As there has been nothing else going on this afternoon I have spent some more time going through the Red Book. The good news is that the spending increases quoted in my earlier post do take into account the predicted level of inflation. So I'm pleased that I was wrong and my critics in the earlier post Mark M and Denis Cooper were right. The document says that spending "will fall in real terms by four per cent over the period." I think the period they are talking about is seven years however - from 2008/09 to 2015/16. So the Government are looking to find savings of around half of one per cent a year. A tiny, tiny cut. Gievn the margin of error should be classified as a freeze. But better than I had thought.
However there is also bad news. Last year under the Labour Government any earnings over £43,875 were taxed at 40%. This year the amount is the same. Next year the situation will be worse. While the basic allowance is going up from £6,475 to £7,475 (which is excellent) the basic rate limit is being cut by £2,500 - from £37,400 to £34,900. So anyway it means from next year anyway earning more than £42,375 will hit the 40% tax bracket. They will be stung. Squeezed till the pips squeak. Punished for being fat cats.
When Nigel Lawson introduced the 40% tax rate in 1988 it applied to those earning over £21,905. If the allowances had been increased in line with the earnings it would today apply to those on around £60,000.
If the Government want to get the economy growing they should be raising the allowance - not slashing it.
Last year I asked:
Could a family where the only breadwinner earns £43,875 a year really be regarded as rich?
Doesn't the same point apply rather more where the earnings are £42,375?
