The U.K. Tax Hike

You’ve probably heard or read about the new U.K. personal income tax rates by now but just for the record, here is what came down today.

From the Guardian:

Alistair Darling attempted to lay down battle lines for next year’s general election with a £7bn squeeze on the rich followed by a brutal freeze on public spending in the next parliament.

Admitting that the worst year for economic growth since 1945 would create a £175bn hole in the public finances this year, the chancellor broke Labour’s 2005 manifesto pledge not to raise income tax by lifting the top rate for those earning more than £150,000 to 50% from next April. The “soak the rich” theme also included the abolition of personal allowances for those earning more than £100,000 a year and the phasing out of higher-rate pension relief for earners of more than £150,000.

Tax experts said the 50% rate, together with the loss of the personal allowance, would cost someone earning £150,000 a year £200 a month.

But while Darling brought forward spending as part of a £5bn boost to the economy this year, saying it was impossible for governments to cut their way out of recession, he laid out future plans for public spending more severe than under Margaret Thatcher’s governments in the 1980s.

Current spending on the running costs of the state would grow by just 0.7% a year from 2011-12 but deep cuts in investment in infrastructure projects will mean zero growth in total spending from 2013. With the national debt doubling, to 80% of GDP by 2013, the government will be paying £43bn a year in interest payments – more than the current schools budget.

Though the moves are dismaying, I suppose you have the Brits some credit for facing up to reality. They have realized that digging out of the hole that had to be created to fight the recession is going to take more than a just a return to the old economy. Circumstances will likely force a number of other countries to adopt a variant of the U.K. tax and spending regime.

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