Merryn's Blog

This shocking figure shows why Britain needs to cut taxes now

How much tax do you think you pay on every extra pound you earn and spend? You might think it is 20%, 40% or perhaps 50%. But it isn’t. It’s an awful lot more.

How much tax do you think you pay on every extra pound you earn and spend? You might think it is 20%, 40% or perhaps 50%. But it isn't. Instead, if you add in National Insurance (NI), the proposed rise in NI, and VAT at the new rate of 20%, it's an awful lot more.

According to numbers from Fidelity, a basic-rate taxpayer ends up paying around 43%, a higher rate payer 51.6% and an "additional rate payer" a total of 60%. Special sympathy should also go to those earning just over £100,000. They are to be caught in a "tax trap" and find themselves paying a marginal tax rate of nearly 70%.

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But even these scary numbers don't tell the whole story. What if you add in stamp duty, fuel duty, passenger duty and all the other tens of taxes that catch us at every turn? How much then? My guess is that if you add up everything you will find that over the average year, the average 40% tax payer is handing over a good 70% plus of his income to the tax man, one way or another.

Given this, it should be no surprise that the UK is slowly slipping down the rankings of the Index of Economic Freedom, which is produced by the Wall Street Journal and the Heritage Foundation. Last year, we came in at number 11 with a 'freedom ratio' of 76.5. This year it is number 16 with a ratio of 74.5. That puts us below Bahrain, Ireland, Chile and Mauritius, among others.

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Given that the point of the index is to measure the extent to which "individuals are free to work, produce, consume, and invest in any way they please, with that freedom both protected by the state and unconstrained by the state," I don't think there is much way to see this as good news. "In economically free societies, governments allow labour, capital and goods to move freely," say the compilers of the index, "and refrain from coercion or constraint of liberty beyond the extent necessary to protect and maintain liberty itself."

You can see how the index is compiled here but suffice it to say that there are a couple of big things dragging us down. And the worst of these? "Fiscal freedom." Yup, we carry a higher tax burden in the UK than in almost any other country in the world: we are ranked 168th out of the 179 countries surveyed on this measure (you can see how the measure is calculated here).

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