Shrinking tax base suggests personal allowance is generous enough
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Version 0 of 1. At first glance, the latest income tax figures from HMRC make encouraging reading for anyone who believes in equality. Since 2013/14, around 300,000 people on low incomes no longer pay the 20p basic rate of tax, mostly thanks to the annual increases in the threshold at which people start paying income tax implemented by the previous government and the coalition before it. At the top end, HMRC expects 364,000 workers to be paying the 45p tax rate by the end of the 2017/18 tax year. This would be a 10% annual rise and a jump of more than 50% since the £150,000 tax threshold was introduced seven years ago. This squeeze on high earners is a key element in maintaining the pre-financial crash gap between rich and poor. But using the tax system in this way to help the poorest and tax the rich has a cost. It narrows the tax base to a relatively small group of people and means that when a government needs a revenue boost, as a Labour government will should it take office, it must return to the same people and demand not just a small percentage rise, but a hefty whack of extra cash. The threat that professionals, from doctors and accountants to management consultants and bankers, will take their money offshore has some foundation to it. But, more importantly, working for a PAYE employer will be considered a mug’s game compared with running a small company and paying 19% corporation tax. Even under Labour, someone earning £80,000 could swap a 45% tax rate for a 26% corporation tax rate. Generating an income from wealth will also become more attractive. Property investment has always been a money-spinning proposition. Twenty years of the buy-to-let boom speaks to that. With higher income taxes weighing them down, many people already ask why they should work for a living when they can extract a generous rent as a landlord. Labour has several answers. One is to budget for a degree of avoidance and scale back its projection of the tax take from higher earners. Another is to impose a tax on wealth. But the hint in the manifesto that Jeremy Corbyn would consider a land value tax is just that. It is not a fully formed policy and would take years to implement. It is not a policy many inside the parliamentary party understand, let alone the party membership or the public at large. In the meantime, Labour will have doubled down on a narrow group of increasingly mobile workers who may shift to other lines of work or even move country rather than pay the extra tax. The Tories meanwhile will make the situation worse by increasing the personal threshold further, taking even more people out of the tax system. Such a move will disempower future governments from helping the lower-paid through the tax system. Only benefits will help them, and in the current harsh environment, they can easily be cut. Maybe that’s part of the Conservatives’ plan. Public sector strikes are now a rarity Members of the Unite union at the Bank of England will on Thursday start voting on whether to hold a strike this year in protest over a “derisory” 1% pay offer well below the current inflation rate of 2.7%. This would be a bigger story if more than 2% of the bank’s 3,600 staff were involved in the ballot, but they are not. Meanwhile, the GMB union is calling on more than one million of its members in London and the east of England to vote against the 1% pay rise that caps wage growth across the entire public sector. This would be an even bigger event, except that the union is only urging its members to vote next week for Labour in the general election to benefit from Jeremy Corbyn’s pledge to break the cap. Unison, the biggest public sector union, cannot name a single pay dispute across the NHS, the social care sector or local government. All this means that apart from about 70 Bank of England workers, the 1% pay cap on 4.3 million public sector workers in England is holding and it appears there is nothing the unions can do about it. The situation is made worse by official figures showing the steepest fall in union membership over the past year since records began. The union movement lost 275,000 members last year to slip to 6.2 million – a level less than half that seen in the 1970s. In one sense it was a shock after four years when membership levels had stabilised and the prospect of further austerity raised the importance of union protection in the workplace. But maybe the long-term slide has reasserted itself, accelerated by the “creative destruction” of secure jobs in favour of the gig economy. |