The Tory tax bombshell that would clobber middle earners

A senior Tory at the heart of government policymaking has let slip that the Conservatives are considering a new tax plan which could hammer middle and low earners.

A flat tax would clobber low and middle income taxpayers, according to the Institute for Fiscal Studies

A senior Tory at the heart of government policy making has let slip that the Conservatives are considering a new tax plan which would hammer middle and low earners.

Oliver Letwin, the minister for government policy, confirmed during a speech earlier this month that a “discussion” on a flat tax would “no doubt open up in future”.

He said the Conservatives were “not in a position” to implement the policy in tight economic times, but he added that “there may come a time when the situation is different and the situation will no doubt open up at that point”.

Letwin is minister for government policy and is responsible for developing new policies along with the cabinet office. He has previously been described as the government’s “intellectual sage”.

His intervention follows praise of the flat tax by other senior Tories, including the chancellor George Osborne. Osborne has previously called the flat tax a “very exciting idea”:

“[The flat tax] is a very exciting idea, that started in central and Eastern Europe, but is now being looked at by other countries like Greece, and there is some speculation that Germany is looking at it. And it clear away all the complexity of the tax system.” – Radio Four Today Programme, 7 September 2005.

Mayor of London Boris Johnson has also said that a flat tax could “work brilliantly”.

And yet a flat tax would clobber low and middle income taxpayers, according to the respected Institute for Fiscal Studies (IFS). In a 2006 study, the IFS found that a flat tax at 22 per cent would mean that anyone with an income of less than £44,110 would lose out, with those on incomes of around £38,000 a year hit particularly hard:

“…the biggest loser in cash terms would be someone with income exactly at the effective higher-rate threshold (currently £38,335 per year), who would lose £924 per year or £17.77 a week. The break even point is £44,110 –  anyone with income below this level…would lose out, and anyone with income above this level would benefit from the reform as the gains from eliminating the higher rate outweigh the losses from increased tax rates on lower tranches of income.”

Flat taxj

Middle and lower earners take a bigger hit for two reasons:

1)  In order to pay to lower tax rates for higher earners tax rates for lower earners have to go up.

2)  Flat taxes weaken the work incentives of lower-income individuals because they decrease the benefit experienced by the poorest when they move into work or increase their hours.

The IFS also found very little to support claims that the flat tax introduced in Russia has resulted in an increase in personal tax revenue going to the government.

Follow James Bloodworth on Twitter

As you’re here, we have something to ask you. What we do here to deliver real news is more important than ever. But there’s a problem: we need readers like you to chip in to help us survive. We deliver progressive, independent media, that challenges the right’s hateful rhetoric. Together we can find the stories that get lost.

We’re not bankrolled by billionaire donors, but rely on readers chipping in whatever they can afford to protect our independence. What we do isn’t free, and we run on a shoestring. Can you help by chipping in as little as £1 a week to help us survive? Whatever you can donate, we’re so grateful - and we will ensure your money goes as far as possible to deliver hard-hitting news.

19 Responses to “The Tory tax bombshell that would clobber middle earners”

  1. Andrew Roberts

    And this website want scotland to vote NO . You can keep Tory rule I will be voting yes

  2. Guest

    So you’re a Tory. What a surprise.

  3. Leon Wolfeson

    The reality is that flat tax is not low tax. 22%? Don’t make me laugh…by the time social tax is added in, the flat-tax EU nations in fact tax their average earner marginally more than the progressive-tax EU nations.

    And yes, it’s also massively regressive.

  4. remarx

    If ever proof was needed that Tories are a party of the rich for the rich, here we have it. From what I have read in the Telegraph, this proposal has only been put forward thus may never see the light of day.But it does reveal part of the Tory doctrine, i.e. tax the lower social strata to enhance the upper strata. Whatever way you may look at it, a flat tax only benefits those already wealthy.

    My old Gran, who experienced the tough fight our forefathers had to wrest better pay and conditions from the wealthy Tory employers used to say to me, ” the Tories have never done anything for the working classes and never will”. She also used to say ” do you what what Tory means? It means thieves and robbers!” Its true ! Look it up.

    So it’s back to the 19th century for you lower classes. True, income tax was not around then, but there were many other ways to fleece the workers.

  5. Cole

    The Tories will now deny they’re going to introduce it – and then do so in they win in 2015. The cat is out of the bag.

Comments are closed.