Three ill-advised British tax hikes

Changes to income tax, insurance rates, and fuel duty will take effect in April.

Mark Rice-Oxley / Freelance / File
Abdul Vencat fills up at a gas station in southwest London in this June 2008 file photo. Starting in April, there will be a rise in British fuel tax.

Friday’s Financial Times contained a good summary of the tax rises and benefit reductions that are going to kick in in April (and beyond). It’s a useful list to refer to, since it’s easy to lose track of what the government has announced, and when the changes are set to take effect. I’m not going to reproduce their full list here. But here are three of the (six) tax rises listed as taking effect in April, with a brief comment on each.

National insurance rates rise 1 per cent. Changes for employers are likely to cost business £1.2bn a year, according to employers groups.

Of all the changes coming in, this one is the most ill advised. When you have high unemployment and low growth, the last thing you want to do is increase the cost to businesses of employing someone. On the contrary, cutting payroll taxes (and that’s what employers’ NICs are) or even suspending them altogether would be a far better move if you want businesses to create jobs and fuel a recovery.

Threshold for paying 40 per cent income tax falls from £43,875 to £42,475 (meaning an extra 20 per cent tax on £1,400 of income).

This is a sneaky move, especially when you consider how many people have already been dragged into paying higher rate tax by fiscal drag – that is, not increasing tax thresholds and allowances in line with inflation. The number of people paying higher rate tax doubled from 2m to 4m while Gordon Brown was chancellor, and experts expect another 5m to be caught over the course of this parliament. I’d like to see tax thresholds automatically indexed to wage inflation, so that governments are forced to be honest and open about raising taxes.

The Treasury begins increasing fuel duty by 1 per cent above inflation each year from April 2011 to April 2014.

OK, fuel duty is a reasonably efficient way to raise money, but when you consider that the price of petrol has already risen by about 18 percent since the beginning of 2010, it’s clear that this is going to be a real kick in the teeth for motorists (which is to say, just about everyone who doesn’t live in central London). After all, tax already accounts for about 60 percent of the petrol price you pay at the pump. It is also worth remembering that you pay VAT (already raised from 17.5 to 20 percent this year) on fuel duty. In other words, you are taxed on a tax. And if that isn’t a stitch-up, I don’t know what is.

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