The squeezed 'middle'?

The Institute of Fiscal Studies launched its pre-budget forecast today at the British Museum, to an audience of journalists, commentators, economists and various people whose job it is to make sense of the British economy.  (Incidentally, there were also lots of primary school kids heading for the Ancient Egyptian Book of the Dead exhibition, and the juxtaposition of lots of economists in expensive suits and the sight of excitable kids was enjoyably comic).

One particular set of figures caught my eye. First, the IFS reminds us that around 750,000 more people will become higher rate tax payers in April as a result of a reduction in income threshold.  And it predicts that a further 850,000 will get caught by 2015-16 if the government achieves its ambition of a £10,000 personal allowance.

Higher rate tax is of course aimed at those who are better off. But our British Social Attitudes Survey finds that people in the upper income quartile don't regard themselves as such. Only 9% of those in the upper income quartile (a household income of £44k or more in 2009) regarded themselves as having a high income - the vast majority thought of themselves as on a middle income.

So many of those who find themselves tipped into the upper tax bracket will not think of themselves as well -off.   I asked Paul Johnson (Director of the IFS) whether in his view, this would undermine the public acceptability of the coalition government's plans, since increased taxes along such lines are one component in the deficit reduction programme.  In response, Paul commented that the proportion of those finding themselves in the upper tax bracket has increased very significantly over time, and that public acceptability was indeed something to watch.

The squeezed 'middle'?