Election 2015: Taxes and the Cost of Living
30th Apr 2015
Most of the government's tax revenue comes from income tax, national Insurance and VAT. In 2015/16, most UK taxpayers don't have to pay tax on the first £10,600 of their income (the tax-free allowance). After that, tax is charged at:
- basic rate of 20% on income up to £31,785,
- higher rate of 40% on income between £31,786 and £150,000
- additional rate of 45% on income over £150,000.
Major tax changes under the Coalition government:
- Increasing the tax free allowance from £6,475 in 2010-11 to £10,600 in 2015-16, and reducing this allowance for those who earn over £100,000. This is an increase of almost 50% in real terms.
- Decreasing additional tax rate from 50% to 45% (came into force in 2013-14)
- Reducing how much people can earn before they start paying higher rate income tax. It was £37,400 in 2010-11 and fell to £31,785 in 2015-16.
- Increasing VAT from 17.5% in 2010-11 to 20% from 2011-12.
"The number of non-doms exploded (or doubled) under the last labour government".
When Labour took office, in 96/97 number was about 70,000. This grew to a peak of 140,000 in 2007, but fell to 115,000 in 2009/10, and has been at, or just below that level, ever since.
"Labour's promise to change tax rules for non-doms will cost the UK money"
It's not possible to say. Labour's proposed changes would likely mean many non-doms would pay more tax. But this might cause them to leave the UK, or choose not to come here in the first place. Again, this is best summarised by the IFS:
"Whether it would raise much, if any, revenue is uncertain: we do not know full details of the policy, full details of non-doms' overseas income and assets, or how non-doms would respond to the reform."
"Labour would increase taxes by over £3,000 for every working family."
Both Labour and the Conservatives are signed up to the 'fiscal mandate', which says the government must be predicted to achieve 'current balance' in three years' time. This means that by 2017-18, the government should be forecast to spend no more than it receives, and borrow only to pay for investment if it wants to keep to this rule. George Osborne has said that a total of £30 billion worth of tax rises and spending cuts will be needed to meet that target, but the figure is more like £18bn, according to the Institute for Fiscal Studies.
If Labour takes office, this target will apply to 2018-19. IFS projects that a Labour government would need just £6 billion of fiscal consolidation in addition to the 2015-16 cuts in this scenario.
Full Fact agrees with the IFS, who said:
"There is little value in bandying around numbers which suggest either party would increases taxes by an average of £3,000 for each working household. We don't know what they will do after the election." — IFS, 30 March 2015
Neither the Conservatives nor Labour have been fully clear about their own plans for spending and taxation.
You can find our full briefing on living standards here.
"Inequality has fallen"
A commonly used measure of inequality is the Gini coefficient.
The lower this number is, the more equally household income is distributed. A value of 0% means everyone has the same income, and a value of 100% means that one household earns all the income.
The Office for National Statistics show that the Gini coefficient for household income (adjusted for household size) after taxes and benefits was 33.2% in 2012/13, roughly the same as it was in 2009/10, but lower than it was in 2010/11.
"Child poverty has fallen"
The change in child poverty depends on what measure you use.
If you look at absolute poverty—which looks at people under a fixed measure of income—then poverty is up since 2009-10, both before and after housing costs.
But if you look at relative low income, which looks at people earning less than 60% of the current median wage, then the number of children in poverty is down.
The proportion of children in absolute poverty is up after housing costs, but the rise in the proportion of children in absolute poverty before housing costs isn't statistically significant.
The proportion of children in relative poverty is down on both measures.
"Families will be £1,100 a year worse off under the Coalition government"
The £1,100 figure estimates the effect of coalition policies on household income, including direct taxes, indirect taxes and benefit cuts. It's a figure from the IFS, but as they pointed out themselves, an average doesn't tell us much about the effects on individuals.
The IFS also said that "some takeaway from households' incomes was almost certainly inevitable given the need to correct the fiscal deficit that the government inherited".
This is measured relative to previous uprating rules.
"Households are £900 better off now than in 2010"
"People are £1,600 worse off"
This is based on old data, doesn't include taxes or benefits, and doesn't tell us about changes for individual workers: the change for the median worker isn't representative of the changes for individuals. You can read more about this here.
To summarise these claims: the IFS warns against reading too much into changes that happen during a particular government's time in office. Policy changes may take a while to take effect.