IFS chief challenges John McDonnell over tax rise claim

Shadow Chancellor John McDonnell’s claim that low and middle income earners were being hard hit by tax rises was today challenged by a leading economic expert.

Paul Johnson, director of the Institute for Fiscal Studies, stressed that people on higher incomes had in fact seen “very big tax increases”.

His intervention appeared to undermine part of Mr McDonnell’s argument for bigger tax bills for “rich” people which he defined as earning more than £70,000 to £80,000-a-year.

The senior Labour MP stressed yesterday: “There’s a general view...that middle and low earners are being hit very hard with a combination...of both income tax rises but also in terms of the burden placed upon them by stealth taxes.

“We want to get a system that is fair, so the corporations and the rich pay their way more and that means ending the tax giveaways to the corporations and also those in inheritance tax, capital gains tax and the bankers’ levy.”

But Mr Johnson explained: “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.”

Cuts to child benefit had also affected people earning more than £50,000, as had fiscal drag on the 40p tax rate threshold.

Mr Johnson added: “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.”

He also stressed that whoever wins the election on June 8 would face “loopholes” in the tax system which they would want to close including the loss in Treasury revenues due to the move to self-employment and the gig economy - as the self-employed pay less National Insurance.

If the next Government wanted to raise “lots more money” it would have to target people on average earnings as well as the wealthy given that so many people are on these modest wages, he added.

A Labour spokesman said: “John was very clear that it was a combination of changes to direct and indirect taxes, which is what Paul Johnson confirmed, have effected their overall incomes.

"The truth is that the Tories in government have raised VAT, imposed stealth taxes on low and middle earners, and slashed in-work benefits for the low paid."