Following on from my view of the pros and cons of Labour's plans for tax...the Conservative party plan to:
-Raise the personal allowance from £10,600 to £12,500
-Raise the starting point for 40% higher tax rate from £42,400 to £50,000
-Keep VAT at the same rate
The additional personal allowance does target lower earners as its not available to earners over £100,000.
The 40% tax band has seen a “fiscal drag” due to wage inflation, so a hike to £50,000 is welcome.
The "no rise in VAT" seems to be a response to Media speculation – after all this term the government only increased the VAT rate back to where it was before at 20% after a temporary reduction to 17.5% by Gordon Brown. VAT is a European law and is at high levels across Europe.
The personal allowance rise is no good for part-time workers who don’t earn more than £10,600. For them a rise in the minimum wage would be more suitable.
The 40% tax rate change just makes the shock of child benefit withdrawal at £50,000 even more pronounced. People whose incomes fluctuate due to commissions/bonuses could dip in and out of £50,000 from one year to the next and so be dragged in and out of the higher rate tax regime. People in this band of earnings are also more likely to be affected by the 2% hikes in company car tax in the coming few years. A good many people won’t feel any better off. Given the way tax coding notices can struggle to allow for people in the borderline areas between 20% and 40% this could cause problems for many. If we are going to have so many arbitrary tax rate change points then it’s about time the tax and national insurance regimes were fully harmonised so people can clearly what effective rates they are paying and employers can stop juggling with their payroll software each month.
Tomorrow we’ll report on UKIP’s tax policies