The Green Party says it will raise £50bn in tax from the “richest”. But their proposal will probably end up affecting half of all households. Whilst some of the very wealthiest will pay no additional tax at all, there will be people on fairly ordinary incomes facing marginal tax rates of 70%. The Greens should go back to the drawing board.
This is twice in one day we saw a political party proposing a tax change that’s kiboshed by the tricks and gimmicks embedded in the income tax rules. It’s time we had real political focus on ending those tricks and gimmicks for good.
Here’s Carla Denyer, co-leader of the Green Party, on Question Time yesterday:
“Capital gains tax, the tax you pay on assets, so that’s pretty much the wealthy that have those, you pay less tax than the income you get from work. We think that’s unfair, so we would equalise those and we would also remove the cap on national insurance that means that the richest pay less. Those three 1I initially thought “three” was a mistake, but possibly she says “three” because she forgot to mention the Green Party’s wealth tax proposal. changes together would raise over £50 billion by the end of the next Parliament.”
The casual viewer may have come away with the impression that the Greens will be raising £50bn by taxing the wealthy.
That’s mostly true for the Greens’ proposal to raise capital gains tax. It would indeed affect mostly the wealthiest. Complete equalisation with income tax could perhaps raise £8bn.2However that would give us one of the highest rates in the developed world; a more modest increase would seem sensible and/or one that was combined with a return to an indexation allowance (which prevents inflationary gains being taxed).
However it’s not an accurate description of where most of the £50bn is coming from.
The Green proposal
What does “removing the cap on national insurance” mean?
Here are the current Class 1 rates:3The self-employed pay slightly less
£967 is the “upper earnings limit”. There used to be no national insurance past that point; it’s now 2%. “Uncapping” means removing the limit so that the 8% rate continues to apply past £967 a week.4Uncapping the upper earnings limit was a key element of Labour’s “shadow budget” for the 1992 general election. The “shadow budget” in general, and this proposal in particular, are often blamed for Labour’s loss, although whether that is correct is contested.
We should, however, discard the pretence there’s something special about national insurance. It’s just income tax by another name, with an antiquated weekly calculation, a complicated history and a funny national accounting treatment. A realistic approach looks at the overall combined rate of income tax and national insurance.
In the current, 2024/25 tax year, this looks like this for an employee:5Ignoring Scotland for the moment, and also ignoring weird marginal rate effects
- No tax on incomes below the £12,570 personal allowance.
- £12,570 to £50,270 – a combined income tax and employee national insurance rate of 28%
- £50,271 to £125,140 – a combined rate of 42%
- Above £125,140 – a combined rate of 47%.
The Greens are therefore proposing that the third of these should rise to 48%, and the fourth to 53%.
However things aren’t that simple. The personal allowance starts to be withdrawn (“tapered”) when your income hits £100,000, and is gone by £125,140. This means that the marginal rate in the £100,000 to £125,140 range is much higher than the headline rate.
This chart shows the effect, as things stand today (blue) and under the Green proposal yellow):
There’s an interactive version of the chart here that lets you select different scenarios and touch/mouse over the chart to get exact figures.
This is not the only factor that means the actual marginal rate is higher than the headline rate. There are a series of poorly thought-through tricks and gimmicks that have this effect, most significantly child benefit withdrawal and student loan repayments.
Here’s the marginal rates under the Green proposal for a graduate with three kids under 18:
So a graduate earning £60,000 with three kids pays a 72% marginal rate, and everyone earning £100k-£125k pays a 77% marginal rate. I don’t think this would be sensible or sustainable. There are many people (think: hospital consultants) who would prefer to reduce their hours than earn just 23p in the pound.
Uncapping national insurance was a perfectly rational policy in the 90s, but it’s not viable today unless the various tricks and gimmicks in the system are fixed or removed.
It’s remarkable that this was the second proposal yesterday which was undone by a failure to understand the complexity in the tax system. That says something about the need for reform.
Who would pay this?
The Green proposal will affect quite a lot of people.
£50,270 is not that far above the average London salary. And, by 2027/28, one in five taxpayers, and one in four teachers will be affected; I expect a majority of households will have someone who earns that figure at some point in their life. To say this is a tax on the “richest” is not particularly accurate.
But some very wealthy people won’t be affected much, or even at all. The big problem with increasing national insurance is that it only affects wages. The retired don’t pay it. Investors don’t pay it. Landlords don’t pay it. It’s a funny choice of tax rise for a progressive political party. It’s a bit odd, because only three years ago the Greens were proposing abolishing national insurance and rolling it into income tax. Perhaps Ms Denyer got the policy wrong. Or the more cynical version: they chose to raise national insurance because they think people don’t understand it.
One of Jeremy Hunt’s best decisions was starting to phase out employee national insurance. No sensible political party should be looking to reverse this, and particularly not one of the Left.
Some suggestions
I have three suggestions for the Greens:
- The tax rise should apply to income tax, not national insurance, so it impacts landlords/investors as well as working people
- Realistically you have to scrap the child benefit and personal allowance clawback at the same time, or you end up with indefensibly high marginal rates. Student loans also need thought.
- Be clear about what this proposal is, and who it applies to, instead of suggesting it’s a tax on the “richest”.
It’s great that there’s a political party offering people the choice of significantly higher taxes and significantly higher spending. However this needs careful consideration to ensure the result is fair and workable. And it also needs the Greens to be clear and honest about what they’re proposing, and who it affects – and I don’t think Ms Denyer’s description of this policy was.
Video (c) British Broadcasting Corporation and reproduced here as fair dealing for the purposes of criticism and review.
- 1I initially thought “three” was a mistake, but possibly she says “three” because she forgot to mention the Green Party’s wealth tax proposal.
- 2However that would give us one of the highest rates in the developed world; a more modest increase would seem sensible and/or one that was combined with a return to an indexation allowance (which prevents inflationary gains being taxed).
- 3The self-employed pay slightly less
- 4Uncapping the upper earnings limit was a key element of Labour’s “shadow budget” for the 1992 general election. The “shadow budget” in general, and this proposal in particular, are often blamed for Labour’s loss, although whether that is correct is contested.
- 5Ignoring Scotland for the moment, and also ignoring weird marginal rate effects
15 responses to “The Green Party – very shy about a big tax increase”
Thanks for the article! Oh wow! another tax increase, welp got to use this as benefit for my own accounting solutions UK business.
I earn around 50k a year and invest heavily in stocks and shares because realistically that is the best chance to make lifetime wealth. To state that increasing capital gains tax to 40% from 20% is taxing only the richest is absolutely absurd. All thst will achieve is widening the wealth gap because those with less disposable income will have their gains tax doubled making it even harder for them to build wealth. Those with already large amounts of capital are unaffected, that’s the whole problem. If you want to introduce a high capital gains tax you need to band in so that it only affects those of significantly higher wealth. I don’t think it should be tied to income either because you can work around that, it should be tied to the amount of capital gains you are applying for.
The Scottish rates would be even more fun. 67.5% income tax between £100K and £125,140 plus 8%, so 75.5% marginal rate!
Very informative and well written.
I think the Greens are onto the right idea with uncapping NI, it’s a shame those of us over the 50k threshold will suffer as a result, but it’s the wealthiest that will suffer the real burden.
I think this is more a combined issue of fiscal drag and whether NI should exist at all, totally agree with your own suggestions.
Refinement is needed, but their honesty is more than can be said for the others at play.
The fisal drag issue is one that higher inflation has been a verry very deliberate policy at least since 1995, that the Green are NOT reducing fiscal drag much, and that Coucil Tax, has by now reach a much much higher burden on the lower middle class (Band C where median income is far lower than even the mid- point between the median net wage (~£27.6k/yr after Payroll taxes,eq. ~25.8k after Council Tax, in places where it is already significantly above 12 % of house annual rental values, very close to 1/15th of median wages net of payroll taxes, fortunately the Green are the very only one party since 1969, or 1988, who are planning to make this a tiny bit fairer with LVT instead, but only for the whole picture, for people with less than a few % of their total income coming from rent, or Land value counted as rent, which is the mass majority of homes worth under annual rent of 25k/yrs(capital under 450k), so definitely under the upper middle class for that, overall[so Green definitely high taxes on the rentiers who do not contribute, but, eventually, will have to], and green are somewhat less overall taxing, fairer on the middle class under them, who contribute more, by work, but will still pay overall nearly as much as when the rentiers above contributed very little, aka up to now) and that £4189/month current transition below 42% marginal rate) than even 8% NI (NI which is typically ~£1760/year on a median 34.6k/yr gross) (vs significantly above £1800 (Band C) Council Tax (rational: people in the lower 2 income quintiles have only ever been able to afford bands A or B, so from the 5th decile close enough to median, Band C would be the representive of the median burden, especially those extracting less rent than that extracted from them, aka not (yet) owning outright that house), Council Tax in outside London parts whe Council Tax(es) are high, such as Midlands,e.g West Mifdlands: very high), they(green) want to fix the issue to prevent the average age of the house 1st time buyer going from 38 now, up to 57 for the next generation (already born, even before Covid).
Equalising treatment of capital gains should also mean capital losses are deductible against income.
Are the Greens ok with that?
Dan – I think you are being a little hard on the Green Party here. A proposal to remove the ceiling on NI clearly makes tax more progressive and as such is an improvement in fairness. To expect an answer on a programme such as Question Time to cover details such as also removing the child benefit withdrawal and the PA withdrawal is unreasonable. Clearly doing this too would be sensible and make the system fairer again but overall the Green Party should be given credit here for being honest about tax rises.
Also the median income is well below the ceiling for NI so the increase would clearly affect significantly less than 50% of us.
Ny problem is spinning a tax on people earning £50k as a tax on the wealthy. It’s not.
I’m not fussed that she didn’t mention the complexities on Question Time. I’m fussed that their proposal doesn’t deal with the complexities.
Interested what raising the Tax Free Allowance will do to £20k to the Gov as that will reduce Benefits bill and maybe encourage more into employment and increase Savings and help the poorest in society
I just filled in my tax return for 2024 and was intrigued to learn that all the “interest” on my Wise account is taxed as capital gain as they use discounted securities via Blackrock. Thus a lower tax rate and a higher limit before tax is due than using a building society, although perhaps not for long if they equalise the rates.
I’d be careful with that – the rules in this area are complex and you can’t necessarily assume it’s taxed as a capital gain.
If the Greens propose this but dump the gimmicks it would be sensible.
How much would dumping the Child Allowance and personal allowance clawbacks cost?
We have a 53% income tax rate in Portugal (above 250k€) and we do not have cap for national insurance. Result: we are seeing a lot of qualified youngsters move abroad for tax reasons.
Indeed I think as part of Richard Murphy’s proposal to do this (which I think the Greens might be taking notes from) he recommended that any such change of NI should be accompanied by removing the PA withdrawal, the HICBC, and lowering the tax rate between 50 and 75 grand
https://www.taxresearch.org.uk/Blog/wp-content/uploads/2023/09/Reforming-the-top-rates-of-national-insurance-published.pdf
https://www.taxresearch.org.uk/Blog/wp-content/uploads/2024/02/Tax-rate-changes-published.pdf
Great analysis as ever.
Vote Green, get poor.