Party rift over higher rate plan
McDonnell’s tax grab to open new border battle
Shadow chancellor John McDonnell’s plans to spend the additional money raised on health and schools.
The proposal would not necessarily apply in Scotland where income taxes are now almost completely devolved.
It will, however, impact particularly on companies and other organisations with employees north and south of the border undertaking similar tasks.
Mr McDonnell’s plans have also come in for criticism from a think tank – and from within his own party.
He said Labour would not raise income tax, national insurance contributions and the standard rate of VAT for those earning below the proposed threshold.
He hinted that a Labour government would introduce a “modest” tax rise on those paying the top rate of tax – at £150,000 and above.
He gave no details, but the likelihood is that Labour would re-introduce the 50p top rate which Alistair Darling imposed as Chancellor in the 2009 Budget. It was cut to 45p by George Osborne in 2013.
In England and Wales those earning between £45,000 and £150,000 pay a 40% rate. In Scotland the 40p rate kicks in at £43,000.
An estimated 9,000 middle-class Scottish workers have been dragged into paying the 40p rate, costing each of them an extra £400 a year. Scots could end up paying £1,400 more by 2020/21, when the higher rate threshold in England is expected to rise to £50,000.
The free market think tank the Institute of Economic Affairs (IEA) had already branded Mr McDonnell’s plans “incoherent”.
Mark Littlewood, director general of the Institute of Economic Affairs said: “Labour politicians talk about targeting the mega-rich, but even on that dangerous metric these plans do not stack up.
“Around 1.6 million people had incomes of £70,000 or more in 2015, of whom roughly half had incomes of between £70,000 and £100,000. These people are not the mega-rich.”
Shadow foreign secretary Emily Thornberry struggled to justify the plan when questioned about how much the policy would raise. She said: “I don’t know. You’ll need to ask John McDonnell about that, I’m not going to get into all of that.”
Official data shows that the poorest pay a bigger proportion of their income in tax, but the top 5% of earners pay almost half (47.1%) of all income tax in the UK.