When George Harrison wrote hit song Taxman in 1966, he had a lot to complain about. The first £100,000 of the band’s earnings were taxed at 87.5 percent, with income above that taxed at 98 percent, according to their accountant Harold Pinsker.
The Fab Four weren’t the only ones to suffer. The highest rate for British taxpayers reached 83 percent under Harold Wilson’s Labour government, with a 15 percent supertax on top of that.
Anybody who thinks that’s all history is wrong, because today’s marginal tax rates can be as high as 96 percent.
The difference is that middle income Britons are the ones who get hit now, thanks to our incredibly complex tax and benefits system.
Former Tory Chancellor George Osborne has a lot to answer for. In 2013, he introduced something called the high income child benefit charge, which is still in force today.
This claws back child benefit where one parent earns more than £50,000 a year, until it vanishes altogether once they earn £60,000.
The effective marginal tax rate is 51 percent for a parent with one child rising to 59 percent for two children.
It costs a family with two children nearly £2,000 a year. Worse, the £50,000 threshold has not been increased for a decade, so more are getting caught as wages raise.
It’s particularly hard on families with only one breadwinner. A working couple who each earn, say, £40,000, escapes despite having a higher total household income of £80,000.
Which makes no sense.
The universal credit earnings taper is just as stupid and punitive.
For every £1 a claimant earns over their work allowance, their universal credit is reduced by a thumping 55p.
It means some of the poorest are taxed at 55 percent, as punishment for finding a job. But isn’t that what we want them to do?
Many who would like to work understandably decide it’s not worth the bother.
It gets worse.
Some families get caught by both the child benefit and universal credit tapers, and pay marginal tax rates of a ridiculous 96 percent.
Osborne introduced another nightmare tax, that cuts the £12,570 personal allowance by £1 for every £2 someone earns above £100,000.
They pay a marginal tax rate of 60 percent. That’s not quite Beatles levels of tax, but it still hurts.
Again, that £100,000 threshold has been frozen since 2010, hitting more as incomes rise.
Hunt could have axed it in the Budget but instead he doubled down by introducing a measure that costs some higher earners every penny they earn above a certain rate.
The Chancellor now offers 30 hours a week of free childcare to working parents with children aged nine months or older.
Yet families cannot claim this subsidy if one parent earns £100,000 or more. As soon as they do the free childcare offer is withdrawn.
Under the reforms, a parent of two earning up to £134,500 will be worse off than one earning £99,000, the Institute for Fiscal Studies (IFS) has calculated.
They’d be better off if they took a £34,000 pay cut.
In London, where most higher earners are located, they would not be better off until their pre-tax pay reached £144,500.
Effectively, this is a 100 percent tax rate, which even Harold Wilson might have considered a little steep. People are losing every penny earned.
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Pop stars don’t pay these marginal tax rates anymore. They have an army of clever accountants, who slash their liability to the bone.
As does Prime Minister Rishi Sunak, who is super rich by anybody’s standards, but pays a marginal tax rate of just 22 percent on his earnings of £4.76million.
While some of these tax anomalies will hurt those earning £100,000 or more, who are unlikely to elicit sympathy, benefits claimants suffer too.
A single parent on £50,000 hardly qualifies for the full Harold Wilson treatment.
And more will get caught all the time, as earnings rise while income tax thresholds have been frozen until 2028.
Our tax system is insanely complicated and once it collides with benefits, it becomes impossible to understand.
A marginal tax rate of 96 percent would have George Harrison reaching angrily for his guitar, if he was still with us.
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