Make no doubt about it, Britain is in a personal debt crisis, with the total national household debt estimated to have been over £1.3 trillion in December by prominent think tank the Centre for Social Justice.
The reality is that with the rate of workerís wages consistently increasing at a slower annual rate than inflation, that the actual worth of their take-home pay has decreased every year since 2010, and this has resulted in a squeeze on their finances in recent times due to the soaring costs of housing, fuel and living essentials.
The government have considered a number of policies to try and combat this, and have even implemented a rise in the personal allowance threshold for basic rate taxpayers, but as of yet it appears that no substantial impact has been felt from this change. In fairness to the current administration, the intentions behind the personal allowance policy were not laced with the same air of party politics and election motivation that politicians of all alignments are exhibiting with their taxation proposals.
The reality is that due to a huge wave of populist support, Labour and the Liberal Democrats have pledged to either retain the current 45p income tax for the nationís top earners, or in the case of the former, raise it back to 50p, in a move that will do more harm to the countryís financial situation than any good.
This is a view that was shared by the Institute for Fiscal Studies, who yesterday released their annual Green Budget that clearly displayed the improvement in government revenue since the top income tax bracket has been decreased to 45p, down from 2010ís 50p.
There are a multitude of reasons why this has been the case, but the sheer reality is that the countryís top earners are simply more inclined to pay their tax when it is not being presented at an outrageously high limit. The worry notion now is that with government revenue on the rise, and the country slowly coming out of recession is that the Labour government come into power and implement a 50p tax purely based on populist sentiment. The danger here would be that revenue would fall as top earners would begin to adopt strategies to protect a large segment of their money, such as placing it into offshore accounts, or will simply move out of the country on the premise that it is a hostile environment for those who wish to achieve success.
Indeed, the IFSís report shockingly indicated that the countryís 300,000 top earners currently contribute 30% of the total income tax taken in by the government, and a sizeable 7.5% of all tax revenue in general.
And the IFS have now warned that any implementation of a 50p top earner tax bracket would be severely detrimental to the level of public finance available to the government as it will discourage the countryís top earners from paying the full extent of their tax, which in turn will negatively impact the facilities available to the countryís lowest earners.
Moreover, if anything happens in the personal financial situation of this small group of top earners, or if they simply leave the country, then the government will have no choice but to increase its national lending levels, and will plunge the UK into further debt.
The IFS also hit out at the current administration over their personal allowance increases, which they estimated to be costing the government an extra £10 billion a year in loans. With the Lib Dems proposing to raise this even further to £12,500, this could increase by another £12 billion, and it can be argued that this is another populist policy that is being presented in a manner that completely downplays the adverse effects of its implementation.
The IFS argued that raising the personal allowance on national insurance contributions would be a better policy was it would help people retain money when they first come into employment, which is typically the time when they really need it. Moreover, the IFS said that Labourís proposals to implement a 10p lowest earner tax bracket would be ill advised as it would make the tax system too complex and would do little to help the countries poorest.
ìThe Government might be concerned if the Exchequer becomes increasingly reliant on one particular revenue source, as it increases the risk that a shock to one revenue source would have serious implications for total revenues,î the IFS said in its annual Green Budget.
Zero dogma, complete party politics
The problem at the moment is that a large body of the public are firmly behind taxing the nationís top earners on a greater level, and with the 2015 General Election looming large on the horizon, the reality is that no public support will be given to reducing taxes; which is the right course of action for the government to undertake if they wish to reduce our substantially high public debt levels.
Labour will vehemently advocate a 50p top tax rate in their manifesto and their commitment to this policy will be unable to change unless the current populist sentiment changes in favour of lower taxes. Their avocation of the policy it can be argued is not down to any ideological or dogmatic belief that it is the best course of action moving forward. It is instead the actions of a party that are in the middle of an even political battle that are looking to score the populist vote on all key areas, whether it energy, small businesses, housing or taxation.
Meanwhile, the Liberal Democrat party have decided to hop onto the same wave of populism and advocate keeping the 45p top tax rate, with liberal MP Danny Alexander, the Chief Secretary to the Treasury identifying that taxes would be lowered to 40p ëover his dead bodyí.
This means that the Tory administration are left as the only party left to have not ruled out a return to the 40p top tax rate, and it is up to the current coalition to convince the electorate that it is in the countryís best interests to reduce the top bracket.
This means referencing future trajectory of public finances, identifying the current success of the 45p tax rate, and emphasising that this is not a matter of protecting the rich as the electorate perceive to be a classic Tory stance, but to reduce public debt levels which are in dire need of addressing.
Politicians of other alignments should be compelled to do this as well, because supporting a higher tax bracket for top earners on the premise of populist resentment towards the rich is only going to leave the country that they represent worse off in the long term.
Rowena Crawford, a senior economist at the IFS, reiterated this stance arguing that it is politicianís responsibility to do what is best for the country, rather than attack the rich whenever any financial problems arise.
ìThe world is more mobile than it used to be,î she said.
ìYou become sensitive to the payment behaviour of those individuals. If you push them too far and they emigrate then you lose revenue.î
Steve Baker, the Conservative MP for Wycombe, said: ìIt is a cruel fairy tale to believe that 99 per cent of the public can live on the earnings of one per cent.
ìA policy of soak the rich is not a sensible one; the system cannot sustain itself.î
The only major politician who seems firmly committed to a tax reduction is the London Mayor, Boris Johnson, who identified this week his intention to include tax reductions into the Conservative manifesto, which his brother has been tasked to write.
ìI donít think we are going to go into an election with a campaign to keep our tax rates higher,î Mr Johnson said.
If Mr Johnson is truthful in his remarks, and the Tory party do advocate a lower tax threshold, then it will be up to them to convince the public that it is the right thing to do, as their financial wellbeing will depend on it in the future. Convincing the electorate that a 50p tax rate is wrong for the country is the best possible outcome, as even if the Tory party does not win, the sentiment may be strong enough for the winning party to implement the tax bracket.
The reality is that for more money to be available to spend on the public, that taxes should be lowered, as higher revenue will be taken in, and in turn a greater amount of initiatives can be planned with the money that could be targeted at helping worse off groups of people. It is up to politicians, whatever the alignment, to step up and set party politics aside to stress this view, otherwise the significantly important issue of general taxation in the country, which impacts the financial condition of millions of households, will be cast away into wave of populism, agenda, and self motivation that will undermine and worsen the financial situation of the UK completely.