UK living standards, and evidence on the 50p tax rate

It is taking time to get back to where real incomes were prior to the crash, but prudent, intelligent policies are getting us there. Oh, and as for Labour's 50p tax rate, we can sort that one out just by looking at the evidence

How much has he really got?
Sir John Redwood MP
On 26 January 2014 10:01

There has been a political spat about this recently. The Conservatives are right that if you take changes in pay, and adjust those both for price inflation and for the tax cuts through the rising tax threshold, people are on average better off.

It is also correct that not all people are in the position of the average. Some have not had any pay rise, some have not benefitted so much from the tax cuts because some benefits go down as income goes up. Many people do not feel better off.

We all tend to notice the items like petrol and electricity which have gone up, and not notice so much the items which have stayed the same or gone down.

Sometimes in these political exchanges it is a good idea to go to a neutral source. Asda publish a regular income tracker. Their latest tracker says that family spending power has risen in each of the last three months, an improvement on recent years.

Clearly there is more income overall, and more income being spent, as we can see from the GDP and consumer spending figures. Retail sales have been rising. These of course need adjusting for the numbers of people in  the country and in the workforce, as there has been some further growth in the size of the population.

There is one category of people who must now be better off -- all those who were out of work and have now got jobs thanks to the rapid growth in employment in the last three years.  

Many budgets are still very tight, and pay has been lagging prices for much of the time since the crash of 2008. No wonder many people do not feel well off, given the large loss of spending power they experienced in 2008-9. It is taking  time to get back to where real  incomes were prior to the crash.

On another matter, what does the evidence show about the 50p tax rate which Labour now says it wants to re-introduce?

The 50p tax rate is popular according to the polls. Most people like the idea as they think it means the rich few will pay more so they will pay less. Unfortunately, the opposite is the truth.

A 50p tax rate will raise less revenue from the rich, so those on lower incomes will have to pay more.

The evidence from the period of 50p tax rates in the UK is quite clear. Self assessment Income Tax fell from £21.7bn in 2009-10 (after the crisis) to £20.6bn last year. It is forecast to surge to £27.4bn in 2014-15 with the lower 45p rate.

The Treasury figure of £100m extra revenue is not confirmed in any way by the pattern of past tax collection.

Numerous high earners left the country to avoid the 50p tax rate when it came in, meaning lower income taxpayers have to pay more.

Mr. Redwood's writing is re-posted here by his kind permission. This and other articles are available at

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