Thursday, 4 November 2010

The Middle Classes

Quite a large topic, and probably one that we shall have to return to at some point, because I'm just planning a quick rant here…

I read and hear a lot about the middle classes. It is certainly a point of debate even more today than it was when John Prescott declared that "we are all middle class now". Who are the middle class? Or is it classes? Is it anyone who watches Downton Abbey? Anyone who claims no benefits? Anyone who doesn't wear hob-nail boots to work? Anyone who has attended school beyond 16? Anyone who earns a certain amount?

Realistically, there are as many ways of determining what middle class means as there are types of Ford Transit - or as Terence put it slightly more eloquently, quot homines tot sententiae. I'm going to go with a fairly popular one - those who pay the 40% tax rate.

The problem is, until very recently that was the top tax rate in this country. Hand in hand with being considered middle class was being considered affluent - represented by paying the top tax rate. However, it has been a very long time since paying the 40% tax rate really meant you were well off. Don't get me wrong, £40,000 a year is a lot better off than £15,000, but it still isn't well off by old school 'middle class' standards.

Now if one says "middle class", one might picture mothers-who-lunch pushing their babies about in Maclaren buggies, loading them into their Range Rovers, collecting the 2.4 kids from a private school and returning to the mansion for riding lessons before father arrives home from the hedge fund in his Porsche.  Or Tories. The problem is, that is really towards the top end, financially. You can probably have the buggy, probably one of the cars second hand, certainly no mansion and no chance of private education on £37,500 or so.

Yet we are happy to saddle aspiring university students with a debt of some £65,000 for their £30,000 university debts (largely fees based) to be paid over the course of 30 years. The threshold for this high repayment rate? Yup, if they go on to earn just around £40,000 - the 40% rate - the middle classes. Compare that to about £10,000 repaid for the same debt if the graduate earns £25,000. Progressive taxation is not a bad concept, we are just getting the levels at which we ramp up the rates totally wrong. They seem to be based on what £37,500 would have bought you in 1980 or so as successive Governments have allowed more and more people to slip into the top brackets. It is not a sign of success that more people pay the top rate if you simply refuse to let the tax brackets keep pace with inflation.

There needs to be a drastic re-think on taxation policy in general, and university fees in particular. The middle class used to be synonymous with being comfortably well off. That simply isn't true today for all of the now wider middle class, but we are still taxing all of them as if it was.

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