Why have the Conservatives increased the burden of taxation on individuals earning between £100,000-£150,000, whilst at the same time reducing the burden on those earning over £150,000? Is this, yet another example, of how Conservatives have become out of touch with their key supporters?
Under the last Labour Government taxable income between £100,000-£150,000 was taxed at an average rate of 42.2%. The Conservatives have increased this figure to 52.5% during their term in office. During the same period, the Conservatives have reduced the rate of tax on income over £150,000 from 50% to 45%. Jeremy Hunt recently reduced the threshold for paying 45% from £150,000 to £125,000.
The real story, which tends to be neglected, is how the Conservatives have cynically exploited the 60% stealth tax introduced by the last Labour Government. When this tax was introduced, the personal allowance was £6,475. The Labour Government reduced this allowance by £0.5 for every £1 earned over £100,000. This meant that income between £100,000- £112,950 was taxed at an effective rate of 60%. For every £1 earned between £100,000-£112,950, £1.5 was subject to tax at 40% - hence the effective tax rate of 60%. However, taxable income from £112,951-£150-000 was taxed at 40%.
During the Conservatives period in office the person allowance has increased to £12,570. By maintaining the Labour Government's stealth tax, income between £100,000-£125,140 is taxed at an effective rate of 60%. And now, as a consequence of the change made by Jeremy Hunt income between £112,951-£150,000 is taxed at 45%.
The Conservatives have made the tax system regressive in that the more you earn the lower the rate of tax.
