The Labour Party’s proposed income tax hikes will affect almost two million workers, independent experts have warned. Ahead of the party’s official manifesto launch on Thursday, Jeremy Corbyn has said those earning more than £80,000 a year will be liable for higher income tax. Instead of paying 40 percent tax, under Labour’s plans workers will have to fork out 45 percent of their wage.
Under current tax brackets, only those who earn over £150,000 a year are taxed 45 percent.
The lower tax bracket of 40 percent affects workers who earn between £50,001 and £150,000.
Labour also plan on increasing taxable incomes of £125,000 or more to be hit with a 50 percent rate.
New analysis by the Institute for Fiscal Studies (IFS) has said the proposed tax increase will affect 1.6million people, the top five percent of income tax payers, by the next tax year (2020/21).Jeremy Corbyn's party would see income tax hikes on almost two million British workers (Image: Getty)Last night Boris Johnson and Jeremy Cobryn went head-to-head in an election debate (Image: Getty)
The London based economic research institute said the number of people affected will rise even further by 2023/24, with 1.9million, the top six percent of income tax payers, paying higher income tax.
The IFS said someone with an annual taxable income of £100,000 would lose an extra £1,000 a year under Labour’s plans, while those on £150,000 would lose more than £5,000.
But they warn the tax hies could end up raising less money for the Treasury, as people could take steps to reduce their pre-tax income, such as by putting more money into pension.
Currently, the top five percent of earners contribute half of all income tax revenues.
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The IFS say this is a substantial rise, up from 43 percent just before the financial crisis.
Launching his report, IFS research economist Xiaowei Xu said: “Labour are proposing a substantial tax rise on the highest-income three per cent of adults.
“This could raise some money – about £3billion a year as a central estimate – and could have some effect on reducing income inequality.
“But it comes with risks, as those with the highest incomes are likely to respond to the tax rise by reducing their pre-tax incomes.
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“The likely extent of these responses is highly uncertain, though the more Labour reduces the scope to shift income into more lightly taxed forms like capital gains, the more revenue its income tax proposal would be likely to raise.”
He added that expected revenue from the tax hikes is about £3billion per year.
But he warned it might cost the Treasury £1billion.
Treasury minister Simon Clarke said: “Jeremy Corbyn is planning a reckless spending spree that everyone will end up paying for.What do most people feel are the most important issues facing Britain today? (Image: Express)
“Labour’s sums don’t add up. They say only the top earners will pay but the revenue won’t come close to covering their £1.2trillion spending pledges they’ve made so far.
“Proof that Corbyn’s Labour will result in higher taxes for workers, businesses and families.”