Once the energy price cap expires in April, the Chancellor is apparently considering the levy of ‘social tariffs’ on the energy bills of the better off – a pleasantly elastic category, since most of us are better off than somebody. Charging wealthier customers extra for their energy could facilitate reducing the bills of benefit claimants. The same kilowatt hour would cost the ‘rich’ (i.e. the marginally solvent) more than the socially dependent.
To bolster our beloved fairness, might this novel pricing scheme be extended to all British goods and services? After all, for higher-rate taxpayers (assuming that after obeisance to HMRC they have anything left), springing for a £7.95 fillet steak at the supermarket is a relatively mild experience. Yet for a shopper reliant on Universal Credit, the same splurge must be gut-wrenching. Is that fair? So why not price foodstuffs in accordance with consumers’ tax brackets?
Thus, for benefit claimants, that steak might be knocked down to a couple of quid; better yet, the clerk could give the shopper £2 for ‘buying’ the beef. Basic raters could pay the straight-up £7.95. According to the logic of the tax system, higher raters should pay twice as much for the same meat, or £15.90. Obviously, those odious additional raters should be reamed. Think of how anxiety-producing buying that fillet was for anyone surviving on meagre state handouts. Well, that’s how pariahs who make more than £125,000 per year should also feel when purchasing their dinner. One 200g steak for £100!
True, fitting all these different prices on a small packet could present geometrical difficulties. Perhaps we could all be issued with magnifying glasses at the entrance to shops to discern the tiny print. Meanwhile, our loyalty cards could be chipped with our most recent tax return to prevent the filthy rich from scoffing that fillet for a mere eight quid. Once we extend this system across the board, the ‘better off’ charged £1,000 for a cinema ticket would finally share the crimped, stay-at-home drear of their lower income fellows.
If this proposal seems fanciful, it’s no more so than charging affluent customers more than the skint for the same energy. In truth, the entire ‘progressive’ tax system is a mirror image of that -£2/£7.95/£15.90/£100 steak. We all purchase the same product – a rather shabby product, more like mince past its sell-by than a premium cut – for very different prices.
But then, Britain’s tax structure isn’t so much progressive as cliff-edge. The Treasury doubles the income-tax rate at the astonishingly low earnings of £50,000 a year, on which Londoners can barely afford store-brand mustard. Crossing this threshold is less like stepping over a door sill than pitching over a precipice. Emotionally, qualifying as a higher-rate taxpayer feels distinctly punitive. The bill balloons; ‘reliefs’ are cut.
Conventionally, the state fines citizens who have done something wrong. Caught speeding, we’re dunned £100 – from which we infer that the state wishes to discourage us from exceeding the speed limit. Given the severity of the fine, income as well effectively has a speed limit, which the state clearly wishes to discourage us from exceeding. Implicitly, no one should be paid more than £50,000 per annum. Piggies who insist on amassing more have been bad and must be penalised. On a macroeconomic level, I would hesitantly advance that such hand-slapping at that level of income is ruinous.
Britons take this profoundly socialist tax structure for granted. Yet when I tell my American compatriots that the British start confiscating about half your earnings above $59,000 – less than Americans’ average personal annual income of $66,755, currently taxed federally at 22 per cent – their jaws hit the floor. US brackets are much more graduated (10, 12, 22, 24, 32, 35, and 37 per cent), and that top band only kicks in at income of more than half a million bucks – or about £450,000. Now, hold the envy; federal income tax doesn’t include state and local (between zero and 16 per cent) or property, Social Security and Medicare taxes. Still, in the UK we also pile on National Insurance, council tax, stamp duty, a stonking 20 per cent sales tax, and the highest air passenger duty in the world. Thus whenever six-figure salaries are indignantly cited in the British press, I reflexively cut the number in half.
Until now, most basic-rate taxpayers haven’t been fussed about that cliff edge, because confiscatory taxes are always appealing when they don’t apply to you. Now that Jeremy Hunt has frozen the thresholds, current higher-rate taxpayers might be forgiven for greeting the millions of Britons soon to be dragged into the 40 per cent bracket with a bitter: ‘Yeah, see how you like it.’
Low, frozen thresholds are intrinsically inflationary. Beyond £50,000, any raise in salary must be almost double the desired net improvement to a worker’s standard of living, a cost passed on in higher prices. Meanwhile, the state capitalises on high inflation, so the citizenry is screwed coming and going. Not only does a rubbish sandwich now cost ten quid, but as wages fail to keep up with a shrinking pound, workers are pushed…
Read More: Should the better-off pay more for everything?