According to the IFS, raising the income tax higher-rate threshold and NICs thresholds are costly options which would mainly benefit higher earners. A more effective way to help low earners would be to increase work allowances in universal credit.
The prime minister’s proposals to raise the income tax higher rate threshold from £50,000 to £80,000, offset by an unspecified increase in the NICs threshold, would cost between £10bn and £20bn and deliver benefits mainly to higher earners, IFS research shows. An £80,000 higher-rate threshold would cost £8bn a year, with every £1,000 rise to employee and self-employed NICs thresholds costing £3bn (or £5bn if the employer NICs threshold were raised in tandem).
Raising the higher-rate threshold to £80,000 in the next fiscal year would:
benefit the highest-income 8% of adults and 13% of income taxpayers, with 75% of going to the highest-income 10% of households; and
take 2.5m people out of paying higher-rate tax.
The IFS suggests a simpler way of reducing taxes for those on high incomes would be to restore the personal allowance to those with an income of between £100,000 and £125,000. By introducing a higher rate of 45% (instead of 40%) above £80,000, the government could recoup most of the cost and return to a simpler two-band income tax model.
Raising the NICs threshold by £1,000 would:
take 0.6m people out of paying NICs, but deliver only 3% of gains to the poorest 20% of households; and
cut employee and self-employed NICs by £3bn, but raise incomes of the poorest 20% by just 0.1% on average.
A better alternative, the IFS suggests, would be to increase work allowances in universal credit by £3bn, which could raise average incomes of the poorest 20% by 1.5%.
Commenting on the estimated £10-£20bn cost of the proposals, IFS research economist and co-author of the research, Xiaowei Xu, said: ‘if you are going to spend that much cutting taxes for those on high incomes or supporting low earners, you could find much better ways of doing so than the policies proposed by the prime minister’.
‘Cutting NICs to help low earners is a particularly blunt instrument’, Xiaowei Xu added. See bit.ly/2nfE9u1.
According to the IFS, raising the income tax higher-rate threshold and NICs thresholds are costly options which would mainly benefit higher earners. A more effective way to help low earners would be to increase work allowances in universal credit.
The prime minister’s proposals to raise the income tax higher rate threshold from £50,000 to £80,000, offset by an unspecified increase in the NICs threshold, would cost between £10bn and £20bn and deliver benefits mainly to higher earners, IFS research shows. An £80,000 higher-rate threshold would cost £8bn a year, with every £1,000 rise to employee and self-employed NICs thresholds costing £3bn (or £5bn if the employer NICs threshold were raised in tandem).
Raising the higher-rate threshold to £80,000 in the next fiscal year would:
benefit the highest-income 8% of adults and 13% of income taxpayers, with 75% of going to the highest-income 10% of households; and
take 2.5m people out of paying higher-rate tax.
The IFS suggests a simpler way of reducing taxes for those on high incomes would be to restore the personal allowance to those with an income of between £100,000 and £125,000. By introducing a higher rate of 45% (instead of 40%) above £80,000, the government could recoup most of the cost and return to a simpler two-band income tax model.
Raising the NICs threshold by £1,000 would:
take 0.6m people out of paying NICs, but deliver only 3% of gains to the poorest 20% of households; and
cut employee and self-employed NICs by £3bn, but raise incomes of the poorest 20% by just 0.1% on average.
A better alternative, the IFS suggests, would be to increase work allowances in universal credit by £3bn, which could raise average incomes of the poorest 20% by 1.5%.
Commenting on the estimated £10-£20bn cost of the proposals, IFS research economist and co-author of the research, Xiaowei Xu, said: ‘if you are going to spend that much cutting taxes for those on high incomes or supporting low earners, you could find much better ways of doing so than the policies proposed by the prime minister’.
‘Cutting NICs to help low earners is a particularly blunt instrument’, Xiaowei Xu added. See bit.ly/2nfE9u1.
