The myth of the middle income

The Daily Mail has been leading the charge against the proposed changes to Capital Gains Tax that the Liberal Democrats have got their coalition partners to agree to bring in. Interestingly enough, and something I don’t think the Daily Mail and the rest of the right-wing ideologues have realised, these changes (if the leaks are to be believed) will revert the capital gains system back to that which existed before 1998.

Yes, that’s right, the proposed changes which are being called “a draconian tax grab” merely change things back to the way they were before Gordon Brown became chancellor. So much for Brown having stolen peoples pensions, then!

In fact, the system of capital gains is one of fairness. After all, why should someone pay less tax than someone else, simply because he has earned his money by selling something for a profit, whilst the other person has had to be employed – sold his labour – instead. In fact, if all people paid their fair share of tax, instead of avoiding it or gaining it by other than working, then we would actually all have to pay less tax, and have more schools and hospitals built! I have to work for a living, and if I had the chance to earn my money from buying and selling houses, or speculating on the stock market, then I would. It would be a lot easier, and probably more profitable.

But what about all those middle income earners who would be affected? Well, the Daily Mail is, at best, being a little bit disingenuous here. How much exactly does someone with a middle-income earn? As luck would have it, the Office for National statistics can provide the answer. But first question is do we mean the mean salary, or the median?

For those of you who failed ‘A’ Level Maths (and I only got a ‘B’ so had to double check this!) the mean is what most folk call the average – its everyone’s salary added together and divided by the number of employees. The median is a more interesting statistic – it is the salary of the person in the middle if you lined everyone up with the lowest earners at the left and the highest earners on the right. In other words, the same number of people earn less than this person as earn more.

So what is the median salary in the UK? Surprisingly in 2009, it was only £21,320. However, this is actually for all people – what if we strip out those pesky women? Well, it jumps up to £26,582. And of course, there are those lazy sods who work part-time, so what about males who work full-time? That pushes it up to £28,270. Thats hardly a massive amount – and I don’t know of many people with second homes who earn that much. In fact, most people who earn £28,000 would have trouble even buying their first home. At 3 and a half times income, how much house can you buy for  £99,000? So long as you are a man working full time.

As for paying CGT – well, the first £10,000 of any gain is tax-free, and you have to be investing serious money in the shares of Consolidated Amalgamated plc to get a gain of more than £10k in a year. Certainly more money than a teacher or a social worker, or anyone else on a “middle-income” would earn. So let’s bust this myth right here. Its not about people on middle income – the top 10% of earners earn over £57,783 a year and they are more likely to have even a small amount of CGT to pay.  In fact we are more likely to be talking about the top 5% or even the top 2%, and are we really saying that, in these tough economic times, the top 2% should get off lightly whilst the people paying standard rate tax – the real middle income earners – get hit hardest?

Ah, they say, what about business entrepeneurs? What about the Richard Bransons of the future? What about them, I say? There are precious few entrepreneurs who start a business with the idea of making money – or at least the sort of money which will result in CGT, and in any case, the tax would be on the gain made once the business was sold, not on the salary or other income received from the business during its operation. Most business people of my acquaintance say they started their business for a million different reasons, but surprisingly their primary motivation is rarely to make millions. And for those few who would be affected by the change, surely “We’re all in this together” ?

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One Response to The myth of the middle income

  1. Pingback: What Council Houses are for « John Ruddy's Politics Blog

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