Why Nick Clegg’s “Worker’s Bonus” Doesn’t Go Far Enough

Pieter Brueghel the Younger's Paying the Tax (The Tax Collector)
Pieter Brueghel the Younger’s Paying the Tax

I was pleased to hear Lib Dem leader, Nick Clegg, calling for another increase in the amount people can earn before having to pay income tax.

In the current tax year (2013-2014), the personal allowance  stands at £9,440 and it will rise to £10,000 in April, 2014. Nick Clegg now wants it to rise to £10,500 in April, 2015 (he’s rather cheekily calling it a “worker’s bonus”, but it is really nothing of the sort: the Government would just be taking less money out of your wage packet than it did previously).

Since coming to power, the Coalition Government has repeatedly increased the personal allowance, something that should be applauded. In 2010, the personal allowance was just £6,475. Next year’s rise to £10,000 is a definite step in the right direction, but not even Nick Clegg’s proposal of £10,500 is as high as it should be. Until is exceeds £12,500, for example, there will be people earning the minimum wage who will still be paying income tax.

For me, a starting point would be to have the bottom 50% of UK taxpayers paying no income tax at all. That suggestion isn’t anywhere near as ambitious as it sounds. In 2012-2013, the Government collected about £150 billion in income tax, but the bottom 50% of taxpayers contributed only around a tenth of that figure, a little over £15 billion. So we are talking about the Government receiving £15 billion less money. During the same tax year, public spending in the UK came in at just under £700 billion. £15 billion is not much more than 2% of £700 billion so if you are willing to reduce that spending by just 2%, hey presto, half of all current payers could be excused income tax.

Please don’t tell me that there are no more cuts to be made. Public spending has ballooned in recent times despite all the talk of austerity. In 2004-2005, it was £492 billion, in 2000-2001 it was £341 billion, but here’s what’s been happening to public spending in the UK since the financial crisis of 2008 hit home:

2008-09 £630 billion

2009-10 £672 billion

2010-11 £692 billion

2011-12 £694 billion

2012-13 £674 billion

So much for the “public spending cuts” we keep hearing about!

And the projections for the next few years?

2013-14 £720 billion

2014-15 £731 billion

2015-16 £745 billion

2016-17 £755 billion

Public spending for 2012-2013 shows a slight drop on the previous year, but the trend is very clearly skywards. Between this tax year and next it is expected to balloon by a further £46 billion – three times what it would cost in lost revenues to remove the income tax burden from half of all tax payers and to put £15 billion back into the pockets of those who actually earned it.

So, how about it Nick? A pledge to see half of all tax payers pay no income tax by the end of the next Parliament?

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