Labour's Income Tax Sums - is it just me?

[nowt2pctoday]

Hopefully someone can help me out a little as I'm sure I'm missing something. I decided to do a little digging into Labour's proposed income tax rise which they have costed to raise £6.4 bn https://www.theguardian.com/politics/ng-interactive/2017/may/16/what-would-labours-manifesto-cost-pledges-money-guide-details

 

I was interested in the distribution of the burden since it seems actually quite a modest rise on a very small percentage of people (Labour say 5%, I'm not sure that fits with other data). I like the idea in principle, there is a widening gap between rich and poor and earnings are a large part of that. It seems sensible to try to tackle it. Anyway, I wondered based on figures I have seen shared which are based here one would assume on figures Labour provided.

 

Anyway I did some calculations and found some issues:

Problem 1 - it raises less than they think on an individual basis.

For someone earning under the proposed threshold (80000) there's no change. Their income tax is made up of personal allowance (11,500), basic rate (up to 45000) and higher rate (45-80000). So 20% of 33500=£6700. Higher rate on 35000 at 40% is £14000. Everyone earning above £80,000 will pay these components the same.

 

Currently, the higher rate extends to £150000. That means a tax amount of £14000 rises to £42000 through that band (leaving total tax at between £20700 and £48700). Under Labours plan someone earning £150,000/yr would pay basic rate + higher rate (to 80000) + additional rate (80000- 123000 = 43000) + super rate (123000-150000 = 27000). 45% of 43000 = £19350. 50% of 27000 is £13500.

So total tax= 6700+14000+19350+13500=£53550.

The change from £48700 to £53550 is £4850 actually less than the mirror's figures (£5425)

 

Problem 2 it raises way less than £6.4 bn:

I looked at the number of people paying taxes (30,100,000 in the last tax year https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/523707/Table_2.1.pdf)

 

I looked at HMRC percentile data as below:

Percentile / Threshold

96 / 80,300

97 / 92,900

98 / 112,000

99 / 162,000

 

So 1% of earners earn between ~80-93000. I divided that up to £1000 intervals and divided 1% between those intervals. (Note: this actually increases the income from the change because there are likely to be more people paying less at the lower end of the band). If you divide total tax payers (30.1 m) by the 100 and multiply by the % of people paying tax in each interval (1%/14) you get 21500 tax payers in each interval. Now the amount extra paid in that band ranges from 0 to £650. Multiplying by number of payers in each band you get a rough estimate of the amount raised. From the 96th percentile it is £97,825,000.

 

Applying the same principal to the next percentile you get 19 intervals paying between £700-£1582 up to 112,000. This raises £343,441,000.

 

The sum of the next percentile earning between £112,001 and £162,000 paying up to £6050 raises £1,100,155,000.

 

Now the final 1% is hard to get at data wise, because it reaches to infinity. But Wikipedia tells us that the top 0.1% entry earnings are ~£351,000. This gives an estimate for the 0.9% of £380,693,333 because there are so few people spread through the range of incomes.

 

So the total I calculate is £1,824,289,333. Way, way, way short of the £6.4bn Labour estimated.

 

Edit to add: The Daily Mail report that the top 0.1% pay £22bn in income tax, even adding 5% across the board to that income you can raise about another £1bn. Actually there are ~29000 of them paying an average of 750000 each in income tax.

 

oh dear have they let Dianne Abbott loose again:hihi:

[biotechpete]

God knows Pete. I assume Labour have actually run the figures though and ignoring Diane Abbott aren't likely to make a mistake on the basic maths.

 

But, massive credit to you for taking the time to work it through. The only thing I can find that's possibly against your second set of numbers is that you've made a lot of assumptions about wage distribution that might be way off and *could* account for the missing money?

 

In the first part about personal tax, I'm a bit confused by the figures here. currently someone earning £150k would pay £53300 in tax so that figure you've calculated is wrong, therefore if you've used the same equation to work out the proposed new tax it'll likely be wrong too.

 

Here's a link to people who know a lot more than me and I believe are neutral:

https://www.ifs.org.uk/publications/9229

 

Ahh I didn't realise about the personal allowance decrease above 100k. I'll need to adjust for that.

 

So problem one resolved. Labour will charge 45% tax on the decreased allowance instead of the current 40%.

 

New calculations raise £2,113,947,000

Edited May 22, 2017 by biotechpete

[TheNugget]

The deficit is nearer £70bn. It was supposed to be gone by now. In fact it was supposed to be gone 2 years ago.

 

It was £60bn last year, about £100bn 2 years before that. It's coming down albeit slowly. What has anyone else proposed that will reduce it substantially in the next few years? Alternatively what services do you want to cut then?

[Supertramp]

It was £60bn last year, about £100bn 2 years before that. It's coming down albeit slowly. What has anyone else proposed that will reduce it substantially in the next few years? Alternatively what services do you want to cut then?

 

It's ok. Jezza is proposing spending hundred of billions renationalised everything. That'll fix the deficit.

[Cyclone]

The debt increased because of the very large deficit that they inherited.

A deficit isn't like a debt, you start anew each year.

And they made serial promises about reducing the deficit to zero, and they broke every one of those promises.

[Robin-H]

A deficit isn't like a debt, you start anew each year.

And they made serial promises about reducing the deficit to zero, and they broke every one of those promises.

 

Not in practical terms you don't. You only would manage to start anew if you manage to find the money to fill the gap from somewhere. Most policies are funded for the long term, and therefore the government is tied to spending commitments.

 

Are you suggesting that the Tories, on gaining power in 2010, could have immediately found the £160billion to plug the deficit, and then continued to find that amount (minus the amount saved through interest) long term? How could they have done that.

 

Yes, Osbourne was wrong about when he estimated he would be able to clear the deficit by. That doesn't somehow undo all the progress he did make by cutting the deficit by two thirds as a proportion of GDP (from 9.9% to 3.8% - this year it is forecast to be just 2.6%).

 

---------- Post added 22-05-2017 at 22:26 ----------

 

The deficit is nearer £70bn. It was supposed to be gone by now. In fact it was supposed to be gone 2 years ago.

 

My mistake. The deficit in 2016/17 was actually £52billion (according to the Office for Budget Responsibility)

 

http://budgetresponsibility.org.uk

[I1L2T3]

It was £60bn last year, about £100bn 2 years before that. It's coming down albeit slowly. What has anyone else proposed that will reduce it substantially in the next few years? Alternatively what services do you want to cut then?

 

George Osborne proposed eradicating by 2015. He failed. The deficit is still extremely high and if Brexit is a disaster is only going to get worse.

 

Services are being viciously cut anyway. You should be asking what I want to save. There's any number of ways to get good services. The Tory way is absolutely the worse.

[Hairyloon]

A deficit isn't like a debt, you start anew each year...

 

Well, yes and no. A deficit is the difference between income and outgoings. These may not be fixed, but many of them are not easily changed.

[Cyclone]

Most policies are funded for the long term, and therefore the government is tied to spending commitments.

 

Are you claiming that the actions of one parliament are somehow binding on the next and they can't change spending commitments?

[Vaati]

Post amending a person's quote has been removed. This isn't allowed as it is misrepresentation.