Thursday, 23 July 2015

Suffer the Children

You wake up this morning as Chancellor of the Exchequer. Your dream - to "balance the books" by filling a £12 billion gap between Government spend and Government income.

You have a choice, Chancellor.

Take £12 billion out of welfare? The impact assessment by your civil servants says that will hit 330,000 children from low income families.

Or put £12 billion onto taxes?

If you decide, Chancellor, to use progressive taxation to fill the £12 billion gap, you might start by boosting the taxes of high income households. There are 2.7m households in the UK in the top decile for household income - with average annual earnings per household of £102,366. With two taxpayers per household, that is £51,183 per person. These folk pay the higher tax rate, 40%, on all income over £31,786.

That 40% tax on those households currently raises £41.4 billion (see "Maths" below).

Raise that tax to 52% (on all income over £31,786) and you raise £12.4 billion, and balance your books.

There is your choice, Chancellor.

Suffer the children? Or ask the wealthiest 10% to pay a wee bit more in tax?

That is the choice Scotland will face at the next Holyrood election. If we want better welfare provision, we're going to have to pay for it. 

I'd vote for a Scotland that stopped the suffering of children, and started taxing for a fairer society.

The Maths:

Calculation  Top Decile 
Households in the top decile by income                              2,670,000
Average household income  £                             102,366
Number of tax payers per household 2
Average income, per person  £                               51,183
Pay 40% on income over  £                               31,786
Pay 40% on  £                               19,397
Which is, per person  £                                  7,759
Totalling, all taxpayers  £               41,431,992,000
Funding Gap  £               12,000,000,000
So percentage increase in tax taken, to meet £12bn funding gap: 29.0%
That % increase on 40% 11.6%
So, raise the 40% rate to: 51.6%
Let's call that 52%, which is payable on  £                               19,397
Which is  £                               10,086
Totalling, all taxpayers  £               53,861,589,600
Which raises an extra  £               12,429,597,600

In practice, of course, the 40% rate applies to many more people. It would also apply to most of the people - another 2.6m households - in the ninth decile, so the £12 billion would be shared amongst more people. A tax rise from 40% to 47.5% would probably do it.

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