Think you’re poor on £80,000 a year? A Labour government might make you more grateful for what you have now

If our ‘Question Time’ audience member had a second home, he would also be hit by Labour’s additional tax on such property. He might also be affected by changes to capital gains tax, inheritance tax, tax relief for pension contributions, and on the pension pot itself

Sean O'Grady
Friday 22 November 2019 12:07
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Man who earns more than £80,000 criticises Labour's tax plan

A rather shirty BBC Question Time audience member objected to Richard Burgon explaining Labour’s plans to tax top earners because, as he claimed, he is “not even in the top 50 per cent of British earners”, despite earning more than £80,000 a year.

The short answer is that if you’re on £80,000 a year you are certainly in the top 5 per cent of British earners.

Of course, that £80,000-a-year individual may not regard themselves as rich. They may be suffering under a huge mortgage, they might have gambling debts, school fees, a flashy car to run… but the point is that they are always in a better position to acquire wealth, or waste it, than the rest of the population who are less lucky / less hard-working / less ambitious / less privileged than they are.

By comparison with the £80,000 a year quoted figure, the average salary in the UK is £504 a week, or about £26,000 a year. The median (ie more or less typical) household income – allowing for some second earners, income from savings, rents and investments and so on – is £29,400, according to the Office for National Statistics). Thus, our chap is on about three times the usual amount (though after tax the disparity in disposable income will be less). Bear in mind too that the minimum wage for an over-25s equates to about £17,000 a year; and the most you can get from the basic state pension is a bit less than £7,000 a year.

The longer answer is to type your numbers into this Institute for Fiscal Studies handy calculator – or take a look at the official data here.

Of course if our audience member had a second home, he would also be hit by Labour’s additional tax on such property. He might – we do not know either way – also be affected by any changes a Labour government might make to capital gains tax, or inheritance tax, the treatment of tax relief for pension contributions, and on the pension pot itself.

We do know that Labour’s manifesto states: “A Labour government will review the tax and pension changes implemented by the Tory government to ensure that the workforce is fairly rewarded and that services are not adversely affected.” Which could mean anything and nothing. There is also just a hint that John McDonnell might lower the regressive tax of VAT.

By contrast, Boris Johnson is pledging a reduction in national insurance and income tax that well help lower earners more, but could also help higher earners, and be extended to them in due course. A Tory government might also not raise taxes on wealth and property.

On the other hand, our Question Time £80,000-a-year man might like Labour’s policies on long-term care – meaning, in mercenary terms, that he or his parents might not have to sell their home to pay for social care. He might like shorter NHS waiting times, or better schools (assuming those do in fact transpire). Free broadband? Free insulation in the green industrial revolution? Scrapping tuition fees for his offspring? There would be a shorter working week – 32 hours – with no loss of pay. How do you like them apples? He might also appreciate – potentially – lower rail fares and energy bills under renationalisation.

The wider point, though, is whether a Labour government – especially with Brexit – would so mismanage things as to wreck the economy. Wages depend, in the end, on productivity, which in turn depends on investment. Which party is best placed to boost that?

The future economic consequences of a Corbyn government are difficult to judge for any given individual or family. A bout of inflation, for example, might not matter much because property prices would keep pace, more or less, in real terms. But a protracted recession would most likely reduce the value of the family home, and, again depending on how it is invested, a pension pot. If the taxpayer worked in one of the industries targeted for higher taxes (oil or tech), or a firm that will be hard-hit by higher living wages and other measures, the form he works for might go bust, and would lose all of his income if he loses his job.

So Mr Eighty Grand was wrong, for sure, on the narrow statistical point about where he ranks in the pecking order on his income. As to wealth, even if he had just £10,000 stashed in the building society, he would be way ahead of the great bulk of population in savings levels.

As the Bible has Jesus stating (King James Version, Matthew 19:24): “And again I say unto you, It is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God”. Of course they didn’t have the IFS around in Jesus’ day, and “rich” is not defined, let alone adjusted in real terms.

What is “rich”? That might be a question the guy on Question Time might want to ponder, as well as what a Labour government might do to him.

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