Treasury Minister Agrees to Look at The Problem of High Marginal Rates

The Financial Secretary to the Treasury, Mel Stride, accepted in a Parliamentary Debate on 16th January 2019 that it was “deeply undesirable” that families  can have a marginal tax rates as high as 73% or more. The problem, he said, had to be addressed. He would go back to the Treasury and look “genuinely” at the issues raised.

On the day after the Brexit Vote backbench members had persuaded the Speaker to list for debate a motion that the House consider the taxation of low-income families. This coincided with the publication of a report [1], drawing on figures produced by Tax and the Family, on making work pay for low income families. The report can be viewed here.

The report explores the issues of high marginal effective tax rates and making work pay for low-income families. The problem had emerged following the introduction of independent taxation in the 1990s. The report argues Government must urgently pay attention to this issue and reconsider how effective marginal tax rates can be cut significantly. In addressing this challenge, while no solution should be ruled-out, special attention should be given to rebalancing recognition of family responsibility so that rather than being focused almost entirely on the benefits system, it is instead better shared between the benefits and tax system. 

 Jeremy Leroy, the Conservative Member for Strafford, had pointed out that a one-earner, two-parent family with two children, paying income tax and national insurance and in receipt of tax credits, faced an effective marginal tax rate of 73%. That means that, as they look at the prospect of earning more, they will be confronted by the fact that they will get to keep only 27p from every additional £1 earned. If a 73% higher rate tax was introduced. He said that there would be an outcry if this were the rate applied to high earners. This was however the effective marginal rate of tax that we, though the system that we in Parliament expect low-income families to pay.

To read the full debate and see the Minister’s comments use the link below:

[1] Strengthening the Family Manifesto – Making Workpay for Low-income Families.  A preliminary report.

Don Draper