Anorak News | The right pain in the bum that is fiscal drag

The right pain in the bum that is fiscal drag

by | 6th, December 2012

A LITTLE bit from Chancellor George Osborne’s autumn announcements that might get overlooked:

A record 4.5million workers could be paying higher-rate tax by the end of this Parliament.

The number in the 40 per cent band is expected to rise from 3.8million today by another 400,000 over the next three years, the Treasury said yesterday.

However, experts predicted the number dragged into the higher rate could be an additional 300,000 – which would in total account for nearly one in six taxpayers.

Obviously it’s not being overlooked as it’s being reported. But what is often overlooked is that this has been going on for at least 50 years: and it’s most unlikely that any Chancellor will ever stop it. It’s something called “fiscal drag”.

In the long term, even if not each and every year, wages rise by more than inflation. This is what leads to us all getting ever richer. And yes, despite the torturing of statistics that goes on we are indeed all getting richer and have been for decades, nay centuries. Which is good, that’s the point of this economy thing after all.

But successive governments tend to raise the tax allowances….the tax free personal allowance, the amount at basic rate before higher rate tax….at the inflation rate or below it. Not at the rate at which wages rise. This means that the tax system moves, over the years, into taking bites out of ever lower incomes. Time was, 40 years ago say, the income tax system really only started when you were on average wages. Now someone working part time on minimum wage pays it.

Higher rate was only paid by those on very decent incomes indeed: this latest change will have 15% of all the workers paying it.

The reason that they do this? Because no one notices it. And if we don’t notice how they’re fleecing us then we’ll not complain about it. Sad but true: and good evidence that the government is not your friend, not when it’s looking for money it’s not.


Posted: 6th, December 2012 | In: Money Comment | TrackBack | Permalink