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.

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20 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.

  6. Norfolk29

    The strange thing about tax is that most high earners do not pay anything like 22%. When Mitt Romney had to publish his tax returns in the 2012 US Presidential Election he was earning millions and paying about 20% in tax. We need all MPs’ and Members of the House of Lords to publish their tax returns as part of the pact to prove that they are honest with the electorate. This would have cleared up the issue of Lord Ashcroft who assured William Hague, Tory Leader at the time, that he was paying UK taxes, but as a Non-UK person (ie. not on all his income)

  7. graham

    That is the most ridiculous idea I have ever heard, clobbering the lower two thirds of society in order to increase the wealth of the upper third. As remarx says below, the tories are for the rich, as though we did not know!!

  8. robertcp

    A flat rate tax is insane, immoral and would be political suicide for any party mad enough to suggest it.

  9. Leon Wolfeson

    America has something called the Alternate Minimum Tax, which is /basically/ a flat tax, imposed more-or-less if it’d be higher than regular tax. It catches a lot of rich people.

    Many rich people in the UK, as we don’t have an AMT, pay far far less than 20%. (Heck, America taxes capital in general more than we do these days…and I’d note the AMT also applies to corporations, at 20%…)

  10. Leon Wolfeson

    I don’t see the Tories share of the vote slipping. Let’s be fair here, people can be convinced to vote by propaganda against their own economic interests.

  11. robertcp

    I would be amazed if a flat rate tax actually become Conservative policy.

  12. Leon Wolfeson

    We’ll see. Remember, this is the Tories who want to “merge” income tax and NI, leaving a decent proportion of UK workers without NI contributions!

  13. Kay

    Bombshell, what bombshell? Unless of course, you are talking about the immediate and unequivocal response from the Conservative party (as reported in the Guardian)

    “There will be no flat tax. We oppose it. Full stop.”

    You’d think it was the ‘silly season’ where underoccupied political commentators were trying to make a story where there wasn’t one. Oh hang on ……….

  14. Stephen

    Unless you’re UKIP, because many ex Tories can benefit and ex Labourites who are stupid enough to vote for them are probably financially illiterate, and have been successfully duped into believing all their troubles are due to immigration.

  15. treborc1

    The shock comes when you ask the question like which party saw the biggest rise in the richest 10% and it comes back at Blair lost and Brown, yes I know he set a trap with the 50p tax band but he also took from the poor to give to the better off.

    Thatcher actually saw the poor get better including benefits my benefits were controlled by labour and kept low, while Thatcher doubled my benefits with DLA, All I hear from labour is hard working people not working class, these days finding a reason to vote labour is getting harder and harder.

  16. blarg1987

    Trouble with New Labour is that they are Thatchers success story (carrying on conservative policy). While The Conservative’s may have increased benefits, part of this was a reaction to offloading millions of people onto the unemployment heap after getting ride of large chunks of our industrial sector.

  17. Leon Wolfeson

    There is and remains very little movement from Labour to the UKIP. Look at the tabs on UK Polling Report…

  18. Leon Wolfeson

    Yes, but it shows how much nastier this bunch are. Thatcher put people on the disabled rolls. This bunch are purging them in an era of collapsing wages.

  19. Greig Craig

    Well they’ve already lowered the threshold for higher rate tax to £31000 ish from about £39000 ish to pay for the abolition of of the 50 pence rate for those earning over 150K.

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