Undercover Economist

In his UK budget speech on Wednesday, Alistair Darling included the following line:

“I believe those who have benefited the most from the strong growth in incomes in past years should now pay their fair share of tax.”

This is partly rhetoric, but partly reflects a common illusion on the part of any government planner looking at a statistical digest in front of him. Government figures are often broken down into categories: “top income decile” perhaps, or “over-65s”. It’s easy to forget, staring at those categories, that the people in them change from year to year.

Let’s be clear about this. The “strong growth in incomes in past years” began in the early 1990s. Many of the people now about to pay income tax at 50 per cent – in fact, I will stick my neck out and say “most” – were not earning anything like that amount of cash in 1992. Someone 45 years old today, and in prime position to be a top-rate tax payer, would have been just 27 years old when the “strong growth in incomes” began. Meanwhile, the fat cats of the mid 1990s are now pensioners, enjoying their enhanced winter fuel payments and pensions untouched by the recent cancellation of tax breaks.

I’m not saying that Mr Darling should be doing something different. Frankly I have no idea what Mr Darling should be doing. But let’s not fool ourselves that those now stumping up extra cash are the same people who enjoyed the boom of the 1990s – nor that those who suffer when the cuts inevitably come are the same people who enjoyed Labour’s public spending boom, either. The bars on the treasury graphs are eternal, but the people they represent are always different.