Millions more pay 50pc tax By David Derbyshire, Consumer Affairs Editor
Daily Telegraph (Filed: 05/11/2005)
Millions of families have been dragged into the net of high-rate taxes as the Government depends increasingly on "stealth taxes", according to figures released today.
Typical middle- to high-income earners now pay up to 50 per cent of their salary to the Treasury, compared to 36 per cent when Tony Blair came to power in 1997.
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Although the Government has kept the headline rate of income tax untouched, it has generated tens of billions of pounds by manipulating tax allowances and subtly tweaking tax rates.
Since 1997, about 1.6 million people have become higher-rate taxpayers because Gordon Brown, the Chancellor, failed to keep thresholds in line with rising salaries.
The Treasury has also taken advantage of rising house prices, particularly in the South.
The Daily Telegraph disclosed this week how home buyers paid a record £5.5 billion in stamp duty last year - an eightfold increase on 1997.
House prices are also dragging thousands of people into the inheritance tax net. The amount collected in death duties has almost doubled since Labour came to power.
According to a new report out today, the number of people paying death duties could rise by a third again within four years.
Much of the extra tax revenue has come from low- to middle-income families rather than the super-rich.
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George Osborne, the shadow chancellor, said: "Gordon Brown has increasingly targeted his stealth taxes to hit the homes of hard working families. By failing to increase the thresholds on stamp duty and inheritance tax in line with the increases in house prices, he is penalising hundreds of thousands of families who happen to live in parts of the country where property is expensive.
"I believe the tax system should support rather than penalise families building their financial security and independence."
Statistics published this week by the Government showed how public finances have become increasingly reliant on stealth taxes and a phenomenon called "fiscal drag" - where tax allowances and thresholds are not increased in line with wages or house prices.
The effect is to draw taxpayers into new and higher tax bands.
Over the past eight years, for instance, the revenue from income tax has gone up 78 per cent - from £69 billion to £123 billion. Most of this rise can be attributed to fiscal drag.
Stamp duty on house sales has also become an important source of revenue. It rose from £675 million in the last year of John Major's government to £5.5 billion last year.
Inheritance tax revenue has risen from £1.6 billion to £2.9 billion, while income from capital gains tax has more than doubled from £1.1 billion to £2.3 billion in eight years.
Because house prices are so much lower in the North, many see inheritance tax and stamp duty as a levy on southerners.
John Whiting, an expert in inheritance tax at Price Waterhouse Coopers, said: "It's the fiscal drag effect. Income tax, for instance, goes up in line with inflation but wages are going up faster, dragging more people over the higher tax threshold." Inheritance tax has been particularly lucrative for Labour because of the steep rise in property prices. This year around 37,000 people will pay inheritance tax. In
1996-97, 15,000 people paid."I think there's an element of deliberate neglect here. With inheritance tax and stamp duty you have taxes that are automatically bringing in more money year on year because they are beautifully geared to rising house prices."