Skip to content

T’ain’t sensible now, is it?

It said the Chancellor’s decision to freeze the level at which workers start paying 40pc income tax at this level until 2028, as well as the thresholds at which child benefit starts and finishes being tapered away, means 180,000 families who also qualify for universal credit face effective marginal tax rates of 103pc within five years.

Incentives do matter. And just as 98% tax rates in the 1970s led to changes in behaviour then 103% ones now will. As do those higher than 100% rates which exist at the intersection of housing benefit, 16 hour work weeks and all that at the bottom of the income scale.

The problem here is alwsays the same. You can have a longer taper – that is, the benefit gets withdrawn more slowly. But that costs lots of money. Or, you can save, have that higher taper and therefore have high tax and marginal benefit rates.

The only bound out of this, the Gordian knot cutting, is simply to have a smaller state. Which swallows less of everyone’s income and provides less of it too. Only then can you have marginal tax and benefit withrawal rates that maintain incentives. So, let’s do that then, eh?

14 thoughts on “T’ain’t sensible now, is it?”

  1. And just as 98% tax rates in the 1970s led to changes in behaviour then 103% ones now will.

    Didn’t it just lead to people fleeing the country ?

  2. Bloke in North Dorset

    OT but on the recent subject of greedflation.

    Handlesblatt have done some research in to it and found the opposite:

    Handelsblatt reporter Christoph Schlautmann actually wanted to find evidence for the thesis of “greed inflation” in the corporate balance sheets: Namely, that companies are taking advantage of the inflationary moment to push through price increases that are significantly higher than their own cost increases. Anyone who has bought a cucumber in the past few months can hardly avoid this impression.

    All the more surprising, then, that data research revealed the opposite. The so-called gross profit margin, also known in many companies as the trading margin, has fallen for the vast majority of the companies in the Dax and MDax. If the thesis of widespread “greed inflation” were correct, it should have risen.

    Not only the car manufacturers Volkswagen, BMW and Mercedes-Benz are affected by the shrinking margins, but also all listed consumer goods groups from Henkel and Adidas to Metro and Media-Saturn.

    A gap in the data is formed by the large German food retailers from Aldi to Edeka, all of which are not listed on the stock exchange. However, retail experts see no evidence of rising margins here either.

    https://www.handelsblatt.com/meinung/morningbriefing/morning-briefing-inflationsturbo-welche-rolle-spielen-unternehmensgewinne-/29125450.html

    Full translation from DeepL

    It won’t kill the claim though.

  3. The effect of child benefit being taken away from higher earners has encouraged me to put more in my pension. Thanks a lot George.

  4. Small government, Tim? I don’t think that’s still a thing. Tell me that last time you saw someone in the mainstream media arguing for smaller government, even in the alleged right wing press?

  5. I cannot read the linked article but the “will …. within three years” implies that this is a forecast, based on some dodgy assumptions, rather than observed reality.
    One very dodgy assumption is that those earning enough to pay higher rate tax will be claiming child benefit separately from, and in addition to, Universal Credit!!

  6. The only bound out of this, the Gordian knot cutting, is simply to have a smaller state. Which swallows less of everyone’s income and provides less of it too. Only then can you have marginal tax and benefit withrawal rates that maintain incentives. So, let’s do that then, eh?

    How long did our last legitimate prime minister last after she tried that?

    Do we think the evil foreigners and Tory rentboys who rule over us are interested in more prosperity and higher living standards for British people?

  7. Smaller government!?
    What a silly idea! Just think of all the people who would be impoverished by such a thing!
    Well, all the important people anyway. And they’re the ones that count, aren’t they?
    Well, they are, so shut up! You -ist!
    I can’t think of a word, but I know what it must end in…

  8. Anyone who bases policy on OBR forecasts is in need of a lobotomy. If someone would finance it, I would be prepared to eliminate the OBR by any means possible. Mainly for the effect it will provoke in the Beeb and Graun

  9. Martin Near The M25

    Given recent spending and tax burdens it should be renamed the Office of Budget Irresponsibility. When asked why inflation remained persistently high a spokesman for the OBI said “No worries, she’ll be right mate!”

  10. ‘When asked why inflation remained persistently high a spokesman for the OBI said “No worries, she’ll be right mate!”’

    What the OBI spokesthing really said was, “We’ll need more funding to study that. In depth.”

  11. @David

    “The effect of child benefit being taken away from higher earners has encouraged me to put more in my pension. Thanks a lot George.”

    I have regular conversations about this with clients – that and the withdrawal of the Personal Allowance on incomes above £100k.

    HMG could have had 40% of the income concerned, went for more and have ended up with nothing.

  12. The only bound out of this, the Gordian knot cutting, is simply to have a smaller state. Which swallows less of everyone’s income and provides less of it too. Only then can you have marginal tax and benefit withdrawal rates that maintain incentives. So, let’s do that then, eh?

    Unfortunately, that seems to be the one option that is not on the table (or the manifesto of the so-called “Conservative Party”.

    It’s a struggle to find someone to vote for who isn’t one of the local “Nutter on the bus” types.

  13. The only bound out of this, the Gordian knot cutting, is simply to have a smaller state. Which swallows less of everyone’s income and provides less of it too.

    But that would be “Austerity”, a very Bad, Bad thing.

    We can’t have folks deciding how they spend their own hard-earned, that’s Gov’s job.

Leave a Reply

Your email address will not be published. Required fields are marked *