax bombshell with multi-pronged raid on middle classes
LABOUR has unveiled plans to hit 1.6 million high earners with an income tax hike as Jeremy Corbyn put a multipronged raid on the middle classes at the heart of his election strategy.
John McDonnell, the shadow chancellor, hinted that anyone earning £70,000 or more would be classed as “rich” and that the rich should “pay their way more”.
It led to speculation that Labour is planning to bring the 45p top rate of tax down from its current threshold of £150,000 to £70,000, landing the top five per cent of earners with a tax bill of up to £4,000 extra per year.
Labour need to raise £500 billion to fund a spending spree that is at the core of their tax-and-spend economic policy, and have discussed at least nine other tax rises that would ensnare virtually all working people.
They include increasing the basic rate of income tax to 25p, a 20 per cent tax on savings, a 60 per cent tax band on high earners and an increase on capital gains tax. It leaves the party vulnerable to accusations that they would drop a “tax bombshell” on workers – the slogan that helped the Tories propel John Major to victory in 1992.
Mr McDonnell told the BBC: “We want to get a system that is fair, so the corporations and the rich pay their way more and that means ending the tax giveaways to the corporations and also those in inheritance tax, capital gains tax and the bankers’ levy. The rich will be above £70,000 to £80,000 a year.”
Under the current income tax re- gime, a basic rate of 20p tax is paid on earnings between £11,500 and £45,000, with a higher rate of 40p paid on earnings between £45,001 and £150,000, and an additional rate of 45p on earnings above £150,000.
Lowering the 45p threshold to £70,000 would mean someone earning £150,000 would pay an extra £4,000, as an extra £80,000 of income would come within the higher rate.
Business leaders said any plan to increase income tax would have a “double negative effect” on the economy because it would discourage entrepreneurship and raise less tax, not more.
Adam Marshall, the director general of the British Chambers of Commerce, said: “Business and entrepreneurs are very sensitive to rates of personal income tax. They affect their assessment of risk and for going out and building a business, so bringing down the threshold for higher rates is anti-entrepreneurial.
“We need to build a great business environment in the UK if we want business to power us ahead. In addition, very often high rates of tax end up bringing less into the exchequer rather than more.”
Previous attempts to increase higher rate tax have shown that high earners either find ways to avoid paying, or take a lower salary and top up their pay by other means, leading to a lower tax yield.
Mark Field, Conservative MP for the Cities of London and Westminster, said people living in London were “not by any stretch of the imagination rich” because of the “cripplingly expensive” cost of living in the capital. He added: “They will be aghast... that Labour feels that they could be fleeced by large increases in tax when they are already struggling to keep their heads above water.”
Mark Giddens, a partner at accountants UHY Hacker Young, said: “These proposals will hit many taxpayers who already see themselves as the ‘squeezed middle’, who already feel the pinch from taxes and the cost of housing.
“The argument made, by some, is that high taxes for higher earners reduces the incentives for those top earn- ers and entrepreneurs to work harder and create more wealth and jobs.”
When Mr McDonnell was asked if his comments would mean people earning more than £70,000 paying more income tax, he said: “That’s not what we’ve said.”
A Labour spokesman refused to rule out a new £70,000 tax band, saying: “We will be laying out our policies on taxation in detail in our manifesto in the coming weeks. Labour believes in a fair tax system, and is opposed to the £70 billion in Tory tax giveaways to the super-rich and big corporations.” Philip Hammond, the Chancellor, said: “Jeremy Corbyn’s right hand man has shown us the serious choice at this election... the weak and unstable leadership of Jeremy Corbyn, propped up by the Lib Dems and the Scottish Nationalists, would wreck the economy and weaken our hand in the Brexit negotiations.”
According to research by UHY Hacker Young, 5.2 per cent of the country’s 31 million taxpayers would be affected, including 365,000 women. They would include doctors, senior police officers, lawyers, and other professionals.