Political parties must be honest with the public. Only factual information will be provided by Harpenden and Berkhamsted Reform; where possible, with links to verify it.
What are Stealth Taxes?
Thirty years ago, governments were more honest – when changes were made to taxation, they raised or lowered the headline rates of tax. This made it clear that the government was increasing or reducing taxes. Now governments resort to stealth taxes – taxing you more, while hoping you won’t notice. One way of doing this is leaving the tax thresholds untouched, instead of increasing them in line with inflation. The example below shows how it works.
Current UK Tax Rates for an Employee
In the current tax year:
Income tax is 20% on all earnings over the personal allowance of £12,570.
For national insurance, nothing is paid for the first £12,584, 8% up to £50,284, and then a further 2% on all income above that.
Current Tax and National Insurance Paid
For someone earning £30,000 a year:
Income tax of 20% is payable on £17,430 – this is £3,486.
National insurance of 8% is payable on £17,416 – this is £1,393.
Of the £30,000, the government has taken £4,879. This is just over 16% of the employee’s wages – about one pound in every six.
Stealth Taxes in Action
Assume this employee gets an annual 5% pay rise – this takes their pay up to £31,500. However, the government leaves the personal allowances and tax rates untouched in the budget despite inflation – a stealth tax.
Income tax of 20% is payable on £18,930 – this is £3,786
National insurance of 8% is payable on £18,816 – this is £1,513.
Of the £31,500, the government has taken £5,299. This is close to 17% of the employee’s wages
Just by leaving the tax thresholds and headline tax rate untouched, the government has taken another 1% of the employee’s wages; 17%, rather than 16%.
The Honest Way of Increasing Taxation
The honest way of increasing the tax take would have been to put up the thresholds on which tax was paid and simultaneously increase the headline tax rate. This might have been (assuming) 3% inflation:
Income tax is 21% on all earnings over the increased personal allowance of £12,950.
For national insurance, nothing is paid for the first £12,961, 8% up to £51,793, and then a further 2% on all income above that.
But governments no longer have the courage to change the headline rate of tax – this is too noticeable. Instead, they increase taxes by stealth.
Both Tory and Labour governments are like pickpockets taking money out of your pocket without you noticing.
References
UK Income Tax Rates
https://www.gov.uk/income-tax-rates
UK National Insurance Rates
https://www.gov.uk/national-insurance-rates-letters