Posted by Hari on Thursday, April 10, 2014 with 7 comments | Labels: Article, Austerity, budget cuts, education, Gove, Graphs, taxation
Did they or didn't they? Did the Tories abolish the 50% tax rate, or didn't they. Actually, they did and they didn't:
a) They Did: People earning more than £150,000 have been spared the 50% rate (52% including 2% National Insurance).
b) They Didn't: People with student loans earning more than about £43,000 are heading for a 51% rate (including 2% National Insurance).
This is illustrated by a graph in the IFS report "Payback time? Student debt and loan repayments: what will the 2012 reforms mean for graduates?" showing the marginal tax rate for people repaying student loans.
Graduates will start paying an additional 9% of their earnings once their pay exceeds £21,000. The 40% income tax rate kicks in at about £43k (assuming 1% annual increases in the upper earning limit). Marginal rate = 40% (income tax) + 2% (NIC) + 9% (Student Loan) = 51%.
Added on 5th December 2014, after the Autumn Statement:
The government announced a new £10,000 postgraduate student loan, starting in the 2016/17 academic year, to be repaid concurrently with the undergraduate loan. The Institute of Fiscal Studies (IFS) calculated the effective marginal 'tax' rate for a postgraduate who took loans for both undergraduate and postgraduate studies. Paul Johnson, boss of the IFS, stated this highly qualified individual once over the £21,000 earnings threshold would be paying 50% as a basic rate taxpayer, and 60% as a higher rate taxpayer:
"it is worth saying that those who take out the loan would face rather high effective marginal withdrawal rates on earnings of 50% for basic rate taxpayers (20% income tax, plus 12% NI, plus 9% repayment of undergraduate loan, plus 9% repayment of postgraduate loan) and 60% for higher rate taxpayers."
To clarify, you only pay the above tax rates on the amount of income you get above the thresholds don't you? i.e. If I was on £50K I'd only pay the 40% rate on the £7K I get above the £43K threshold. Also, I don't think it's fair to call the loan repayments tax, because they are loans you're repaying, which is a totally different concept to tax.
ReplyDeleteit is a tax on your income .... what does tax mean .............it would appear to agree with defintions below :
ReplyDeletedefinitions : a compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.
2.
a strain or heavy demand.
"a heavy tax on the reader's attention"
verb
1.
impose a tax on (someone or something).
2.
make heavy demands on (someone's powers or resources).
A very interesting point made. However as pointed out by Beth above, the various 'taxes' have differing thresholds, and the repayment of tuition fees is not strictly a tax. It is however still interesting that a student is contributing proportionally more to the State than a millionaire.
ReplyDeleteConsidering how the entire country benefits from the University system we have, what are your views on making University entirely State-funded?
Labour introduced tuition fees in 1998. Before that University was entirely state funded.
DeleteBefore then they were funded by all tax payers, not just the ones why had been to university and were now well paid.
DeleteWhen you factor in that parents on these moderate incomes of £50K to 60K are also losing child benefit and are paying a marginal rate of tax of about 66.5% then adding in this factor of student loans is going to put on an intolerable strain on these earners - better to stay as a couple both earning £30K then you will be laughing. Forget about promotion and extra responsibilities as it just becomes too much - the idea of one parent working less as the other parent for example takes on a UK-wide or Europe-wide role just does not work any more with these tax rates. Oh and dont worry if you are on really high incomes of 2x50K or 2x £100K you will be protected - they like you ! Its just the middle incomes who get targetted ! http://www.dailymail.co.uk/news/article-2257083/Middle-class-families-face-paying-65-tax-rate-Osbornes-incoherent-clawback-child-benefit-IFS-warns.html
ReplyDeleteThe answer therein is to go freelance, if possible.
ReplyDelete