The Institute for Fiscal Studies are out prowling the airwaves again, and they bring
happy and unhappy tidings for the coalition. On the happier side, at least presentationally speaking, is their assessment that, “those being hit the very hardest [by tax and benefit changes] are
those on [a] higher level of earnings” – just as Cameron and Clegg suggest. But far less marketable is the IFS’s claim that 750,000 people will be pulled into the 40 per cent rate of tax as a result of the
threshold being reduced from £37,400 to £35,001 this April.
To be fair to the government, they have at least been upfront about this tax change. It is, they say, designed to offset the effects of the increased personal allowance, which will leave 500,000 more people paying no tax on their earnings at all. Compare and contrast with Gordon Brown, who didn’t reduce the higher rate threshold in 13 years, and yet still saw the number of higher rate taxpayers increase by well over a million as wages went up over that time. Naturally, his fiscal drag went unannounced.
But that doesn’t mean the coalition will avoid the flak this time around. Even accounting for the gains from an increased personal allowance, many of the new higher rate taxpayers will lose out as child benefit payments are restricted, among other policies. Hence the unfriendly tone of many of the papers this morning. Stir in rising inflation, and the public’s growing propensity to blame the coalition for How Things Are, and “the squeeze” promises to become more toxic for Osborne & Co. as the Budget approaches.
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