Young professionals are the hardest-hit by this punitive Budget
For anyone still tempted to believe Rachel Reeves has stuck to her manifesto promise not to put taxes up on working people, let me disabuse you of the notion.
As the OBR pointed out yesterday, by 2030 there will be more than 10m people dragged into paying higher rates of income tax compared to 2023, thanks to the freezing of rate bands. Those 10m people, who will add a big share of the £8bn raised by yesterday’s freeze extension, won’t feel Reeves has helped them.
But the income tax band freeze only tells half the story. Buried in the Budget document was another Labour bombshell for workers – a freeze on the Plan 2 student loan repayment threshold. That means any graduate born after 1992 will be doubly hit by Reeves’ Budget.
The compound effect of these dual moves is eye-watering, particularly for young professionals.
To illustrate this, I took a look at parliamentary wage growth data from 2020 by age bracket, coupled with the OBR’s forecasts for wage growth up to 2030.
I found that a graduate earning 50 per cent above the median wage for their age, who turned 30 in 2020, would expect to pay a bit over £10,000 in the form of income tax and loan repayments (slightly less if they don’t have a master’s).
But for someone turning 30 in 2030, that figure will have almost doubled to a whopping £21,340 – a much bigger share of their income. While wages for this age group are expected to grow 43 per cent in the 10 years to 2030, loan repayments are set to surge 82 per cent and income tax payments will more than double.
What explains this massive over-taxing? In short, for someone who turned 30 in 2020, an income that was 50 per cent above the median would sit just below the 40 per cent higher rate tax threshold. So wage inflation coupled with threshold freezes means those turning 30 in subsequent years see an ever-growing share of their income taxed at double the rate. It is even more stark for student loans, where anyone earning below the threshold doesn’t have to pay a penny.
Labour say those with the broadest shoulders should pay the highest taxes – but the reality is quite different: young professionals are being asked to bear the burden of this Budget.
London graduates earning well under £100,000, aged in their mid-twenties to mid-thirties, are now facing marginal tax rates of as much as 57 per cent – well above the 47 per cent that, say, a 45-year old banker earning £500,000 would pay. This is not, by any yardstick, progressive.
Why has Reeves done this?
One reason is that a growing number of young graduates aren’t getting into well-paid jobs once they leave university, so the government is pushing down the loan repayment threshold – which is now barely above minimum wage – to a lower and lower income to ensure less successful graduates keep coughing up. Another is that younger graduates could be seen to be less mobile than older ones, so won’t try to escape the tax by upping sticks for Dubai – though recent brain drain data would suggest otherwise.
Tired, fed up, and taxed too much
A third, perhaps, is complacency. YouGov data from the general election showed the 25-39 age bracket was the one most likely to vote Labour – more than twice as likely as the over-70s. Maybe Reeves thinks she can throw as much mud at my age group as she pleases, because we’ll stay loyal. It is a big gamble.
It has become popular online to talk about “Nicolas (30 ans)”, a French origin meme referring to a middle-earning young professional who seems to have got the worst deal out of the social contract. Nick did everything the state asked of him – worked hard, went to a good university, got a good job – and yet he is paid worse than his older colleagues, when they were his age, and at the same time pays higher taxes. Meanwhile, he faces soaring house prices and a deteriorating quality of state services. Nick is wondering why he bothered.
Following this Budget, Reeves may well have inadvertently spawned several million more Nicks. They are tired, and they are fed up. And they may come back to bite.