Tax rises to come


People are understandably angry about the MPs' expenses scandal, which has been dominating the headlines for the past few weeks. However, it is arguable that the sums in question are, in the grand scheme of things, pretty minor, and that people's fury would be more rationally directed elsewhere – like, for instance, at the raft of tax rises which have come in this year, or are set to come in between now and 2011. This is where the real theft is going on:

  • The uniform business rate – which constitutes a major burden for many struggling businesses – has just gone up by 2%. It was originally going to rise by 5%, but the chancellor has agreed to let businesses spread the additional 3% over the next two years.
  • Taxes on alcohol and cigarettes went up by 2% in April, while fuel duty is set to rise by 2p per litre in September, and then by 1p per litre above inflation in April 2010.
  • VAT is due to rise from 15% back to 17.5% at the end of the year.
  • From April 2010, people earning between £100,000 and £150,000 will see their personal allowance phased out, effectively creating two narrow income bands (£100,000–106,475 and  £140,000–146,475) where tax is levied at 60%.
  • Also from April 2010, a new 50% tax rate will be charged on incomes over £150,000.
  • In April 2011, the higher rate (40%) tax relief on pension contributions will be abolished, and employee and employer National Insurance Contributions will both rise by 0.5%.

Of course, these are just the tax rises they've been honest enough to tell you about, and given the dire state of the public finances, it could get much, much worse. The government is planning to borrow £175bn this year and £700bn over the next five, to add to the £1.5trn of government debt we already have. The upshot of all this is made clear by the National Institute of Economic & Social Research, who say that without spending reductions, the basic rate of income tax would have to go up by 15% to get government debt below 40% of GDP by 2023.