Many of the commentators on this week’s budget have used the term “the squeezed middle”. In recent years it has become a rallying call of the middle classes and intended to suggest that they are bearing the worst of the budget rises. I believe that there are many squeezed middles, and some of them are not even in the middle.
At the bottom end of the income scale the nation has many families whose financial security is reliant on tax credits and similar payments. With wholesale reform of welfare benefits, some of the families will have their incomes reduced and therefore may feel squeezed. Families are not the only groupings who will be feeling the pinch. Pensioners have received the news that their age related personal allowances will be frozen and eventually phased out. This is a tax cost to the elderly and therefore they are also being squeezed.
Personal allowances are due to rise, which is commendable. Unfortunately, the rate at which the 40% tax band starts is due to fall from £35,000 down to £34,370. Not only does this increase the tax liabilities of many hundreds of thousand middle earners, it also increases their tax administration burdens; a double whammy of increased taxes and increased administration. Is the correct term a “double squeeze” or a” tight squeeze”?
The middle are most effected by the taxation of child benefit for incomes over £50,000. Although this increase in tax is tapered to prevent a cliff edge effect, it does represent a considerable cost to the family whose income level is starting to be sufficiently high that they may pay for private education or private medical insurance. Those families may revert back to reliance on the state system. Could this taxation increase the budgetary requirements of the NHS and Department of Education?
In my mind the most heavily squeezed are those earning between £100k and £116k. Their marginal rate of tax is in excess of 60%. That hurts them, and it should be priority of the government to eliminate this distortion.
Those earning more than £150k will be feeling the opposite of squeezed. Their tax burdens are falling, unless of course they are thinking of buying a property for more than £2million in a company.
If a wealth tax is imposed in a future budget the highly remunerated may suffer. The inequality of a wealth tax is that it is not necessarily backed by money with which to pay the tax bill.
The information in this article was correct at the date it was first published.
However it is of a generic nature and cannot constitute advice. Specific advice should be sought before any action taken.
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