What is a “middle income”? And what makes you “middle class”? A row over pay and who should be taxed has opened up after Philip Hammond’s Budget this week, and it seems both sides of the House of Commons have got it wrong.
The Tories are cutting taxes for the wealthier end of the spectrum. As announced in the Budget, the higher-rate tax threshold (the income at which someone starts paying the 40 per cent tax rate) will go up to £50,000 from £46,350. Plus the personal allowance (the minimum someone can earn before paying tax) will rise to £12,500 from £11,850.
According to analysis by the Resolution Foundation think tank, these changes would overwhelmingly benefit wealthier households, with almost half the giveaway going to the top 10 per cent of earners, and 84 per cent of the tax cuts benefiting the top half of households in terms of income distribution.
Labour won’t be reversing these tax cuts. It promised at the last election not to raise taxes for 95 per cent of people, and instead would increase tax on the top 5 per cent – to 50 per cent for income over £123,000 and 45 per cent for over £80,000 – and on corporations.
While it’s understandable that the opposition doesn’t want to break its pledge, this means shoehorning a slightly awkward definition of what makes you rich or “middle income” into your tax policy – a subject that had the party in a bind yesterday following PMQs.
No party wants to say it’s benefiting top earners, so “middle income” is often used as a euphemism when freeing up money for wealthy people. Pressed to define “middle income” by journalists yesterday, Labour had to concede that it was anything below the salary it would raise taxes at (£80,000).
Live your life with the enthusiasm of Lobby Correspondents trying to get Jeremy Corbyn’s spokesman to define “middle income”.
— Robert Hutton (@RobDotHutton) October 31, 2018
(Answer: you stop being on “middle income” somewhere short of £79,000 a year, but they’re not saying where.)
— Robert Hutton (@RobDotHutton) October 31, 2018
As my colleague Stephen explains, Labour’s own polling shows that people in the UK regard £50,000 as an achievable future salary – so the majority wouldn’t want to see it taxed higher – whereas few can imagine themselves earning £80,000, so that’s where you hit the “they’re unimaginably rich and should pay for it” mark.
Of course, this is all about voters’ perceptions rather than reality. In fact, the average salary in Britain is £28,677 (this is the median for full-time employees). According to the government’s own analysis, the median income of the top decile of earners is £67,300 – so those officially classed as the top earners are still on average paid way below that £80,000 mark.
If you hear people talking about the “middle class”, here’s where the middle actually is, according to the government’s own analysis:https://t.co/OpUZqWek4c pic.twitter.com/YUy2wjZj2C
— Joey D’Urso (@josephmdurso) October 30, 2018
So both parties are withholding higher taxes on people earning substantially more than a middle income.
But class is different. You can earn far lower or far higher than the median salary and be deemed “middle-class”, the definition of which experts say should also take into account private wealth, assets, cultural capital, family background and educational credentials to be at all meaningful.
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