The UK Politics & Brexit Thread

[markjay]

I cant see many exceeding the pension life time allowance but inheritance tax is definitely a possibility. I never understand why people have an issue with dropping into the 40% tax band, you earn more so you pay more tax but you still end up with more money in your pocket.

If you have a job, then get a pay-rise which hits the 40% tax bracket, then you're quite right, it's 'more money' anyway, and the work you do remains tbe same.

But what if you're offered a promotion, which means more responsibilities (and more stress), but you only get to keep 60% of the higher pay? I can see some people refusing the promotion.

40% tax is demotivating for many, especially those who get paid on a time-based contract. There's little incentive to work more hours if it takes you into the 40% tax bracket.

How many factory workers will be happy to work overtime, if it takes them over the threshold and they have to give the government double what they paid before, from every overtime pay that they get? Etc.

I think that 190 is right, the 40% tax bracket should only apply to people who are well-paid, and do not work on an hourly or daily rate, or get paid for overtime.

Workers getting hit by the higher tax bracket - this won't go down well.

 

[flowrider]

40% tax is demotivating for many, especially those who get paid on a time-based contract. There's little incentive to work more hours if it takes you to the 40% bracket.

How many factory workers will be happy to work overtime, if it takes them over the threshold and they have give the government double what they paid before, from every overtime pay that they get? Etc.

You still get to keep 60% of your earnings over the threshold so why wouldn't someone want more pay for more money in their pocket. No one who is in the 40% tax band gets less money than someone who is below the band.

 

[markjay]

You still get to keep 60% of your earnings over the threshold so why wouldn't someone want more pay for more money in their pocket. No one who is in the 40% tax band gets less money than someone who is below the band.

As an example, for factory workers, it could mean that any overtime pay is actually lower than their regular pay. This is a good enough reason for not making the effort.

(Some workplaces pay time-and-a-half for overtime, but not all)

People won't work just because they are getting some money. If it gets to a point where any more work they do is paying them significantly less, many will choose to stop there and not continue and work at a reduced (net) hourly rate.

 

[Dryce]

You still get to keep 60% of your earnings over the threshold so why wouldn't someone want more pay for more money in their pocket. No one who is in the 40% tax band gets less money than someone who is below the band.

I know quite a few people who have reduced hours or decided to take early retirement because of this. The retirement aspect is a double whammy in that somebody on higher rate has an incentive to save more into a pension - which acts as an enabler to early retirement. So HMG gets less tax prior to retirement as well as after.

 

[BPD07]

If you have a job, then get a pay-rise which hits the 40% tax bracket, then you're quite right, it's 'more money' anyway, and the work you do remains tbe same.

But what if you're offered a promotion, which means more responsibilities (and more stress), but you only get to keep 60% of the higher pay? I can see some people refusing the promotion.

40% tax is demotivating for many, especially those who get paid on a time-based contract. There's little incentive to work more hours if it takes you into the 40% tax bracket.

How many factory workers will be happy to work overtime, if it takes them over the threshold and they have to give the government double what they paid before, from every overtime pay that they get? Etc.

I think that 190 is right, the 40% tax bracket should only apply to people who are well-paid, and do not work on an hourly or daily rate, or get paid for overtime.

Workers getting hit by the higher tax bracket - this won't go down well.

I recall, from a few years ago that if the 40% bracket had kept pace with inflation then it would commence around £125k. Fiscal drag has meant that the higher paid tax bracket has been one the norm.

 

[flowrider]

As an example, for factory workers, it could mean that any overtime pay is actually lower than their regular pay. This is a good enough reason for not making the effort.

(Some workplaces pay time-and-a-half for overtime, but not all)

People won't work just because they are getting some money. If it gets to a point where any more work they do is paying them significantly less, many will choose to stop there and not continue and work at a reduced (net) hourly rate.

I hear what you are saying but I would rather be paid £60k a year than £35k a year even with entering the 40% tax band. To get to the higher salary everyone has to take the initial step up.

 

[st13phil]

The retirement aspect is a double whammy in that somebody on higher rate has an incentive to save more into a pension - which acts as an enabler to early retirement.

True enough but that’s not an argument for or against marginal tax rates, rather it’s an argument about how pension contributions are treated for tax relief.

 

[m80]

As an example, for factory workers, it could mean that any overtime pay is actually lower than their regular pay. This is a good enough reason for not making the effort.

(Some workplaces pay time-and-a-half for overtime, but not all)

People won't work just because they are getting some money. If it gets to a point where any more work they do is paying them significantly less, many will choose to stop there and not continue and work at a reduced (net) hourly rate.

So from this we can assume that the extra revenue, in pocket, is not a necessity and would be for a more comforts. They aren't losing by refusing the promotion or overtime.

That opens doors for others. More so on the overtime not taken though. Some one might actually get a job because of that so unemployment should drop.

If the work wants doing whoever and however it gets done the tax man wins, as does society.

 

[190]

So was I being alarmist about increasing pension tax for traditional Conservative voters.

In the news today:

Treasury plans to cover the cost of Covid through a raid on pensions will end up "clobbering" traditional voters, Conservative MPs have warned.

One idea being examined is reducing the pensions lifetime allowance from a little above £1 million to £800,000 or £900,000, the Telegraph understands. Another would see individuals contributing to pensions getting the same rate of tax relief, while a third is new taxation on employer contributions.

The move has sparked fear among some Tories, not least those in southern seats already reeling from last week's loss of Chesham and Amersham.

One said: "The Prime Minister is a people pleaser - he wants to carry on spending in the Red Wall. If they can find a way that pushes the bill onto Tory heartlands they will do it - clobbering those who are making provision for retirement seems a good place to start."

Politics latest news: Pensions raid will 'clobber' Tory heartlands to fund Boris's spending spree

 

[ChrisHGTV]

One of our lab guys whos normal salary is about £35k was doing a lot of overtime and was actually taking home £75k one year. He was working max hours and most weekends but was saving for a house (which he now has). He wasn't concerned by moving into the 40% bracket, he had no choice if he wanted to make enough. Personally i don't think about it - it's quite depressing looking at payslips so i tend not to bother!

 

[GeeJayW]

So was I being alarmist about increasing pension tax for traditional Conservative voters.

In the news today:

Treasury plans to cover the cost of Covid through a raid on pensions will end up "clobbering" traditional voters, Conservative MPs have warned.

One idea being examined is reducing the pensions lifetime allowance from a little above £1 million to £800,000 or £900,000, the Telegraph understands. Another would see individuals contributing to pensions getting the same rate of tax relief, while a third is new taxation on employer contributions.

The move has sparked fear among some Tories, not least those in southern seats already reeling from last week's loss of Chesham and Amersham.

One said: "The Prime Minister is a people pleaser - he wants to carry on spending in the Red Wall. If they can find a way that pushes the bill onto Tory heartlands they will do it - clobbering those who are making provision for retirement seems a good place to start."

Politics latest news: Pensions raid will 'clobber' Tory heartlands to fund Boris's spending spree

The treasury will (need to) pull tax revenue in from wherever it can to pay for the events of the last 18-months.

 

[markjay]

So from this we can assume that the extra revenue, in pocket, is not a necessity and would be for a more comforts. They aren't losing by refusing the promotion or overtime.

That opens doors for others. More so on the overtime not taken though. Some one might actually get a job because of that so unemployment should drop.

If the work wants doing whoever and however it gets done the tax man wins, as does society.

The bottom line is that if workers refuse extra work (or responsibilities) because of the diminishing net pay, and thus avoid hitting the 40% tax bracket, the Chancellor does not get the 40% tax, and also loses the 20% he would have gotten had the tax remained low and people were financially incentivised to do the extra work (or accept additional responsibilities).

This concept is exemplified by the Laffer Curve, which although simplistic and inaccurate, does highlight the principle:

T being the optimal tax rate for maximising tax revenues. Beyond T, tax revenues actually go down as the tax rate goes up.

 

[Deleted member 159894]

In my experience the guys that can earn overtime tend to work in manual jobs of some kind, I have a pal like this and he refuses to do any overtime at all because he will be taxed, he can work evenings and weekends for himself doing much the same stuff tax free.

 

[m80]

I see a new worker doesn't hit the 40%, so in theory less tax revenue.
The new worker also has the personal tax allowance, so at least 20% of approx £12,500 not gained.

But the argument here is that old worker doesn't want the extra because of the additional tax loading, so it's all lost unless Sunak let's him earn the extra at 20%. So really it's just the tax allowance bit not gained.

But every penny we spend has a tax content, so a lot of that 20% of the £12,500 will reach the Treasury anyway.
Then the unemployment support benefits that are saved would, I assume, be considerable.
And down the line 1 less scumbag not mugging granny for her pension is an immeasurable benefit.

Meanwhile a fairly financially ok worker doesn't get quiet as much dosh. Not such a great issue really.

 

[st13phil]

In the argument over 20% vs 40% marginal income tax rates, people are neatly forgetting the employees NI contribution rate which effectively makes the step between the two rates 32% to 42% for someone subject to the normal Class 1 contribution rate, i.e. a 10% step, not a 20% step.

From each additional period of work the employee therefore keeps 68p of every pound of gross income below the threshold, or 58p once they exceed the threshold. Frankly, anyone who thinks it better not to take the additional income solely because HMRC is getting another 10p of every pound they earn is barmy.

 

[markjay]

.. the argument here is that old worker doesn't want the extra because of the additional tax loading, so it's all lost unless Sunak let's him earn the extra at 20%...

In a nutshell.

 

[st13phil]

Professionals like doctors are already retiring early to avoid the prospect of exceeding the limit and paying extra tax.

The issue here is the way both the lifetime allowance and annual allowance is calculated.

If it were simply based on contributions then it would be much easier to determine if and when the limit would be reached. But it's not. It's based upon contributions in a period and any delta in the accrued value of the pension "pot". For a Defined Benefit scheme this is an actuarial calculation that isn't possible to make until sometime after the contribution period is finished, and for a Defined Contribution scheme is dependent upon the investment performance of the previously accrued fund.

This has the perverse consequence that someone can make contributions that they believe will be below the annual allowance but then be hit with a retrospective tax bill that could conceivably exceed their contributions in that period. This is (or rather was) particularly true for people on DB schemes such as doctors who could not waive their employer's contribution which, in conjunction with accrued fund growth, could exceed the annual allowance.

So it's something of an edge case, but nevertheless a perverse outcome.

 

[Dryce]

From each additional period of work the employee therefore keeps 68p of every pound of gross income below the threshold, or 58p once they exceed the threshold. Frankly, anyone who thinks it better not to take the additional income solely because HMRC is getting another 10p of every pound they earn is barmy.

It's not 'barmy'.

It depends on your aspiration and your needs and how you value your time.

This is why universal income is an interesting economic device. Proponents seem to think that it would lift some people out of poverty and icrease econokic activity. However I recall a conversation after levels of basic income were mentioned in Scotland a while back and quite a few people people present would use it to change their lifestyles and become economically less active at the level mentioned.

It's also worth bearing in mind that 'needs' vary depending on your geographic location (eg. house prices) and age / family situation.

 

[Dryce]

But the argument here is that old worker doesn't want the extra because of the additional tax loading, so it's all lost unless Sunak let's him earn the extra at 20%. So really it's just the tax allowance bit not gained.

If we hadn't had Covid then Scotland would be an interesting benchmark. The 41% tax threshold is lower han the fest of the UK.

Now that doesn't mean everybody above that threshold suddently reduces their hours or earnings. Most won't.

However I know a number of people who reviewed their situation after the changes and made changes to their lifestyle and work and earn less. Now it only takes a few of these people to make significant changes and this offsets a larger number of people paying a bit more tax. Worse if those people who make changes are less ecomically acive and spend less economy loes in other ways.

So what we have probably lost with Covid is the opportunity to make a comparison within the UK of the impact of setting different tax thresholds.

 

[st13phil]

It's not 'barmy'.

It depends on your aspiration and your needs and how you value your time.

That's why I used the word 'solely'.

For England and a person with the standard Personal Allowance, the 40% marginal tax band kicks in at an income of just over £50k pa. Now it's perfectly reasonable to argue whether that's too low (or too high), but that's where the tipping point is.

For someone on a 37hr week, that equates to around £26 per hour gross. South of the tipping point, on a marginal extra hour basis they get £17/hr net; north of it they get just under £14.60 for a marginal extra hour. To forego £14.60 of extra income solely because it would mean paying a marginal extra £2.40 in tax and NI seems at the very least 'odd' if not 'barmy'.