This is a guest post from David over at Dodgy Statistics. Please let me know if you would like to guest post on SS.
Over at my blog, I have talked about the referendum campaigns (who are trying to push you into a decision) and corporations (who are trying to sell you stuff). For this post my target is the government which is all the more insidious as they run the country using our taxes and therefore should have our best interests in heart.
The UK government is committed to bringing down taxes. Corporation tax has reduced for the past few years and now sits at 20%. Income tax come in bands as follows:
0% for the first £11,000
20% from £11,001 to £43,000 (basic rate)
40% from £43,001 to £150,000 (higher rate)
- 45% for over £150,000 (additional rate)
The “basic rate” of income tax of 20% seems consistent with the government’s pledge to reduce taxes.
But there are two problems.
The first is that between £100,000 and £120,000 you gradually lose your personal allowance. This means that you effectively pay 60% income tax between these bands.
For an extra £2,000 of salary you pay 40%, or £800, and you lose £1,000 of personal allowance on which you pay an extra 40%, or £400. So effectively you pay 60%, or £1,200, on the extra £2,000.
Only around 1 in every 250 workers earn over £100,000 a year.
The second is National Insurance (NI). Historically it was introduced as a form of insurance against illness, unemployment and then later it also provided for pensions. Now it is dropped in with all of the other taxes in a big pot.
The problem is that National Insurance is just another form of income tax. The rates are:
- 0% for the first £8,060 (who knows why this is not consistent with the £11,00 above)
12% for between £8,061 and £43,000
2% over £43,000
True rate of income tax
So let’s put these figures together to say what you actually pay in income tax:
0% on the first £8,060
12% between £8,061 and £11,000
32% between £11,001 and £43,000
42% between £43,001 and £100,000
62% between £100,001 and £120,00 (due to losing your personal allowance)
- 42% between £120,001 and £150,000 (seriously!)
47% over £150,000.
The tax rates don’t seem so low when you put them together. There isn’t even a smooth progression as you move up the tax bands.
UK government – please be honest about our taxes!