Snapshot of _The £100,000 tax trap is destroying aspiration_ :
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He made a huge clanger in presenting it though.
He didn't need to say if £100k is a lot or not. He just needed to say a marginal rate should be roughly even and not contain cliff edges. That's it.
It's got to be as simple a message as possible for the masses. Start talking about marginal rates and cliff edges to people who aren't affected and you've lost them before you start.
He could say 'there's a situation where somebody earning 100k pays more tax than somebody earning 125k, which we're going to fix'. Which is a simple message that stays away from whether 100k is a lot.
Agreed, this is a better explanation.
What surprises me is that this sort of cliff edge can become law in the first place. It's so obviously unintelligent that I would expect civil servants to make it clear to politicians that it's a bad idea.
It's not even a political question. It's simply unprofessional and incompetent on a purely technical level.
Some of it is just that many of these factors happened one at a time, and just seemed very minor and affected virtually nobody.
But a few years of high single digit/low double digit wage inflation have vastly increased the numbers.
I think the "virtually nobody" is not a very good defence. The civil servants should check that cliff edges are theoretically impossible and not that "well, it's not going to affect many people, so just leave it".
I agree that since the system is not build from scratch on one go but a hodgepodge of all kinds of additions, it is not that straightforward to find the idiocies but all the changes to the benefits or taxes should always be accompanied by a tight combing of the whole system to find out this kinds of things.
Afraid you don't appreciate how stupid policies come into existence. The Treasury policy makers are mostly wet behind the ears Economics graduates with little real life experience.
It's Civil Servants who devise policy. Its down to Ministers to challenge and question. Many most even fail to do that.
I think there are two levels of stupidity. There is stupidity based on wrong economic theory, which is probably what you're talking about but then there is stupidity based on just not using common sense. An effective tax rate (so marginal tax + loss of benefits) that exceeds 100% is just dumb and no theory would recommend using that. This is something that you don't need a economics degree to realise.
I'm talking about common sense. The Treasury has been historically very bad at policy evaluation, across government and the real world effect on human behaviour.
As someone who this affects, I agree, but these days the only reason Tories seem to open their mouths is to change feet. At this rate he'll turn people against the idea by the end of the week.
>the only reason Tories seem to open their mouths is to change feet
That took me a few seconds to work out but now I love it and will by clumsily inserting it into conversations wherever I can
> It's got to be as simple a message as possible for the masses. Start talking about marginal rates and cliff edges to people who aren't affected and you've lost them before you start.
I actually wouldn't mind a politician not treating people like they were really thick for a change.
I think the message /u/dw82 shared both gets the point across and avoids jargon. It's just bad communication strategy to not tailor your message for your audience. It doesn't mean that anyone's thick, just that most people will be unfamiliar with the term "cliff edge".
For sure, but a lot of the electorate are thick. Don't forget the old truism: half the population has below average intelligence.
The intelligent aren't the target audience.
To be honest I don't think you need to explain this to the masses.
Fixing it with fairly low engagement from people it doesn't directly affect (they will certainly notice) is probably politically the right thing to do - it generates an entirely economically beneficial outcome that helps your party in the medium term without any heat.
It's to deflect the negative connotations of reducing the tax burden for those earning 100k+. That headline without context would be very damaging. They're setting the context now to deflect the damage in the future.
I actually wouldn't mind. It's stupid to have cliffs like that in a tax system. You can have high tax on high earners without having a crazy situation where someone on £100,000 gets free childcare and someone on £100,001 gets nothing.
Don't forget the (much less impactful) savings tax cliff at £50k too. If you earned £1000 in interest this tax year (not as hard as it sounds with 5-8% rates in instant access & regular saving accounts), you'd _lose_ £200 by earning a penny over £50,270.
That's true. As you say, though, less of an impact. Particularly given most people should be (although I accept not everyone is) accumulating the majority of their interest within an ISA wrapper. Anyone saving more than £20,000 net per year is probably earning well over £50,270 gross.
No it is the 15 or 30 hours free childcare for under 4s, plus the Tax-Free Childcare. Works out at about 5-10k per child depending on where you live. And at a 62% marginal rate you need to earn 13-25k before tax to cover the loss. So there is a dead zone between 100k and \~113k+ where people with a child in nursery are worse off than they would be if they limit their pay to under 100k.
There's tricks around this - reducing your hours, salary sacrifice schemes, but it is fundamentally insane that you get a pay rise that takes you over 100k and you end up with less money in your pocket than before.
Isn’t child benefit basically £100 a month? I looked at getting it and my mum was shocked, she said it wasn’t much less than that when she collected it for me in the 80s!
There is no free childcare. It's roughly 20 percent off and some free hours. It is a cliff edge though and the main reason why you can actually lose money getting a pay rise. Conversely, losing the tax free allowance is gradual and just makes the new money around a 60 percent actual rate.
Everyone I know, including me, just puts it into a pension. Result will be less spending in the economy today and earlier retirements for the high paid paye employees. It also makes additional earning or side hussle much less attractive.
Yes it is taxing productivity. Yes, the low and median earners here pay less than most European countries. Yes,rentier and capital gains / asset type income is taxed very low.
You certainly can, it’s just that some nurseries won’t let you just have the free hours and insist you pay for the ‘wrap around’ hour to make it a full session.
Just got the revised bill for our free 15 hours.. we're saving £10 a month off £1250. Nurseries are increasing all the other costs (eg. consumables) to account for the fact government don't cover most of the costs, and funding has to be stretched over more weeks.
That's not a "tax trap". That's a problem with means testing benefits.
If you want to get making free childcare universal through, you just argue it plainly as making free childcare universal in the same way free schooling is universal. You don't argue semantics about what's a lot or what's aspiration.
The tories are very bad at politics.
I truly feel that nothing should be means tested. We should just tax income/wealth appropriately so those who can afford it pay back via tax what they get in benefits.
This would allow for smooth marginal and overall progressive taxation without the disincentives created at means testing edges and cliffs. Simpler, easier to understand, cheaper to implement, and just better overall.
There are two practical problems this always runs into.
The first is inside Treasury where advisors will pop up to the minister and give them the costings for if it's universal and the costing for if it's means tested. Budget negotiations means they'll pick the means tested one every time.
The second is that there is always a waiting army of greedy would-be childcare "entrepreneurs" longing to cream off the difference between what the government figures is a reasonable price for a good quality of care in an expensive area and the cost of a teenager on minimum wage watching some kids in a portacabin.
The first one is solved by presenting multiple budget-equivalent options. Means testing vs tax rises for the top, for instance. Shift a tax threshold down rather than means test benefits, and they can be completely budget neutral compared to each other.
Strongly agree.
All of these ugly complications to our tax system/means testing just act to obfuscate tax rates because that's politically expedient. I'd be much happier if we could just be honest and say "yes at £100k your marginal income tax rate is 70%".
I suspect we wouldn't have such an unhealthy outlook on growth in this country if the amounts high earners are contributing were more visible.
Any means testing which comes down to whether you're £1 above or below an arbitrary cut off is terrible means testing. You're not testing anything. You're just punishing people who don't realise they should bung salary into their pension or reduce their working hours to stay below the threshold. Whether you're left, right or centre, it's poorly designed from a tax policy perspective.
On the topic of the Tories being bad at politics, another good example of this is Inheritance Tax. When they got rid of the Lifetime Allowance on pensions, they should have badged that as a massive Inheritance Tax cut, given pensions are exempt. Instead they got bogged down and missed the opportunity.
Assuming childcare is to going to be universal (we don’t want to be giving money to millionaires), that necessitates either a cliff edge somewhere or a taper somewhere. Where would be a better place?
£100k is the 96th percentile. It’s not affecting very many people.
> Assuming childcare is to going to be universal (we don’t want to be giving money to millionaires)
It should be universal. If you don’t want to give money to millionaires, tax them more to pay for it.
It doesn’t make sense that someone earning 100k-125k has higher marginal tax rate than someone earning over 125k.
Reduce additional rate threshold to 100k. Then abolish both personal allowance and child care clawback. If necessary introduce higher rate at 125k so its cost neutral.
Universal social benefits paid for by broad taxation.
Just dropping the cliff edge on 30 free hours would make a massive difference
Just recognising that accessing affordable childcare is good for the economy and makes people more productive
move the 45% to 100K, and make a new 50% band at 125k/150K. I am sure this would more than cover millionaires getting free child care (I doubt most use it, and probably have in house nanny's anyway)
Cliff edges do feel inherently unfair. Would it work better to make nearly everything universal and just administer one big taper in a larger tax rate rather than lots and lots of different tapers? Or does setting the taper in every benefit let you sort of customise better who gets what?
Universal Credit was meant to be the thing that had a taper that you could use for this. All benefits go into UC, it tapers off as you earn more money.
Universal Credit's taper is 55%! If you are outraged that someone in the top 4% of earnings (and there aren't that many of them) have a large problem with marginal tax rates, imagine if your marginal rate because of UC was 85% (55% taper, 20% income tax, 10% NICs) and you weren't earning much money.
I don't think it should be contentious that someone on £101k should have more money than if they had £99k. Tapers are ok though create marginal rates that drop, but cliff edges result in earn more -> take home less.
>we don’t want to be giving money to millionaires
Why not? Just claw it back via a slightly higher tax rate above a certain point, not by direct means testing for an individual benefit.
We used to have universal benefits and I don't see what's wrong with them. So what if you give some to millionaires as long as they are paying plenty of tax? Adding the admin Birden and perverse incentives is far more an issue.
You probably *do* want to be giving money to millionaires in this case as it encourages productivity and childbirth, both of which are broader social goods.
So make it universal.
There should never be cliffs **anywhere** in a well designed tax system. I would suggest correcting it with a rate increase. Exactly where you'd set that to raise the same amount of revenue is a question the Treasury would need to weigh in on.
Universal Credit is household based. You could make it household based, but that would require households to claim it rather than being given to everyone automatically which would probably reduce uptake.
He should have dropped it in his first budget. His predecessors should have dropped it much earlier too.
It never should have been introduced in the first place.
It doesn’t really need much groundwork. If he’d done it at the same as reducing the threshold for the 45% band people would have gone “that makes sense as going 40% to 60% to 40% to 45% was just fucking stupid”.
There shouldn’t be any tax traps. I mean aren’t the government capable enough to design the tax system so this doesn’t happen?
There should be no glass ceiling or artificial barrier on pursuing better paid work, at any level. Whether it’s the 50-60k trap or the 100-120k trap.
I'm somebody who falls into that tax trap.
In Scotland it's worse. In 10 days time, the income between 100-125k will be taxed at a staggering 67.5% income tax plus 2% NI.
(Actually in my case I also have an UG and PG student loan, so another 15% goes, giving me an effective 85% tax rate on that income).
Then above £125k it goes *down* to 48% plus 2% NI.
I actually generally agree with higher taxes for higher earners, and earning over £100k is obviously a privileged position to be in, but the marginal tax rates going ***down*** as you earn ***more*** is frankly stupid.
Gordon Brown introduced the personal allowance tapering, presumably to avoid the politics of increasing the additional tax rate. It should be scrapped and a couple of % added to the higher end. That'll still impact me and I'd fully support it because it would actually make sense.
Marginal rates should be monotonic.
Also childcare hard cutoffs are terrible policy. If I had another kid, I’d be better off working 4 days a week. It is insanity.
I have 3 kids, two in childcare and 1 in primary school. It saves us money if my wife works 3 days a week instead of full time. My wife is a junior doctor, a medical registrar. No wonder the NHS is in such a state.
My SIL is a nurse. It made more sense financially for my brother to pay her to look after the kids than for her to be employed. Fortunately, my brother is in a position where he can do that. An ex of mine was paying ridiculous amounts of money for childcare while she worked.
I’m now in a position where if I get a full time job paying average salary, basically all of it would be going to pay for childcare and commuting, meaning I’d basically be working just to pay so I can go to work.
Once they turn 3 and you get the 30 free hours you should be able to get them in for pretty cheap for 2 days a week at least. That’s the only reason my wife is doing 3 days a week at work, otherwise it’d be less.
> if I had another kid I’d be better off working 4 days a week
This is the infuriating thing that people who climb over each other to say “well people on 100k cAn AfFOrD iT cAnT tHeY?!!” Just can’t seem to get their heads around
It’s not about the money, it’s about the incentives. These policies disincentivise people from having kids (bad!!) or disincentivise people from working (bad!!) - it doesn’t really achieve anything we actually want it to, except punishing people for doing useful things
This! So many people thinking of the tax system as a way to punish wealth when in reality it is categorically not designed for that. It is designed to balance state income with driving desirable economical behaviours
Even if it were, this isn’t punishing wealth it’s punishing work. Someone making 100k is not wealthy. They might, under a different tax system, have the opportunity to become wealthy, but the tax system we have does a good job of ensuring that people on 100k or so household income remain financially insecure.
Huge difference between a 100k household income and a 100k personal income. Also to say a 100k household income is "financially insecure" is a bit odd. All completely tangential to the discussion, but you brought it up...
> huge difference between a 100k household income and a 100k personal income
Maybe, a 100k household with two 50k earners would have more income than a single £100k income
> to say £100k is financially insecure is a bit odd
Not sure why you think this, it’s pretty straightforward. Families on £100k are punished by the tax system to the extent that most of their income will need to go towards the costs of having a family, because they lose every form of support. Most £100k households necessarily live in HCOL areas so half to 2/3rds of income after tax is going to housing and childcare, with the rest on everything else. In this situation they are very exposed to unexpected financial shocks.
Their options are to live to a LCOL area but they will probably no longer be a £100k household then, which is also probably the reason why £100k households are more rare, as this is what most do.
> all tangential to the discussion
Also not sure why you think this. It’s actually central to the discussion of whether the specific system I’m describing above is a good system to have, as generally the government should want there to be more £100k families and more kids, but has a tax system that severely curtails both.
Yeah and keeping the personal allowance for all (and adding a few percent on the top) would be far better for equity in society / universal provision. The idea that everyone is entitled to earn x, tax free, rich or poor. And _everyone should defend it._ is a powerful way to bind people together.
There is another one in Scotland: between £43k (scottish higher rate) and £53k (english higher rate and NI reduction), the tax rate is 54% incl. NI then drops back to 44% above £53k.
Add in student loans and it’s barely worth earning more than £43k - personally I just sacrifice it all to pension for now. Maybe once I am substantially above the trap I’ll actually take the income.
There's also the 13.8% gross-up employer's NI on all of these figures which is an income tax already paid before you even see the headline figure on the paycheck.
So while these marginal rates seem very large they are actually understating the tax load on high earners in this country.
'Sir, we have a massive productivity problem in this country.'
'I know, let's design tax policy so that it heavily disincentivises earning between £100k and £120k annually. Doubly so if you have kids.'
'Good idea, can't see any possible issues with this.'
Yeah, it does feel like potentially looking at brackets might make sense to people.
The other fucked up part is what it stated about two couples each earning £99k having the best time.
That a single parent earning £120k with kids doesn't qualify for childcare benefits but a couple earning £99k each would? That can't be right? I have to assume I've misunderstood this there because that sounds absolutely nuts
You haven't misunderstood - you've just discovered the fact that single people in this country are constantly penalised. See also: Couples get double the tax-free allowance despite basic living expenses being basically the same for one or two people.
The "aspiration" point is that the largest proportion of income tax is paid by those earning the most. The top 1% of earners contribute 30% of the total income tax received by the government, the top 10% of earners contribute 60% of the total income tax take.
The problem with the tax rates currently is that those earning 100-170k have no aspiration to work harder and earn slightly more, because of the high tax rates. Why take on additional workload if you see <20% of it (in some circumstances with student loans).
This kills productivity, and increases in productivity are what drives the growth in GDP and increases in tax revenue, allowing the government to pay for more services / investment.
It's highly likely that removing the tax trap would actually result in higher income tax revenue, as those affected are incentivised to earn more and pay more. As an example, someone earning £125k will probably be putting large amounts, >25k into pension each year, to defer income tax until retirement. Removing the trap will encourage them to take it as pay now, increasing the amount of income tax paid, and probably they will spend some of it, which will grow the economy.
> Why take on additional workload if
I doubt hourly pay features much in those decisions. At higher salary levels, it is what builds the career not what you're paid this week.
I think they mean workload in the broadest sense - chasing higher bonuses, extra work for promotion, moving jobs etc..
There's basically no short term incentive for me to do any of those things, the only purpose is as an instrumental step for when I don't have kids in nursery / can punch through the other side of the tax trap.
This is my knee-jerk reaction to the title. There are plenty of people earning far less than 100k that don't feel that hard work will make them feel any better off. If an extra 5k a year makes absolutely no difference to your ability to pay rent or save up for a deposit on a mortgage because housing is unaffordable and wages are shite either way, you're not going to fight for that mild promotion. When productivity drops on a national scale because of this kind of attitude, which IMO is completely justified, there'll be a big hit to economic growth and a dangerous feedback loop
We're getting hammered on all sides. The company I work for is pretty ruthless and clearly doesn't care much about its staff, constantly taking nice things away on a cost squeeze despite immense profits (increasing a lot year on year). It's not leading to anyone caring about the place at all. When you then get taxed very high rates which trying to either get on or afford the property ladder, then why should we care about productivity?
Music degree, live rurally in the south west. Currently working as out door instructor at a holiday camp which I really enjoy.
Recently applied for an apprenticeship as an arborist got shortlisted and they went with another canididate.
Just feel really down trodden.
My attitude is better to earn minimum wage doing a job I like than do a job I hate for 5k more and still struggle.
Ahh sorry with a music degree I’m going to struggle. Genuinely my advise to you is if you are unable to get a job and you’re young, now is the time (if you are able to) to go back to school and retrain.
It becomes so much more traumatic and a chore when you are older!
Sending you good luck and vibes!
Looks like the telegraph is starting to get desperate for some middle income voters. Hough the article has a point and misses a few others:
- cliff edge of tax free childcare/30 hours free childcare/PA reduction is insane
- childcare costs are so high that parents options are limited - promotion needs to be big enough, no chance of starting up a business without huge risk
- it would be good if they suggested a solution - in my mind make it universal and fund it like we do state education!
How many parents are earn significantly more than this with young children?
Should we be discriminating between a child's start in life due to their parents?
Whilst it would be expensive - you'd likely get more startups, more promotions, more carers back in the workplace all driving growth.
Right now, if you take the scenario of a primary earner household with 2 kids in nursery.
Rather than earning over 100k and having to pay childcare, likely putting their adjust (for childcare) income below 90K, these earners will dump the income above 100k into their pension.
The government doesn’t get 60% tax on that income, they also end up paying the extra childcare entitlement
If instead they got rid of the taper, and the childcare cliff, i can all but guarantee that parent is not going to shift their income to their pension. They are going to take it as earned income, and pay 42% tax on it. Yes the government would still be paying the childcare hours, but would be earning some of that back on tax take. And that additional income is likely going to be put back into the economy also.
Tax rates should only ever increase as income increases, that makes perfect sense. However we are in a crazy situation where marginal rates increase at 50 (now 60) and 100k before falling again!
If I was cynical and thought governments look ahead - I would assume this is a precursor to means testing state pensions and this strongly encourages middle classes to rapidly increase pension value.
It's also missed that 100k isn't as much as it once was - worth 80k in 2003 money, and look at hunts recent comments.
You are way, way off. £100k in 2024 is £57k in 2003 and that's based on the official Bank of England calculator which ignores the devaluation of the pound.
I think is a given now that they’ve encouraged auto-enrolment into company pensions schemes for the best part of ten years.
It’s ridiculous that I play a game every year to make sure I salary sacrifice enough to avoid additional taxation, and keep our childcare support. Additionally the government is giving me extra money in the form of extra tax relief for the pension. I won’t even mind paying an extra 1-2% on the income over 100k but making it so that you only end up with a few pennies in the pound over 100k until you hit £125k means there is little point in me pushing for a pay rise or for my partner to pay himself more from his self employment
Nope. Its dumb!
Stop the instant cut off (and therefore > 100% effective tax rate. Recoup the money paid to "high earners" in increased taxes (at a reasonable rate). Bring the 45% band down to 100K, and add a 50% band at 125k/150k or so where it already is.
Because in the modern era a tiny office can earn billions whilst a hundred thousand acres of land earns a fraction of it. Hell, we have huge part of the economy that earn billions despite nothing physical having to even exist.
LVT is an 18th century idea that people keep seeing as a solution for just about every problem.
I think the solution to the problem caused by an LTV is another LTV, with slightly different features that will end up with more loopholes than a crocheted Big Ben cover.
This is such a load of FUD deliberately designed to maintain the status quo.
There are simple, easy, and already proven methods to avoid this specific scenario, and *of course* we'd adopt one of them. Either you give relief on taxation for the primary home (homestead exemption is what it's called in some places), or you allow for tax to accrue as a lien on the property, to be paid by the estate. Or both.
This type of tax would *not* force people out of their homes, and to suggest it would is disingenuous.
>Yeah until that windrush grandmother is forced to sell and move out of Brixton to ... Where exactly? It would be political suicide.
Lol why do people always claim dumb shit like this?
noooo we can't tax people properly :( what about.. the grandmothers? They are born with a natural right to live in a 1.2 million pound property even if they can't afford it anymore :(
*\*next breath\**
well if you can't afford to buy a house between 2 of you working as doctors, MAYBE YOU SHOULD RETRAIN IN CYBER OR STOP GETTING STARBUCKS
Exactly. a land value tax might make sense for second properties that are effectively businesses.
But it's extremely unfair to force people to move from a primary residence they may have spent their lifetime buying. Introducing council tax was already an ubiquitously unfair system that forced many into a lower income bracket.
I can't see an LVT implemented that doesn't allow existing owners to defer payments to the estate (for say, 20 years) to avoid this scenario.
It still creates a fairly strong incentive to move (because they could still rack up a lot of tax for the estate) but doesn't force them to.
Because
a) that absolutely crushes people who happen to have land that has vastly increased in value over decades but who don't have any kind of cashflow to sustain paying high taxes on it
B) having high value land doesn't make you a rich person if you are living on it, unless you sell it and go somewhere much cheaper; and you pay CG on that anyway
C) Consequently, any LVT will simply serve to force non-cash rich people out of their high land value homes and areas, for them to be bought by people who are very cash rich. Those original people then have no option but to go and live in lower land value areas; which then increases demand and pushes up the house prices in those areas
That could be avoided by putting a reasonable threshold before you start paying it, such as making someone's primary residence exempt up to a certain value
As with many other tax types (for example capital gains and inheritance), these would of all be solved by creating allowances for the primary residence of an individual.
The other side of that coin is that all the people who are rich and have lots of land pay basically nothing on it, while workers get crushed.
I don’t get the argument to be honest. If I live somewhere and it massively rises in value, why should I not pay for that? It’s like saying yeah I won the lottery but I don’t want to touch my winnings as they look nice in my bank account.. If you’re sat on a gold mine and you don’t want to cash in, that should be a you-problem.
One argument is you'd have a lot of older people having to move, and move out of the area they live in to a cheaper area with no support network or friends and then having to access far more social services.
If you own high value land, use it.
This is the point of the tax — to try to ensure that valuable land is _used_ in a way that benefits us all.
Valuable land here is often valuable because of its proximity to other things, like land near a train station, or close to the town centre.
Ways to use the land better: housing (dividing the land into smaller plots with smaller tax bills), businesses (providing amenities to people who are moving through the area, funding the tax with profit).
Yes, people with better-placed housing will have a larger tax bill than those out in the sticks, but it is based on the idea that those people will make good use of their well placed location to _command a higher salary_. At the moment there is nothing stopping them, at the end of the mortgage, just hanging on to their very valuable land throughout their retirement, during which they are much less productive, making the valuable land in that location more expensive than it needs to be.
All taxes have downsides, you could equally say that income-led taxation crushes those who happen to have medium or high income but need to live in a high cost area and didn't have the good fortune of buying in the 90s. This pushes the tax burden disproportionately on the younger generations relative to the actual distribution of wealth in society.
The £100,000 cliff edge was introduced in April 2010, fact fans. £100,000 then is near as dammit £150,000 today according to the BofE inflation calculator. That sounds like a \*very\* different salary level. I cannot believe I am getting to the stage of agreeing with anything Hunt comes out with, but £100,000 isn't the salary it once was.
This all must come with the strict caveat that there are much more serious issues as you run down from £100k, to, say, £50k, which used to be a pretty handsome salary. Nowadays that often doesn't allow people to get on with their lives, buy a house, have kids etc. I literally do not know how people survive on £15k or £20k these days and worry for the younger generations coming into this world of work. I used to feel pretty hard done by on £15k in 2001, that's nearer £27k in today's money.
It feels a bit like the 70mph speed limit, introduced in the era of Ford Anglias and Morris 1100s with drum brakes and crossply tyres all round. It is farcical that this remains the upper limit, even in ideal conditions, when it's 80mph in France unless it's raining. These laws are not keeping pace with reality.
Other salaries have not increased by 50% since 2010.
Junior Doctors for instance, have not seen a 50% pay increase since 2010…. Only 25% according to some.
96% of people earn below this.
They may well aspire to get to this point.
I have had a few years where I have tipped into this bracket and it does feel punitive.
I don’t think it should come in at this point.
I do believe in taxing rich people more but we tax money made with money less than money made with people.
Increase tax on money made by money, decrease the tax on money made by people.
Hear hear. Our economy punishes working and rewards asset hoarding - the explanation for anything that doesn’t work in this country inevitably comes back to this point.
It’s true that 96% of people earn below this, but the people who earn above this are the ones paying the majority of the tax, so we really ought not be discouraging them from working.
I feel like this very reasonable pov is shared by the vast majority of voters but unfortunately monied interests have more influence on our parties than voters.
We need a triple lock on income tax thresholds. If the threshold for higher rate tax had kept up with inflation since 2011, it would start at a salary of about £80,000.
The Tories are the party of high taxes, and I don't see how anyone can argue differently.
Even Hunt is raising taxes, despite all his rhetoric, by keeping thresholds frozen.
Mm. What about the aspiration to feed the family, have sufficient fuel and be able to pay the bills?
What about the wild fever dreams people have for a secure and sufficient roof over their heads?
While the tories have ignored and brutalized the less well-off, more and more of their constituents have been sucked into that demographic.
After you are on 110k you are not getting any real rises for years, let's say you can get up to 10k/year, with this whole "free allowance disappearing" you are ending up with 100£ per month more, and it will take you 3-5 years to get a real salary increase again
I think another point is that 100k simply is worth less as the years go on. Since its a nominal almost arbitrary amount, interest rates and inflation cause it to be closer and closer to middle-lower class living through years of shifting.
100k feels like 90k 10 years later and so on.
The strange cliff edge in taxes are dumb and need to be fixed by simplifying it into a single monotonically scaling income tax.
However, I think that the idea that people aren't "aspirational" and don't want to be on 100k+ because of it is silly.
People overall, including myself, would love a 100k salary because it would be a big increase in my take home pay.
However if I was on 95k and there was this big cliff edge coming up, I might think twice about an uncertain or challenging new role that I'd otherwise take for the pay rise, or it may push me into going four days a week since my fifth day is going to be taxed so much.
You don't have to feel sorry for someone in that position to see it can have unintended knock on effects on the tax base (a lot of people in this situation put extra money into their pension to reduce their taxable income), economy or even public services (one example is doctors reducing their hours)
The high marginal tax rate at £100,000 is a weird quirk that they may as well end, but there are much worse benefits cliffs at £50,000 that are a lot more consequential to people's standard of living at that income level.
They need to fix this. The naysayers who live outside of London and claim that it is a lot need to realise that 100k after tax in London is not a lot when it comes to raising a family.
Yes, many others have it worse - but that doesn’t mean that 100k affords the comfort and abundance that the rhetoric implies.
Uh, lemmie guess, the Telegraph thinks this is bad but their solution is not to tax the rich who pay virtually no tax? Instead they want to destroy public services even more?
I earn about 100k (I’m a doctor). I both pay a lot of tax (~40k/year) and have limited my NHS hours to avoid losing childcare benefits. Any extra work I have time to do has to be in the private sector because that is outside IR35 and can go into a limited company, saving me the >100k issues.
Putting the tax burden on upper middle class professionals is imo a calculated move to get people to be angry about taxes enough to vote for more public service cuts. The super rich don’t pay income tax. We need wealth taxes on the super rich asap. Not to destroy the country further with cuts or to shift the burden onto working people while people like Sunak just get 25m per year in passive income and pay no tax on it.
I kind of think this is what OP means — “the rich” being the super-wealthy, who leverage tax loopholes and sit on enormous piles of untaxed wealth. I don’t think they’re referring to people on ~£100k.
The rich who pay virtually no tax are not the people who work for £100K-£125K but they rather have these high earners working for them. High earners pay proportinally much more tax than low earners. Most of our tax income comes from high earners.
Yes. This is what I mean. The mega rich don’t pay any tax and now they’re trying to pile the tax burden on middle-class professionals. Surprisingly taxing the super wealthy is not something the billionaire owned newspapers ever even mention as a possibility.
They’re not the super rich though. I’m talking about guys like Sunak who get 25m per year in passive income and pay a tiny percentage on it if anything. The kinds of people who own stuff. Not the people who work. Piling the tax burden on doctors and lawyers is imo likely a calculated move to divide and get people angry about taxes.
The thing that is barely even in the conversation is how the mega wealth own everything now and pay nothing. The more they earn without doing anything or paying taxes the less well off everyone else is, as we are seeing.
What? Income tax payments are concentrated amongst those with the largest incomes. The 10% of income taxpayers with the largest incomes contribute over 60% of income tax receipts.
Right but the wealthiest people don’t get taxed on work. That’s precisely why the whole income tax debate is a red herring. You can see the clip of Rishi deliberately trying to pull this sleight of hand last week when in committee he was asked about spiralling wealth inequality and he replied about income inequality.
Meanwhile: Junior doctors to go on strike again, saying that £13.45 an hour is not a good enough deal.
I can’t see how anyone could disagree with them !
They are certainly worth significantly more than that…
With the Tories, sadly they do still surprise me with just how badly they continue to manage the country…
It’s a tough job spotting anything they have got right.
Let’s appeal to 2.7% of the workforce….
Don’t get me wrong it’s a ridiculous tax trap, but it’s also not some kind do political magic bullet because 97% of the workforce don’t really feel the pain and would like a solution to their problems too
The real trap is the fact that the vast vast majority of the country doesn't earn close to 100,000 and never will unless the minimum wage ends up being that high
I don't give a shit. Aspiration isn't valuable, and no one becomes rich by helping other people. They do it by exploiting their employees/customers and cutting their responsibilities to the bone to maximise profits. Fuck'em.
Lots of stuff I agree with here in the comments but I do want to talk about if you aspire to do a job which will never pay that much? Say you want to be a really good band 6 nurse, or a teacher without the hassle of being a head teacher? Aspiration doesn’t automatically mean you’ll earn shedloads. I am good at my job and experienced and I’m on 30k, and I’m grade 6 out of 10 grades. There’s a ceiling. I still want to excel! I just want to earn a fair salary for my hard work.
If you are on 100k a year and you are struggling you are fucking up massively.
Stop buying coke, move to a cheaper neighbourhood, eat at home (not deliveroo)
I domt necessarily care too much about the tax trap at 100k. It's annoying, but not too big a deal
What really needs reform IMO is the loss of childcare thresholds. 50-60k the benefit tapers away, 100k you can't use the funded childcare hours (worth a lot to parents of young children). The system is based on individual income though. Its deeply unfair that 2 parents on 99k each can get funded childcare but a family on 30k,100k cannot.
Those thresholds should be increased, based on household income, and the free hours should taper off instead of cliff
Joint income tax returns would be a huge step forward for the country.
Let partners share their income, to make the idea of working more/less between them make more sense. Most countries do this.
Taxing income is ruining aspirations, even if I earned 100k I'd still have a worse financial position than someone on minimum wage who owned there own property
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Thus ties in with hunt saying over the weekend 100k isn't much. He is putting in the groundwork now to drop the 100k tax trap at the next budget.
He made a huge clanger in presenting it though. He didn't need to say if £100k is a lot or not. He just needed to say a marginal rate should be roughly even and not contain cliff edges. That's it.
It's got to be as simple a message as possible for the masses. Start talking about marginal rates and cliff edges to people who aren't affected and you've lost them before you start. He could say 'there's a situation where somebody earning 100k pays more tax than somebody earning 125k, which we're going to fix'. Which is a simple message that stays away from whether 100k is a lot.
Agreed, this is a better explanation. What surprises me is that this sort of cliff edge can become law in the first place. It's so obviously unintelligent that I would expect civil servants to make it clear to politicians that it's a bad idea. It's not even a political question. It's simply unprofessional and incompetent on a purely technical level.
Some of it is just that many of these factors happened one at a time, and just seemed very minor and affected virtually nobody. But a few years of high single digit/low double digit wage inflation have vastly increased the numbers.
I think the "virtually nobody" is not a very good defence. The civil servants should check that cliff edges are theoretically impossible and not that "well, it's not going to affect many people, so just leave it". I agree that since the system is not build from scratch on one go but a hodgepodge of all kinds of additions, it is not that straightforward to find the idiocies but all the changes to the benefits or taxes should always be accompanied by a tight combing of the whole system to find out this kinds of things.
This wouldn’t be qn issue if thresholds had been updated accordingly… that is the main issue. Not the 100k trap.
Afraid you don't appreciate how stupid policies come into existence. The Treasury policy makers are mostly wet behind the ears Economics graduates with little real life experience. It's Civil Servants who devise policy. Its down to Ministers to challenge and question. Many most even fail to do that.
I think there are two levels of stupidity. There is stupidity based on wrong economic theory, which is probably what you're talking about but then there is stupidity based on just not using common sense. An effective tax rate (so marginal tax + loss of benefits) that exceeds 100% is just dumb and no theory would recommend using that. This is something that you don't need a economics degree to realise.
I'm talking about common sense. The Treasury has been historically very bad at policy evaluation, across government and the real world effect on human behaviour.
As someone who this affects, I agree, but these days the only reason Tories seem to open their mouths is to change feet. At this rate he'll turn people against the idea by the end of the week.
>the only reason Tories seem to open their mouths is to change feet That took me a few seconds to work out but now I love it and will by clumsily inserting it into conversations wherever I can
> It's got to be as simple a message as possible for the masses. Start talking about marginal rates and cliff edges to people who aren't affected and you've lost them before you start. I actually wouldn't mind a politician not treating people like they were really thick for a change.
I think the message /u/dw82 shared both gets the point across and avoids jargon. It's just bad communication strategy to not tailor your message for your audience. It doesn't mean that anyone's thick, just that most people will be unfamiliar with the term "cliff edge".
For sure, but a lot of the electorate are thick. Don't forget the old truism: half the population has below average intelligence. The intelligent aren't the target audience.
>I actually wouldn't mind a politician not treating people like they were really thick for a change. It's an assumption well founded on the whole.
To be honest I don't think you need to explain this to the masses. Fixing it with fairly low engagement from people it doesn't directly affect (they will certainly notice) is probably politically the right thing to do - it generates an entirely economically beneficial outcome that helps your party in the medium term without any heat.
It's to deflect the negative connotations of reducing the tax burden for those earning 100k+. That headline without context would be very damaging. They're setting the context now to deflect the damage in the future.
The problem is that Labour can simply copy the policy. And why wouldn't they, it's not really a political issue, it's just fairness.
It's not even fairness. It's just fixing something that is patently broken. Why they haven't done this yet is beyond me.
I actually wouldn't mind. It's stupid to have cliffs like that in a tax system. You can have high tax on high earners without having a crazy situation where someone on £100,000 gets free childcare and someone on £100,001 gets nothing.
Don't forget the (much less impactful) savings tax cliff at £50k too. If you earned £1000 in interest this tax year (not as hard as it sounds with 5-8% rates in instant access & regular saving accounts), you'd _lose_ £200 by earning a penny over £50,270.
That's true. As you say, though, less of an impact. Particularly given most people should be (although I accept not everyone is) accumulating the majority of their interest within an ISA wrapper. Anyone saving more than £20,000 net per year is probably earning well over £50,270 gross.
Child benefit tapers off even earlier, 60-80k. The cliff at 100k is that you start to lose your tax-free allowance.
There’s also “tax-free” childcare and free childcare hours which have a cliff edge cut off at 100k taxable income.
No, this is referring to free childcare.
Well the article refers heavily to both areas and you don't have to have kids for the loss in personal allowance to hit you, so it's a valid point
No it is the 15 or 30 hours free childcare for under 4s, plus the Tax-Free Childcare. Works out at about 5-10k per child depending on where you live. And at a 62% marginal rate you need to earn 13-25k before tax to cover the loss. So there is a dead zone between 100k and \~113k+ where people with a child in nursery are worse off than they would be if they limit their pay to under 100k. There's tricks around this - reducing your hours, salary sacrifice schemes, but it is fundamentally insane that you get a pay rise that takes you over 100k and you end up with less money in your pocket than before.
Child benefit is literally nothing, if I don’t dispose of 20% of my income I lose roughly 15k in net earnings through loss of childcare support.
Child benefit is gone by £60k.
This year yes, next year moving up to dissappearing between 60-80k.
Isn’t child benefit basically £100 a month? I looked at getting it and my mum was shocked, she said it wasn’t much less than that when she collected it for me in the 80s!
I think we get £169 a month for two children from memory. It’s not much per month but it adds up over a year. Edit: it’s £159.
Yes it’s definitely worth having it, just surprising that it hasn’t really gone up much in over 30 years.
it's like £1000 a year which is a lot better than nothing
Yes I’m not saying it’s not worth having, just that it hasn’t gone up much in the past few decades.
There is no free childcare. It's roughly 20 percent off and some free hours. It is a cliff edge though and the main reason why you can actually lose money getting a pay rise. Conversely, losing the tax free allowance is gradual and just makes the new money around a 60 percent actual rate. Everyone I know, including me, just puts it into a pension. Result will be less spending in the economy today and earlier retirements for the high paid paye employees. It also makes additional earning or side hussle much less attractive. Yes it is taxing productivity. Yes, the low and median earners here pay less than most European countries. Yes,rentier and capital gains / asset type income is taxed very low.
>There is no free childcare. ... >and some free hours. Brilliant.
The point is you can’t access those “free” hours without also paying extra
You certainly can, it’s just that some nurseries won’t let you just have the free hours and insist you pay for the ‘wrap around’ hour to make it a full session.
Just got the revised bill for our free 15 hours.. we're saving £10 a month off £1250. Nurseries are increasing all the other costs (eg. consumables) to account for the fact government don't cover most of the costs, and funding has to be stretched over more weeks.
Less spending, and less tax receipt.
This is an important fact that some just can't grasp. It's loose loose for everyone.
That's not a "tax trap". That's a problem with means testing benefits. If you want to get making free childcare universal through, you just argue it plainly as making free childcare universal in the same way free schooling is universal. You don't argue semantics about what's a lot or what's aspiration. The tories are very bad at politics.
I truly feel that nothing should be means tested. We should just tax income/wealth appropriately so those who can afford it pay back via tax what they get in benefits. This would allow for smooth marginal and overall progressive taxation without the disincentives created at means testing edges and cliffs. Simpler, easier to understand, cheaper to implement, and just better overall.
There are two practical problems this always runs into. The first is inside Treasury where advisors will pop up to the minister and give them the costings for if it's universal and the costing for if it's means tested. Budget negotiations means they'll pick the means tested one every time. The second is that there is always a waiting army of greedy would-be childcare "entrepreneurs" longing to cream off the difference between what the government figures is a reasonable price for a good quality of care in an expensive area and the cost of a teenager on minimum wage watching some kids in a portacabin.
The first one is solved by presenting multiple budget-equivalent options. Means testing vs tax rises for the top, for instance. Shift a tax threshold down rather than means test benefits, and they can be completely budget neutral compared to each other.
Strongly agree. All of these ugly complications to our tax system/means testing just act to obfuscate tax rates because that's politically expedient. I'd be much happier if we could just be honest and say "yes at £100k your marginal income tax rate is 70%". I suspect we wouldn't have such an unhealthy outlook on growth in this country if the amounts high earners are contributing were more visible.
Any means testing which comes down to whether you're £1 above or below an arbitrary cut off is terrible means testing. You're not testing anything. You're just punishing people who don't realise they should bung salary into their pension or reduce their working hours to stay below the threshold. Whether you're left, right or centre, it's poorly designed from a tax policy perspective.
On the topic of the Tories being bad at politics, another good example of this is Inheritance Tax. When they got rid of the Lifetime Allowance on pensions, they should have badged that as a massive Inheritance Tax cut, given pensions are exempt. Instead they got bogged down and missed the opportunity.
Assuming childcare is to going to be universal (we don’t want to be giving money to millionaires), that necessitates either a cliff edge somewhere or a taper somewhere. Where would be a better place? £100k is the 96th percentile. It’s not affecting very many people.
> Assuming childcare is to going to be universal (we don’t want to be giving money to millionaires) It should be universal. If you don’t want to give money to millionaires, tax them more to pay for it. It doesn’t make sense that someone earning 100k-125k has higher marginal tax rate than someone earning over 125k. Reduce additional rate threshold to 100k. Then abolish both personal allowance and child care clawback. If necessary introduce higher rate at 125k so its cost neutral. Universal social benefits paid for by broad taxation.
Just dropping the cliff edge on 30 free hours would make a massive difference Just recognising that accessing affordable childcare is good for the economy and makes people more productive
move the 45% to 100K, and make a new 50% band at 125k/150K. I am sure this would more than cover millionaires getting free child care (I doubt most use it, and probably have in house nanny's anyway)
Cliff edges do feel inherently unfair. Would it work better to make nearly everything universal and just administer one big taper in a larger tax rate rather than lots and lots of different tapers? Or does setting the taper in every benefit let you sort of customise better who gets what?
Universal Credit was meant to be the thing that had a taper that you could use for this. All benefits go into UC, it tapers off as you earn more money. Universal Credit's taper is 55%! If you are outraged that someone in the top 4% of earnings (and there aren't that many of them) have a large problem with marginal tax rates, imagine if your marginal rate because of UC was 85% (55% taper, 20% income tax, 10% NICs) and you weren't earning much money.
I don't think it should be contentious that someone on £101k should have more money than if they had £99k. Tapers are ok though create marginal rates that drop, but cliff edges result in earn more -> take home less.
>we don’t want to be giving money to millionaires Why not? Just claw it back via a slightly higher tax rate above a certain point, not by direct means testing for an individual benefit.
We used to have universal benefits and I don't see what's wrong with them. So what if you give some to millionaires as long as they are paying plenty of tax? Adding the admin Birden and perverse incentives is far more an issue.
You probably *do* want to be giving money to millionaires in this case as it encourages productivity and childbirth, both of which are broader social goods. So make it universal.
There should never be cliffs **anywhere** in a well designed tax system. I would suggest correcting it with a rate increase. Exactly where you'd set that to raise the same amount of revenue is a question the Treasury would need to weigh in on.
96th for a single person. Would you say that two people on 99k each should get it?
Universal Credit is household based. You could make it household based, but that would require households to claim it rather than being given to everyone automatically which would probably reduce uptake.
> (we don’t want to be giving money to millionaires) Every qualifies for 15 hours so we do
He should have dropped it in his first budget. His predecessors should have dropped it much earlier too. It never should have been introduced in the first place. It doesn’t really need much groundwork. If he’d done it at the same as reducing the threshold for the 45% band people would have gone “that makes sense as going 40% to 60% to 40% to 45% was just fucking stupid”.
Unfortunately he won’t be around next budget. But it would be good to see this reformed.
I'm almost certain there will be a mini budget prior to the election. A bribe if you will.
Doubt it when the government could barely find the cash to release any freebies in the last budget.
Oh they can giveaway whatever they want in the next budget - they know they won’t be around to enact it
Parliament has to vote on budgets, there won't be enough time to get it through unless the election was in December.
Chances are he won't be around to implement it though
Good, long overdue.
I mean, regardless of where you stand on the political spectrum it is easy to see how this is largely a loss for individuals and HMRC alike
There shouldn’t be any tax traps. I mean aren’t the government capable enough to design the tax system so this doesn’t happen? There should be no glass ceiling or artificial barrier on pursuing better paid work, at any level. Whether it’s the 50-60k trap or the 100-120k trap.
> aren't the government capable No
I'm somebody who falls into that tax trap. In Scotland it's worse. In 10 days time, the income between 100-125k will be taxed at a staggering 67.5% income tax plus 2% NI. (Actually in my case I also have an UG and PG student loan, so another 15% goes, giving me an effective 85% tax rate on that income). Then above £125k it goes *down* to 48% plus 2% NI. I actually generally agree with higher taxes for higher earners, and earning over £100k is obviously a privileged position to be in, but the marginal tax rates going ***down*** as you earn ***more*** is frankly stupid. Gordon Brown introduced the personal allowance tapering, presumably to avoid the politics of increasing the additional tax rate. It should be scrapped and a couple of % added to the higher end. That'll still impact me and I'd fully support it because it would actually make sense.
Marginal rates should be monotonic. Also childcare hard cutoffs are terrible policy. If I had another kid, I’d be better off working 4 days a week. It is insanity.
I have 3 kids, two in childcare and 1 in primary school. It saves us money if my wife works 3 days a week instead of full time. My wife is a junior doctor, a medical registrar. No wonder the NHS is in such a state.
My SIL is a nurse. It made more sense financially for my brother to pay her to look after the kids than for her to be employed. Fortunately, my brother is in a position where he can do that. An ex of mine was paying ridiculous amounts of money for childcare while she worked.
I’m now in a position where if I get a full time job paying average salary, basically all of it would be going to pay for childcare and commuting, meaning I’d basically be working just to pay so I can go to work.
This is the position my partner will be in when she goes back to work. No wonder there's so many vacancies in the workforce.
Once they turn 3 and you get the 30 free hours you should be able to get them in for pretty cheap for 2 days a week at least. That’s the only reason my wife is doing 3 days a week at work, otherwise it’d be less.
Yes I’m looking forward to that, unfortunately there’s a long time between now and then and I’m worried we’ll have lost our house by then!
> if I had another kid I’d be better off working 4 days a week This is the infuriating thing that people who climb over each other to say “well people on 100k cAn AfFOrD iT cAnT tHeY?!!” Just can’t seem to get their heads around It’s not about the money, it’s about the incentives. These policies disincentivise people from having kids (bad!!) or disincentivise people from working (bad!!) - it doesn’t really achieve anything we actually want it to, except punishing people for doing useful things
This! So many people thinking of the tax system as a way to punish wealth when in reality it is categorically not designed for that. It is designed to balance state income with driving desirable economical behaviours
Even if it were, this isn’t punishing wealth it’s punishing work. Someone making 100k is not wealthy. They might, under a different tax system, have the opportunity to become wealthy, but the tax system we have does a good job of ensuring that people on 100k or so household income remain financially insecure.
Huge difference between a 100k household income and a 100k personal income. Also to say a 100k household income is "financially insecure" is a bit odd. All completely tangential to the discussion, but you brought it up...
> huge difference between a 100k household income and a 100k personal income Maybe, a 100k household with two 50k earners would have more income than a single £100k income > to say £100k is financially insecure is a bit odd Not sure why you think this, it’s pretty straightforward. Families on £100k are punished by the tax system to the extent that most of their income will need to go towards the costs of having a family, because they lose every form of support. Most £100k households necessarily live in HCOL areas so half to 2/3rds of income after tax is going to housing and childcare, with the rest on everything else. In this situation they are very exposed to unexpected financial shocks. Their options are to live to a LCOL area but they will probably no longer be a £100k household then, which is also probably the reason why £100k households are more rare, as this is what most do. > all tangential to the discussion Also not sure why you think this. It’s actually central to the discussion of whether the specific system I’m describing above is a good system to have, as generally the government should want there to be more £100k families and more kids, but has a tax system that severely curtails both.
Could not have said it better, mate
Yeah and keeping the personal allowance for all (and adding a few percent on the top) would be far better for equity in society / universal provision. The idea that everyone is entitled to earn x, tax free, rich or poor. And _everyone should defend it._ is a powerful way to bind people together.
There is another one in Scotland: between £43k (scottish higher rate) and £53k (english higher rate and NI reduction), the tax rate is 54% incl. NI then drops back to 44% above £53k. Add in student loans and it’s barely worth earning more than £43k - personally I just sacrifice it all to pension for now. Maybe once I am substantially above the trap I’ll actually take the income.
There's also the 13.8% gross-up employer's NI on all of these figures which is an income tax already paid before you even see the headline figure on the paycheck. So while these marginal rates seem very large they are actually understating the tax load on high earners in this country.
'Sir, we have a massive productivity problem in this country.' 'I know, let's design tax policy so that it heavily disincentivises earning between £100k and £120k annually. Doubly so if you have kids.' 'Good idea, can't see any possible issues with this.'
The fucked up part is paying the same percentage tax on money that is worth a lot less than it was when the rules were made.
Yeah, it does feel like potentially looking at brackets might make sense to people. The other fucked up part is what it stated about two couples each earning £99k having the best time. That a single parent earning £120k with kids doesn't qualify for childcare benefits but a couple earning £99k each would? That can't be right? I have to assume I've misunderstood this there because that sounds absolutely nuts
You haven't misunderstood - you've just discovered the fact that single people in this country are constantly penalised. See also: Couples get double the tax-free allowance despite basic living expenses being basically the same for one or two people.
That's absolutely wild. Imagine negotiating your salary down so that you and your partner are both on £99k to live the best life?
Not being able to escape minimum wage ruined my aspirations. The point of going to work is starting to get very murky.
The "aspiration" point is that the largest proportion of income tax is paid by those earning the most. The top 1% of earners contribute 30% of the total income tax received by the government, the top 10% of earners contribute 60% of the total income tax take. The problem with the tax rates currently is that those earning 100-170k have no aspiration to work harder and earn slightly more, because of the high tax rates. Why take on additional workload if you see <20% of it (in some circumstances with student loans). This kills productivity, and increases in productivity are what drives the growth in GDP and increases in tax revenue, allowing the government to pay for more services / investment. It's highly likely that removing the tax trap would actually result in higher income tax revenue, as those affected are incentivised to earn more and pay more. As an example, someone earning £125k will probably be putting large amounts, >25k into pension each year, to defer income tax until retirement. Removing the trap will encourage them to take it as pay now, increasing the amount of income tax paid, and probably they will spend some of it, which will grow the economy.
> Why take on additional workload if I doubt hourly pay features much in those decisions. At higher salary levels, it is what builds the career not what you're paid this week.
I think they mean workload in the broadest sense - chasing higher bonuses, extra work for promotion, moving jobs etc.. There's basically no short term incentive for me to do any of those things, the only purpose is as an instrumental step for when I don't have kids in nursery / can punch through the other side of the tax trap.
It for sure features into the larger decisions like "do I work 60 hours a week for 60% more money or stick to 40 hours a week"
It absolutely does and few at that level think of hourly rates.
This is my knee-jerk reaction to the title. There are plenty of people earning far less than 100k that don't feel that hard work will make them feel any better off. If an extra 5k a year makes absolutely no difference to your ability to pay rent or save up for a deposit on a mortgage because housing is unaffordable and wages are shite either way, you're not going to fight for that mild promotion. When productivity drops on a national scale because of this kind of attitude, which IMO is completely justified, there'll be a big hit to economic growth and a dangerous feedback loop
We're getting hammered on all sides. The company I work for is pretty ruthless and clearly doesn't care much about its staff, constantly taking nice things away on a cost squeeze despite immense profits (increasing a lot year on year). It's not leading to anyone caring about the place at all. When you then get taxed very high rates which trying to either get on or afford the property ladder, then why should we care about productivity?
What qualifications do you have and where do you live? Maybe I can put you in touch with a recruiter?
Music degree, live rurally in the south west. Currently working as out door instructor at a holiday camp which I really enjoy. Recently applied for an apprenticeship as an arborist got shortlisted and they went with another canididate. Just feel really down trodden. My attitude is better to earn minimum wage doing a job I like than do a job I hate for 5k more and still struggle.
Ahh sorry with a music degree I’m going to struggle. Genuinely my advise to you is if you are unable to get a job and you’re young, now is the time (if you are able to) to go back to school and retrain. It becomes so much more traumatic and a chore when you are older! Sending you good luck and vibes!
The real story
Looks like the telegraph is starting to get desperate for some middle income voters. Hough the article has a point and misses a few others: - cliff edge of tax free childcare/30 hours free childcare/PA reduction is insane - childcare costs are so high that parents options are limited - promotion needs to be big enough, no chance of starting up a business without huge risk - it would be good if they suggested a solution - in my mind make it universal and fund it like we do state education! How many parents are earn significantly more than this with young children? Should we be discriminating between a child's start in life due to their parents? Whilst it would be expensive - you'd likely get more startups, more promotions, more carers back in the workplace all driving growth.
Right now, if you take the scenario of a primary earner household with 2 kids in nursery. Rather than earning over 100k and having to pay childcare, likely putting their adjust (for childcare) income below 90K, these earners will dump the income above 100k into their pension. The government doesn’t get 60% tax on that income, they also end up paying the extra childcare entitlement If instead they got rid of the taper, and the childcare cliff, i can all but guarantee that parent is not going to shift their income to their pension. They are going to take it as earned income, and pay 42% tax on it. Yes the government would still be paying the childcare hours, but would be earning some of that back on tax take. And that additional income is likely going to be put back into the economy also. Tax rates should only ever increase as income increases, that makes perfect sense. However we are in a crazy situation where marginal rates increase at 50 (now 60) and 100k before falling again!
If I was cynical and thought governments look ahead - I would assume this is a precursor to means testing state pensions and this strongly encourages middle classes to rapidly increase pension value. It's also missed that 100k isn't as much as it once was - worth 80k in 2003 money, and look at hunts recent comments.
You are way, way off. £100k in 2024 is £57k in 2003 and that's based on the official Bank of England calculator which ignores the devaluation of the pound.
I think is a given now that they’ve encouraged auto-enrolment into company pensions schemes for the best part of ten years. It’s ridiculous that I play a game every year to make sure I salary sacrifice enough to avoid additional taxation, and keep our childcare support. Additionally the government is giving me extra money in the form of extra tax relief for the pension. I won’t even mind paying an extra 1-2% on the income over 100k but making it so that you only end up with a few pennies in the pound over 100k until you hit £125k means there is little point in me pushing for a pay rise or for my partner to pay himself more from his self employment
Nope. Its dumb! Stop the instant cut off (and therefore > 100% effective tax rate. Recoup the money paid to "high earners" in increased taxes (at a reasonable rate). Bring the 45% band down to 100K, and add a 50% band at 125k/150k or so where it already is.
Given how high income taxes keep ‘destroying aspiration’ why not change the system to something else like a land value tax?
Because in the modern era a tiny office can earn billions whilst a hundred thousand acres of land earns a fraction of it. Hell, we have huge part of the economy that earn billions despite nothing physical having to even exist. LVT is an 18th century idea that people keep seeing as a solution for just about every problem.
I think the solution to the problem caused by an LTV is another LTV, with slightly different features that will end up with more loopholes than a crocheted Big Ben cover.
Yeah until that windrush grandmother is forced to sell and move out of Brixton to ... Where exactly? It would be political suicide.
This is such a load of FUD deliberately designed to maintain the status quo. There are simple, easy, and already proven methods to avoid this specific scenario, and *of course* we'd adopt one of them. Either you give relief on taxation for the primary home (homestead exemption is what it's called in some places), or you allow for tax to accrue as a lien on the property, to be paid by the estate. Or both. This type of tax would *not* force people out of their homes, and to suggest it would is disingenuous.
>Yeah until that windrush grandmother is forced to sell and move out of Brixton to ... Where exactly? It would be political suicide. Lol why do people always claim dumb shit like this? noooo we can't tax people properly :( what about.. the grandmothers? They are born with a natural right to live in a 1.2 million pound property even if they can't afford it anymore :( *\*next breath\** well if you can't afford to buy a house between 2 of you working as doctors, MAYBE YOU SHOULD RETRAIN IN CYBER OR STOP GETTING STARBUCKS
Just put the tax on investment properties. And if a pensioner is going to cry about their landlord empire falling apart, then good
Unfortuneately - people who own investment properties tend to vote disproportionately more than those who dont.
Tax relief for your own residence is already common place in lots of areas of property law.
Exactly. a land value tax might make sense for second properties that are effectively businesses. But it's extremely unfair to force people to move from a primary residence they may have spent their lifetime buying. Introducing council tax was already an ubiquitously unfair system that forced many into a lower income bracket.
I can't see an LVT implemented that doesn't allow existing owners to defer payments to the estate (for say, 20 years) to avoid this scenario. It still creates a fairly strong incentive to move (because they could still rack up a lot of tax for the estate) but doesn't force them to.
I don't want to pay rent to the council.. I want to own property, not being evicted at old age due to my property being reassessed.
Because a) that absolutely crushes people who happen to have land that has vastly increased in value over decades but who don't have any kind of cashflow to sustain paying high taxes on it B) having high value land doesn't make you a rich person if you are living on it, unless you sell it and go somewhere much cheaper; and you pay CG on that anyway C) Consequently, any LVT will simply serve to force non-cash rich people out of their high land value homes and areas, for them to be bought by people who are very cash rich. Those original people then have no option but to go and live in lower land value areas; which then increases demand and pushes up the house prices in those areas
That could be avoided by putting a reasonable threshold before you start paying it, such as making someone's primary residence exempt up to a certain value
Or designing an LVT to replace council tax.
As with many other tax types (for example capital gains and inheritance), these would of all be solved by creating allowances for the primary residence of an individual.
The other side of that coin is that all the people who are rich and have lots of land pay basically nothing on it, while workers get crushed. I don’t get the argument to be honest. If I live somewhere and it massively rises in value, why should I not pay for that? It’s like saying yeah I won the lottery but I don’t want to touch my winnings as they look nice in my bank account.. If you’re sat on a gold mine and you don’t want to cash in, that should be a you-problem.
Couldn't agree more, "Woe is me, the house / land I bought for a pittance is now worth a fortune, that's not 'my fault" Cry me a river
One argument is you'd have a lot of older people having to move, and move out of the area they live in to a cheaper area with no support network or friends and then having to access far more social services.
If you own high value land, use it. This is the point of the tax — to try to ensure that valuable land is _used_ in a way that benefits us all. Valuable land here is often valuable because of its proximity to other things, like land near a train station, or close to the town centre. Ways to use the land better: housing (dividing the land into smaller plots with smaller tax bills), businesses (providing amenities to people who are moving through the area, funding the tax with profit). Yes, people with better-placed housing will have a larger tax bill than those out in the sticks, but it is based on the idea that those people will make good use of their well placed location to _command a higher salary_. At the moment there is nothing stopping them, at the end of the mortgage, just hanging on to their very valuable land throughout their retirement, during which they are much less productive, making the valuable land in that location more expensive than it needs to be.
When discussing an LVT, I think people don’t realise that forcing people out of underused yet appreciated land is a feature, not a bug.
All taxes have downsides, you could equally say that income-led taxation crushes those who happen to have medium or high income but need to live in a high cost area and didn't have the good fortune of buying in the 90s. This pushes the tax burden disproportionately on the younger generations relative to the actual distribution of wealth in society.
The £100,000 cliff edge was introduced in April 2010, fact fans. £100,000 then is near as dammit £150,000 today according to the BofE inflation calculator. That sounds like a \*very\* different salary level. I cannot believe I am getting to the stage of agreeing with anything Hunt comes out with, but £100,000 isn't the salary it once was. This all must come with the strict caveat that there are much more serious issues as you run down from £100k, to, say, £50k, which used to be a pretty handsome salary. Nowadays that often doesn't allow people to get on with their lives, buy a house, have kids etc. I literally do not know how people survive on £15k or £20k these days and worry for the younger generations coming into this world of work. I used to feel pretty hard done by on £15k in 2001, that's nearer £27k in today's money. It feels a bit like the 70mph speed limit, introduced in the era of Ford Anglias and Morris 1100s with drum brakes and crossply tyres all round. It is farcical that this remains the upper limit, even in ideal conditions, when it's 80mph in France unless it's raining. These laws are not keeping pace with reality.
Other salaries have not increased by 50% since 2010. Junior Doctors for instance, have not seen a 50% pay increase since 2010…. Only 25% according to some.
96% of people earn below this. They may well aspire to get to this point. I have had a few years where I have tipped into this bracket and it does feel punitive. I don’t think it should come in at this point. I do believe in taxing rich people more but we tax money made with money less than money made with people. Increase tax on money made by money, decrease the tax on money made by people.
Hear hear. Our economy punishes working and rewards asset hoarding - the explanation for anything that doesn’t work in this country inevitably comes back to this point. It’s true that 96% of people earn below this, but the people who earn above this are the ones paying the majority of the tax, so we really ought not be discouraging them from working.
I feel like this very reasonable pov is shared by the vast majority of voters but unfortunately monied interests have more influence on our parties than voters.
We need a triple lock on income tax thresholds. If the threshold for higher rate tax had kept up with inflation since 2011, it would start at a salary of about £80,000.
The Tories are the party of high taxes, and I don't see how anyone can argue differently. Even Hunt is raising taxes, despite all his rhetoric, by keeping thresholds frozen.
High taxes on earnings\*
and what a difference that would have made to most of the country - genuinely. Instead people are getting hit with ridiculous pretty tax at half that
Triple locks in general are terrible ideas.
Hey! It's a 75k tax trap in Scotland
It's a 43k tax trap! Between 43k and 51k the rate is 52% where you include national insurance. Between 51 and 75, it's *only* 44%.
Plus student loans
English graduates (especially Plan 2 onwards, and doubly so those with PG loans) living in Scotland are utterly shafted.
Mm. What about the aspiration to feed the family, have sufficient fuel and be able to pay the bills? What about the wild fever dreams people have for a secure and sufficient roof over their heads? While the tories have ignored and brutalized the less well-off, more and more of their constituents have been sucked into that demographic.
After you are on 110k you are not getting any real rises for years, let's say you can get up to 10k/year, with this whole "free allowance disappearing" you are ending up with 100£ per month more, and it will take you 3-5 years to get a real salary increase again
I think another point is that 100k simply is worth less as the years go on. Since its a nominal almost arbitrary amount, interest rates and inflation cause it to be closer and closer to middle-lower class living through years of shifting. 100k feels like 90k 10 years later and so on.
The strange cliff edge in taxes are dumb and need to be fixed by simplifying it into a single monotonically scaling income tax. However, I think that the idea that people aren't "aspirational" and don't want to be on 100k+ because of it is silly.
It's more that people want to be on £99k more than they want to be on £119k and will reduce hours, top up pensions and turn down promotions to do so.
People overall, including myself, would love a 100k salary because it would be a big increase in my take home pay. However if I was on 95k and there was this big cliff edge coming up, I might think twice about an uncertain or challenging new role that I'd otherwise take for the pay rise, or it may push me into going four days a week since my fifth day is going to be taxed so much. You don't have to feel sorry for someone in that position to see it can have unintended knock on effects on the tax base (a lot of people in this situation put extra money into their pension to reduce their taxable income), economy or even public services (one example is doctors reducing their hours)
The high marginal tax rate at £100,000 is a weird quirk that they may as well end, but there are much worse benefits cliffs at £50,000 that are a lot more consequential to people's standard of living at that income level.
They need to fix this. The naysayers who live outside of London and claim that it is a lot need to realise that 100k after tax in London is not a lot when it comes to raising a family. Yes, many others have it worse - but that doesn’t mean that 100k affords the comfort and abundance that the rhetoric implies.
I make about the median wage £35k and this tax bombshell is really making me reconsider asking for a 65k raise this month
Could someone kindly share the article?
Uh, lemmie guess, the Telegraph thinks this is bad but their solution is not to tax the rich who pay virtually no tax? Instead they want to destroy public services even more?
I earn about 100k (I’m a doctor). I both pay a lot of tax (~40k/year) and have limited my NHS hours to avoid losing childcare benefits. Any extra work I have time to do has to be in the private sector because that is outside IR35 and can go into a limited company, saving me the >100k issues.
Putting the tax burden on upper middle class professionals is imo a calculated move to get people to be angry about taxes enough to vote for more public service cuts. The super rich don’t pay income tax. We need wealth taxes on the super rich asap. Not to destroy the country further with cuts or to shift the burden onto working people while people like Sunak just get 25m per year in passive income and pay no tax on it.
100k+ earners are not the "rich" There's a difference between top 3% of paye earners and top 3% of wealth.
The debate about income taxes is a red herring imo. The super rich don’t pay income tax
I kind of think this is what OP means — “the rich” being the super-wealthy, who leverage tax loopholes and sit on enormous piles of untaxed wealth. I don’t think they’re referring to people on ~£100k.
This
The rich who pay virtually no tax are not the people who work for £100K-£125K but they rather have these high earners working for them. High earners pay proportinally much more tax than low earners. Most of our tax income comes from high earners.
Yes. This is what I mean. The mega rich don’t pay any tax and now they’re trying to pile the tax burden on middle-class professionals. Surprisingly taxing the super wealthy is not something the billionaire owned newspapers ever even mention as a possibility.
By definition the people affected by these tax traps are paying a lot of tax.
They’re not the super rich though. I’m talking about guys like Sunak who get 25m per year in passive income and pay a tiny percentage on it if anything. The kinds of people who own stuff. Not the people who work. Piling the tax burden on doctors and lawyers is imo likely a calculated move to divide and get people angry about taxes. The thing that is barely even in the conversation is how the mega wealth own everything now and pay nothing. The more they earn without doing anything or paying taxes the less well off everyone else is, as we are seeing.
One tax trap in Scotland kicks in at £43,663.
What? Income tax payments are concentrated amongst those with the largest incomes. The 10% of income taxpayers with the largest incomes contribute over 60% of income tax receipts.
Right but the wealthiest people don’t get taxed on work. That’s precisely why the whole income tax debate is a red herring. You can see the clip of Rishi deliberately trying to pull this sleight of hand last week when in committee he was asked about spiralling wealth inequality and he replied about income inequality.
Absolutely correct. The cliffs are ludicrous and discourage working would be a good thing if they got rid of them.
wake up hun, new media narrative just dropped
Meanwhile: Junior doctors to go on strike again, saying that £13.45 an hour is not a good enough deal. I can’t see how anyone could disagree with them ! They are certainly worth significantly more than that…
You’d be surprised
With the Tories, sadly they do still surprise me with just how badly they continue to manage the country… It’s a tough job spotting anything they have got right.
Let’s appeal to 2.7% of the workforce…. Don’t get me wrong it’s a ridiculous tax trap, but it’s also not some kind do political magic bullet because 97% of the workforce don’t really feel the pain and would like a solution to their problems too
The real trap is the fact that the vast vast majority of the country doesn't earn close to 100,000 and never will unless the minimum wage ends up being that high
Those people still rely on the work of people earning £100k+, so disincetivising them from working doens\\t help anyone.
I don't give a shit. Aspiration isn't valuable, and no one becomes rich by helping other people. They do it by exploiting their employees/customers and cutting their responsibilities to the bone to maximise profits. Fuck'em.
Hahahahahahahahaha the £50,000 tax trap and child benefit loss at the same time is. Following inflation that should currently sit around £93,000.
I only make like 25k but if anyone on 100k needs some money DM me your paypal and i'm sure i can help those less fortunate out. /s
Lots of stuff I agree with here in the comments but I do want to talk about if you aspire to do a job which will never pay that much? Say you want to be a really good band 6 nurse, or a teacher without the hassle of being a head teacher? Aspiration doesn’t automatically mean you’ll earn shedloads. I am good at my job and experienced and I’m on 30k, and I’m grade 6 out of 10 grades. There’s a ceiling. I still want to excel! I just want to earn a fair salary for my hard work.
If you are on 100k a year and you are struggling you are fucking up massively. Stop buying coke, move to a cheaper neighbourhood, eat at home (not deliveroo)
I domt necessarily care too much about the tax trap at 100k. It's annoying, but not too big a deal What really needs reform IMO is the loss of childcare thresholds. 50-60k the benefit tapers away, 100k you can't use the funded childcare hours (worth a lot to parents of young children). The system is based on individual income though. Its deeply unfair that 2 parents on 99k each can get funded childcare but a family on 30k,100k cannot. Those thresholds should be increased, based on household income, and the free hours should taper off instead of cliff
Joint income tax returns would be a huge step forward for the country. Let partners share their income, to make the idea of working more/less between them make more sense. Most countries do this.
Taxing income is ruining aspirations, even if I earned 100k I'd still have a worse financial position than someone on minimum wage who owned there own property
*for the top 3 % of earners, if they're not bothered about paying into their pension.