Labour's Income Tax Sums - is it just me?

Hopefully someone can help me out a little as I'm sure I'm missing something. I decided to do a little digging into Labour's proposed income tax rise which they have costed to raise £6.4 bn https://www.theguardian.com/politics/ng-interactive/2017/may/16/what-would-labours-manifesto-cost-pledges-money-guide-details

I was interested in the distribution of the burden since it seems actually quite a modest rise on a very small percentage of people (Labour say 5%, I'm not sure that fits with other data). I like the idea in principle, there is a widening gap between rich and poor and earnings are a large part of that. It seems sensible to try to tackle it. Anyway, I wondered based on figures I have seen shared which are based here one would assume on figures Labour provided.

Anyway I did some calculations and found some issues:

Problem 1 - it raises less than they think on an individual basis.

For someone earning under the proposed threshold (80000) there's no change. Their income tax is made up of personal allowance (11,500), basic rate (up to 45000) and higher rate (45-80000). So 20% of 33500=£6700. Higher rate on 35000 at 40% is £14000. Everyone earning above £80,000 will pay these components the same.

Currently, the higher rate extends to £150000. That means a tax amount of £14000 rises to £42000 through that band (leaving total tax at between £20700 and £48700). Under Labours plan someone earning £150,000/yr would pay basic rate + higher rate (to 80000) + additional rate (80000- 123000 = 43000) + super rate (123000-150000 = 27000). 45% of 43000 = £19350. 50% of 27000 is £13500.

So total tax= 6700+14000+19350+13500=£53550.

The change from £48700 to £53550 is £4850 actually less than the mirror's figures (£5425)

Problem 2 it raises way less than £6.4 bn:

I looked at the number of people paying taxes (30,100,000 in the last tax year https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/523707/Table_2.1.pdf)

I looked at HMRC percentile data as below:

Percentile / Threshold

96 / 80,300

97 / 92,900

98 / 112,000

99 / 162,000

So 1% of earners earn between ~80-93000. I divided that up to £1000 intervals and divided 1% between those intervals. (Note: this actually increases the income from the change because there are likely to be more people paying less at the lower end of the band). If you divide total tax payers (30.1 m) by the 100 and multiply by the % of people paying tax in each interval (1%/14) you get 21500 tax payers in each interval. Now the amount extra paid in that band ranges from 0 to £650. Multiplying by number of payers in each band you get a rough estimate of the amount raised. From the 96th percentile it is £97,825,000.

Applying the same principal to the next percentile you get 19 intervals paying between £700-£1582 up to 112,000. This raises £343,441,000.

The sum of the next percentile earning between £112,001 and £162,000 paying up to £6050 raises £1,100,155,000.

Now the final 1% is hard to get at data wise, because it reaches to infinity. But Wikipedia tells us that the top 0.1% entry earnings are ~£351,000. This gives an estimate for the 0.9% of £380,693,333 because there are so few people spread through the range of incomes.

So the total I calculate is £1,824,289,333. Way, way, way short of the £6.4bn Labour estimated.

Edit to add: The Daily Mail report that the top 0.1% pay £22bn in income tax, even adding 5% across the board to that income you can raise about another £1bn. Actually there are ~29000 of them paying an average of 750000 each in income tax.

Hopefully someone can help me out a little as I'm sure I'm missing something. I decided to do a little digging into Labour's proposed income tax rise which they have costed to raise £6.4 bn https://www.theguardian.com/politics/ng-interactive/2017/may/16/what-would-labours-manifesto-cost-pledges-money-guide-details

 

I was interested in the distribution of the burden since it seems actually quite a modest rise on a very small percentage of people (Labour say 5%, I'm not sure that fits with other data). I like the idea in principle, there is a widening gap between rich and poor and earnings are a large part of that. It seems sensible to try to tackle it. Anyway, I wondered based on figures I have seen shared which are based here one would assume on figures Labour provided.

 

Anyway I did some calculations and found some issues:

Problem 1 - it raises less than they think on an individual basis.

For someone earning under the proposed threshold (80000) there's no change. Their income tax is made up of personal allowance (11,500), basic rate (up to 45000) and higher rate (45-80000). So 20% of 33500=£6700. Higher rate on 35000 at 40% is £14000. Everyone earning above £80,000 will pay these components the same.

 

Currently, the higher rate extends to £150000. That means a tax amount of £14000 rises to £42000 through that band (leaving total tax at between £20700 and £48700). Under Labours plan someone earning £150,000/yr would pay basic rate + higher rate (to 80000) + additional rate (80000- 123000 = 43000) + super rate (123000-150000 = 27000). 45% of 43000 = £19350. 50% of 27000 is £13500.

So total tax= 6700+14000+19350+13500=£53550.

The change from £48700 to £53550 is £4850 actually less than the mirror's figures (£5425)

 

Problem 2 it raises way less than £6.4 bn:

I looked at the number of people paying taxes (30,100,000 in the last tax year https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/523707/Table_2.1.pdf)

 

I looked at HMRC percentile data as below:

Percentile / Threshold

96 / 80,300

97 / 92,900

98 / 112,000

99 / 162,000

 

So 1% of earners earn between ~80-93000. I divided that up to £1000 intervals and divided 1% between those intervals. (Note: this actually increases the income from the change because there are likely to be more people paying less at the lower end of the band). If you divide total tax payers (30.1 m) by the 100 and multiply by the % of people paying tax in each interval (1%/14) you get 21500 tax payers in each interval. Now the amount extra paid in that band ranges from 0 to £650. Multiplying by number of payers in each band you get a rough estimate of the amount raised. From the 96th percentile it is £97,825,000.

 

Applying the same principal to the next percentile you get 19 intervals paying between £700-£1582 up to 112,000. This raises £343,441,000.

 

The sum of the next percentile earning between £112,001 and £162,000 paying up to £6050 raises £1,100,155,000.

 

Now the final 1% is hard to get at data wise, because it reaches to infinity. But Wikipedia tells us that the top 0.1% entry earnings are ~£351,000. This gives an estimate for the 0.9% of £380,693,333 because there are so few people spread through the range of incomes.

 

So the total I calculate is £1,824,289,333. Way, way, way short of the £6.4bn Labour estimated.

 

Edit to add: The Daily Mail report that the top 0.1% pay £22bn in income tax, even adding 5% across the board to that income you can raise about another £1bn (Actually there are ~29000 of them paying an average of 750000 each in income tax.

God knows Pete. I assume Labour have actually run the figures though and ignoring Diane Abbott aren't likely to make a mistake on the basic maths.

But, massive credit to you for taking the time to work it through. The only thing I can find that's possibly against your second set of numbers is that you've made a lot of assumptions about wage distribution that might be way off and *could* account for the missing money?

In the first part about personal tax, I'm a bit confused by the figures here. currently someone earning £150k would pay £53300 in tax so that figure you've calculated is wrong, therefore if you've used the same equation to work out the proposed new tax it'll likely be wrong too.

Here's a link to people who know a lot more than me and I believe are neutral:

https://www.ifs.org.uk/publications/9229

God knows Pete. I assume Labour have actually run the figures though and ignoring Diane Abbott aren't likely to make a mistake on the basic maths.

 

But, massive credit to you for taking the time to work it through. The only thing I can find that's possibly against your second set of numbers is that you've made a lot of assumptions about wage distribution that might be way off and *could* account for the missing money?

 

In the first part about personal tax, I'm a bit confused by the figures here. currently someone earning £150k would pay £53300 in tax so that figure you've calculated is wrong, therefore if you've used the same equation to work out the proposed new tax it'll likely be wrong too.

 

Here's a link to people who know a lot more than me and I believe are neutral:

https://www.ifs.org.uk/publications/9229

The IFS has a different number for how much Labour expect it to raise (£4.5 billion). Biotechpete is right however that elsewhere Labour have said that it will raise £6.4billion.

Even the IFS do not think it is likely to raise as much as the lower amount. Indeed it could raise nothing, or even reduce the tax take.

"The figure shows quite how uncertain the revenues from this proposal are. While in the ‘medium responsiveness’ scenario the policy raises around £2½ billion per year, in the ‘low responsiveness’ scenario it raises around £4½ billion a year (as Labour expects) and in the ‘high responsiveness’ scenario it raises next to nothing. It is important to remember that these are illustrative scenarios, not upper and lower bounds on what is possible: the revenue yield could be greater than £4½ billion a year, or the policy could actually reduce the tax take. On the basis of the available evidence it does seem more likely than not that the proposal would raise money, but the amount is very uncertain."

You should be more worried about the Tory manifesto costing Pete

Uncosted and open ended from a party that doubled our national debt

You should be more worried about the Tory manifesto costing Pete

 

Uncosted and open ended from a party that doubled our national debt

Not another person who doesn't understand debt!

It would not be possible for the debt to go down until the deficit was turned into a surplus. The Conservatives have reduced the deficit significantly. The only way they could have prevented the debt growing would have been to immediately get rid of the entire deficit. How do you propose they should have done that exactly?

Odd how interviewers never ask the Tories where their money is coming from for their proposals. Probably because they will continue with record borrowing.

Not another person who doesn't understand debt!

 

It would not be possible for the debt to go down until the deficit was turned into a surplus. The Conservatives have reduced the deficit significantly. The only way they could have prevented the debt growing would have been to immediately get rid of the entire deficit. How do you propose they should have done that exactly?

I understand it perfectly thanks.

They have run massive deficits and that has doubled our debt.

They have failed to meet practically all their targets on deficit reduction, the first three years of which was characterised by a crazy economic experiment by Osborne.

They're incompetent.

I understand it perfectly thanks.

 

They have run massive deficits and that has doubled our debt.

 

They have failed to meet practically all their targets on deficit reduction, the first three years of which was characterised by a crazy economic experiment by Osborne.

 

They're incompetent.

The debt increased because of the very large deficit that they inherited.

This deficit has been reduced significantly since they took office. I obviously admit they missed their initial target, but that doesn't take away from the fact that the deficit has been reduced by more than two thirds.

In order for the debt not have not grown under their tenure, they would have had to immediately reduced the deficit to zero, indeed they would have to have run a surplus.

They inherited a deficit of, I think, about £160billion a year (I would normally check my figures but currently don't have time, so please correct me if that figure is wrong).

How do you propose they should have immediately found the £160billion annually they would have needed? Not severe austerity surely? Tax rises perhaps - which taxes do you propose should have been raised to find the extra money?

Criticising a government that succeeded in significantly reducing the deficit for having too high a deficit, whilst also praising a government that wants to borrow billions (£69 billion to nationalise water alone) seems illogical to me.

---------- Post added 22-05-2017 at 19:44 ----------

Odd how interviewers never ask the Tories where their money is coming from for their proposals. Probably because they will continue with record borrowing.

It isn't record borrowing - far far from it.

When the government came to office, we were having to borrow over £160billion a year.

Now, the government borrows I believe less than £20 billion. It is nowhere near record borrowing, that is just flat out wrong.

The fact is that overall borrowing is tied heavily to general economic prosperity. When global economies are doing well then deficits fall and debt falls. When there is a recession, debt and deficit rise. The government are little more than a hand on the tiller but the global economic wind is blowing the ship where it likes. Ultimately the Tories came to power in a huge recession. If they hadn't borrowed massively then public services would have been in the toilet. As it is, a balance has to be struck and the government have been bringing the deficit down consistently.

Illustrated here:

http://www.bbc.co.uk/news/business-39897498

I'm not sure that Labour, or anybody else would have done any better.

The debt increased because of the very large deficit that they inherited.

 

This deficit has been reduced significantly since they took office. I obviously admit they missed their initial target, but that doesn't take away from the fact that the deficit has been reduced by more than two thirds.

 

In order for the debt not have not grown under their tenure, they would have had to immediately reduced the deficit to zero, indeed they would have to have run a surplus.

 

They inherited a deficit of, I think, about £160billion a year (I would normally check my figures but currently don't have time, so please correct me if that figure is wrong).

 

How do you propose they should have immediately found the £160billion annually they would have needed? Not severe austerity surely? Tax rises perhaps - which taxes do you propose should have been raised to find the extra money?

 

Criticising a government that succeeded in significantly reducing the deficit for having too high a deficit, whilst also praising a government that wants to borrow billions (£69 billion to nationalise water alone) seems illogical to me.

 

---------- Post added 22-05-2017 at 19:44 ----------

 

 

It isn't record borrowing - far far from it.

 

When the government came to office, we were having to borrow over £160billion a year.

 

Now, the government borrows I believe less than £20 billion. It is nowhere near record borrowing, that is just flat out wrong.

The deficit is nearer £70bn. It was supposed to be gone by now. In fact it was supposed to be gone 2 years ago.

Hopefully someone can help me out a little as I'm sure I'm missing something. I decided to do a little digging into Labour's proposed income tax rise which they have costed to raise £6.4 bn https://www.theguardian.com/politics/ng-interactive/2017/may/16/what-would-labours-manifesto-cost-pledges-money-guide-details

 

I was interested in the distribution of the burden since it seems actually quite a modest rise on a very small percentage of people (Labour say 5%, I'm not sure that fits with other data). I like the idea in principle, there is a widening gap between rich and poor and earnings are a large part of that. It seems sensible to try to tackle it. Anyway, I wondered based on figures I have seen shared which are based here one would assume on figures Labour provided.

 

Anyway I did some calculations and found some issues:

Problem 1 - it raises less than they think on an individual basis.

For someone earning under the proposed threshold (80000) there's no change. Their income tax is made up of personal allowance (11,500), basic rate (up to 45000) and higher rate (45-80000). So 20% of 33500=£6700. Higher rate on 35000 at 40% is £14000. Everyone earning above £80,000 will pay these components the same.

 

Currently, the higher rate extends to £150000. That means a tax amount of £14000 rises to £42000 through that band (leaving total tax at between £20700 and £48700). Under Labours plan someone earning £150,000/yr would pay basic rate + higher rate (to 80000) + additional rate (80000- 123000 = 43000) + super rate (123000-150000 = 27000). 45% of 43000 = £19350. 50% of 27000 is £13500.

So total tax= 6700+14000+19350+13500=£53550.

The change from £48700 to £53550 is £4850 actually less than the mirror's figures (£5425)

 

Problem 2 it raises way less than £6.4 bn:

I looked at the number of people paying taxes (30,100,000 in the last tax year https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/523707/Table_2.1.pdf)

 

I looked at HMRC percentile data as below:

Percentile / Threshold

96 / 80,300

97 / 92,900

98 / 112,000

99 / 162,000

 

So 1% of earners earn between ~80-93000. I divided that up to £1000 intervals and divided 1% between those intervals. (Note: this actually increases the income from the change because there are likely to be more people paying less at the lower end of the band). If you divide total tax payers (30.1 m) by the 100 and multiply by the % of people paying tax in each interval (1%/14) you get 21500 tax payers in each interval. Now the amount extra paid in that band ranges from 0 to £650. Multiplying by number of payers in each band you get a rough estimate of the amount raised. From the 96th percentile it is £97,825,000.

 

Applying the same principal to the next percentile you get 19 intervals paying between £700-£1582 up to 112,000. This raises £343,441,000.

 

The sum of the next percentile earning between £112,001 and £162,000 paying up to £6050 raises £1,100,155,000.

 

Now the final 1% is hard to get at data wise, because it reaches to infinity. But Wikipedia tells us that the top 0.1% entry earnings are ~£351,000. This gives an estimate for the 0.9% of £380,693,333 because there are so few people spread through the range of incomes.

 

So the total I calculate is £1,824,289,333. Way, way, way short of the £6.4bn Labour estimated.

 

Edit to add: The Daily Mail report that the top 0.1% pay £22bn in income tax, even adding 5% across the board to that income you can raise about another £1bn. Actually there are ~29000 of them paying an average of 750000 each in income tax.

oh dear have they let Dianne Abbott loose again:hihi:

God knows Pete. I assume Labour have actually run the figures though and ignoring Diane Abbott aren't likely to make a mistake on the basic maths.

 

But, massive credit to you for taking the time to work it through. The only thing I can find that's possibly against your second set of numbers is that you've made a lot of assumptions about wage distribution that might be way off and *could* account for the missing money?

 

In the first part about personal tax, I'm a bit confused by the figures here. currently someone earning £150k would pay £53300 in tax so that figure you've calculated is wrong, therefore if you've used the same equation to work out the proposed new tax it'll likely be wrong too.

 

Here's a link to people who know a lot more than me and I believe are neutral:

https://www.ifs.org.uk/publications/9229

Ahh I didn't realise about the personal allowance decrease above 100k. I'll need to adjust for that.

So problem one resolved. Labour will charge 45% tax on the decreased allowance instead of the current 40%.

New calculations raise £2,113,947,000