The Judge RANTS!
Date: 28/04/09
Lord Have Pity On The Rich
In one the few signs of any concession to economic justice in recent times, the Chancellor of the Exchequer Darling Alistair (he of the tarmac eyebrows) announced in his Budget that - from April 2010 - there will be a higher rate of income tax for those whose taxable income exceeds £150 000. This is the first increase in income tax on higher-rate payers for over twenty years, but you'd never guess from the way that many of those who will be subject to the change immediately started squealing about it. "This is Class War!!!", they yelled to any passing newspaper editor who would listen. Yes, the very same people who think that those at the bottom who didn't benefit from the so-called 'boom years' should just take the pain and carry on as before (inasmuch as they can having been deprived of their livelihoods and in all probability their homes, too) and don't presume to ask some of the architects of the economic collapse to pay a fairer share.
I haven't actually heard or seen anyone - not even Baby-Face Cameron or that living, breathing indictment of the corruption of our political process who goes under the code-name of 'Peter Mandelson' - use that dullard response "The Politics Of Envy" yet, but perhaps they're saving that one up.
I find that the phrase "squealing like stuck pigs" is particularly apposite at this time. For it is they - those who have had their snouts in the trough of two decades or more of 'funny money' - who are making most of the tra-la-la about what is, by any impartial yardstick, a very, very modest measure to ensure that those who benefitted the most from the good times should face their share of the burden when the sewage farm hits the windmill. It is particularly rich (if you'll pardon the phrase) in that the people whinging and pissing and moaning the most are those who were - either by direct involvement or by negligent inaction - responsible for the conditions which have led us to our present state.
Shameless hussies to a man (and occasional woman), however, they are leaving no stone un-crawled-out-from-under in order to articulate their pain to the masses who, flaming torches and pitchforks at the ready, are marching upon their Thames-side gothic mansions to exact their brutal revenge.
Some of these writers are just blatant about it, but most of them have just about enough nous to recognise that you can fool enough people into taking you seriously by trying to wrap your bleating in a veneer of concern for wider issues. So we have this piece by ex-banker and attempted novelist Tetsuya Ishikawa in The Guardian today, in which he warns that this new, horrendous burden upon our 'wealth creators' will drive them all to Dubai, Hong Kong or Zürich and we'd all be so much the poorer for this.
I'm delighted to say that the vast majority of the 276 (and rising) commenters on this piece of self-serving fish-wrapping tend strongly not to agree, and the poor boy has been given a right old rogering.
I won't go into where I agree or disagree with them, but there's something which always bugs me about how some people react to increases in income tax, especially for those who make most money. I've seen it again in this case (elsewhere) where people start screaming about "these Socialists" (by which they mean the Labour Party, somehow) "want to take FIFTY PER CENT of my income!!!!". This shows nothing other than a degree of ignorance as to how income tax in this country works. As it's my job to help operate that very system, I thought it would be a useful public service to give a couple of examples, using the proposed new tax band as an indication of how things wag.
Disclaimer! The following should not be taken as anything other than a general indication of the way of things.
First of all, not all of your income is taxed. Everyone has a Personal Allowance, which in 2009/10 stands at £6 475 (it's much higher for those over 65 years of age, unless their total income goes over a certain amount, at which point it starts to decrease proportionally). That sum is deducted from your total income before tax begins to operate upon it.
So you then have your Taxable Income. This is then taxed in one or more tax bands. For the most part, the lowest band (the Basic Rate) is 20% (there are exceptions for savings and dividend income). If your taxable income is above a certain point (£34 600 this tax year), then any taxable income above that point is taxed at 40% (the Higher Rate).
From 2010/11 (so you rich bastards have got nearly a year to move your income source to the Cayman Islands or wherever), there will be a 50% Additional Rate on taxable income above £150 000. Please note that the 50% will only apply on the portion of taxable income above £150 000, not on the whole bloody lot as some would have you believe.
OK, those are the general principles, and if you want more info, try here.
Now, let's take two case studies as to the effect of the new 50% rate on a couple of typical, sorely-buffetted, feeling-the-pinch taxpayers (or 'customers' as we now have to call them):
Case Study No. 1 - Keith Frontbotham
Mr Frontbotham is a Finance Officer with a company which goes around repossessing peoples' three-piece suites at gunpoint. He is thirty-seven years old, married with two children, lives in a nice house, drives a nice car and has a nice build up of arterial plaque which should kill him before he's fifty. His total income from salary, bonuses and perks is £160 000 per annum.
So, under the current rates:
| Gross Income | 160 000 | |
| Personal Allowance | 6 475 | |
| Taxable Income | 153 525 | |
| First £37 400 @ 20% | 7 480 | |
| Remaining £116 125 @ 40% | 46 450 | |
| Total tax | 53 930 | |
| Net Income | 99 595 | = £8299.58/month |
Now, with the Additional Rate of 50%, and even assuming that the Personal Allowances and tax band limits don't change (which they almost always do):
| Gross Income | 160 000 | |
| Personal Allowance | 6 475 | |
| Taxable Income | 153 525 | |
| First £37 400 @ 20% | 7 480 | |
| Next £112 600 @ 40% | 45 040 | |
| Remaining £3 525 @ 50% | 1 762.50 | |
| Total tax | 54 282.50 | |
| Net Income | 99 242.50 | = £8270.21/month |
| Reduction on year | 352.50 | = £29.37/month (0.35%) |
So Mr Frontbotham probably wouldn't notice any change and, even if he did, it would be small change (geddit!)
Case Study No. 2 - Jeremy Shandie-Hand
Mr Shandie-Hand is a trader at the London Stock Exchange. He has been earning well in recent years, but is facing a sharp downturn in fortunes in the coming year. He suspects it had something to do with all those crates which he helped his manager load into the back of that Ford Galaxy to take down to the Essex Marshes one night in September 2008. Strangely, he hasn't been able to get in touch with his manager since. However, Mr Shandie-Hand is confident things will be OK in the end because of all that money they've been given by the Government.
He is married, with two children and a Latvian boyfriend, and lives in West London and Normandy. His total (legal) remuneration is £350 000 per annum.
So, first off under the current rates:
| Gross Income | 350 000 | |
| Personal Allowance | 6 475 | |
| Taxable Income | 343 525 | |
| First £37 400 @ 20% | 7 480 | |
| Remaining £306 125 @ 40% | 122 450 | |
| Total tax | 129 930 | |
| Net Income | 213 595 | = £17799.58/month |
Now, with the Additional Rate and making the same assumptions as before:
| Gross Income | 350 000 | |
| Personal Allowance | 6 475 | |
| Taxable Income | 343 525 | |
| First £37 400 @ 20% | 7 480 | |
| Next £112 600 @ 40% | 45 040 | |
| Remaining £193 525 @ 50% | 96762.50 | |
| Total tax | 149 282.50 | |
| Net Income | 194 242.50 | = £16186.88/month |
| Reduction on year | 19 532.50 | = £1 612.71/month (9.06%) |