The Institute for Fiscal Studies (IFS) has criticised a loophole in the tax system that means around 500,000 professionals are paying a tax rate of 60 per cent on some of their income.
The policy, introduced by Labour in 2010, means that people earning between £100,000 and £120,000 pay 60 per cent on that part of their income, a quirk in the system which the IFS described as having “no plausible rationale”.
The think tank has also criticised the current Government for failing to address the loophole and for further adding complexity to the tax system, such as the complicated married couples’ allowance.
According to the IFS, this new allowance “effectively creates an infinite marginal tax rate” and could mean that it would be possible for a couple to become more than £200 a year worse off as a result of a pay rise of £1.
A spokesman for the IFS commented that a list of poor tax policies implemented over the past decade, combined with ineffective reforms, would go on for “many pages”.
Such policies include increasing National Insurance (NI) to the extent that more than a million low paid workers now pay NI but no income tax and the 40p tax rate, which will have dragged more than five million people into it by 2015.
The spokesman also berated a short-term and complicated pensions policy, the lack of any revaluation of properties for council tax in England and the huge policy uncertainty created by frequent changes to business rates, corporation tax allowance and carbon taxes.
His chief criticism, however, was for the repeated increases in stamp duty land tax, as these were increasing the importance of “one of the worst designed and most damaging of all taxes”.
He did concede, however, that the consistent increase in the income tax personal allowance and cuts to corporation tax have been improvements, although incredibly costly. To fund these costs nearly £20bn a year, which he described as “remarkable” in any Parliament, let alone under current fiscal circumstances.
