Jessica Fino 21 Apr 2017 01:22pm

High earners hardest hit by tax rises, says IFS

The director of the Institute for Fiscal Studies (IFS) has hit back at claims by shadow chancellor John McDonnell that low and middle income earners are being hit hard by tax increases

The shadow chancellor said earlier this week that the Labour party would introduce a tax on those earning over £70,000 if elected, arguing that middle and low earners are being hit hard by tax rises.

Speaking on the BBC’s Today programme on Wednesday, McDonnell spoke of Labour's plans to make the tax system “fair” - shifting the burden of tax from middle and low earning individuals to the higher earners.

He then said that those earning less than £70,000 had had an unfair amount of extra taxes put on them.

But the IFS has contradicted the shadow chancellor’s comments, saying those on higher incomes have actually seen the biggest tax increases since the financial crisis.

Director Paul Johnson told the Today programme on Thursday, “If you look over the period since the financial crisis, the group who have really seen really very big tax increases are those earning above £70,000 to £100,000-a-year.

“They have lost their income tax personal allowance, we have seen a 45p rate at £150,000 and very big reductions in income tax relief for pension contributions.

“If you look at people on average earnings, £25,000, £30,000, £40,000-a-year, they have really not seen any tax increases at all.

“It’s been quite remarkable, actually, over a period of six or seven years of austerity, that actually as it were ‘Middle England’ has not seen any tax increases.

“Those on the lowest incomes have seen some big, and in particularly are going to see some big cuts in benefits, tax credits and so on are coming down very fast.

“But the tax burden on those on lower incomes really has not risen.”

The Institute of Directors (IoD) has also criticised McDonnell’s comments. Oliver Parry, head of corporate governance at the IoD, said, “I think it’s important to know that the very highest earners already contribute what I would deem as a disproportionate amount to the pot.”