Stop taxing the poor so damn much
Given our greybeard status one of the things we’ve learnt is that bad policy, bad economics, keeps returning like the acid reflux after a bad curry. Two decades back we started to make fun of the Living Wage folk. Pointing out that their desire - all should gain what they said was that living wage - could be and should be achieved simply by lifting less tax from the wallets of the poor. This even worked, in that government did end up with a target to have the personal allowance rise to the level of the full year, full time, minimum wage.
Such is the lust for other peoples’ money to spend among politicians that this has now been inflated away. We are now back to where those working part time on the minimum wage must pay income tax and national insurance. To our minds that’s a moral and ethical outrage. As well as opening the door to this sort of stupidity:
Major investors including Axa and Scottish Widows are backing shareholder resolutions pressing retailers Next, Marks & Spencer and JD Sports to increase pay for thousands of workers.
More than 100 individuals and eight institutional investors, which manage over £1tn in assets, are backing an effort to encourage companies to pay a “real living wage”, which is designed to ensure workers can cover necessary household costs.
The move comes amid evidence that almost a quarter of UK retail workers – 818,000 people – are not being paid the rate tracked by the Living Wage Foundation, which accredits employers.
The real living wage – which is voluntarily paid by more than 15,000 UK businesses – is £13.85 an hour in London, and £12.60 in the rest of the UK, while the statutory minimum wage is scheduled to increase by 6.7% to £12.21 from next month.
Using a work week of 37.5 hours that £12.60 an hour is £24,750 a year. The £12.21 is £23,809.
The personal allowance for income tax is £12,570 (stuck at what was the full year, full time, minimum wage when that target was set back in 2010 -ish).
Upon £24,750 a year you will pay 20% income tax upon £24,750 minus £12,570. Or £2,436. As all can see £24,750 minus £2,436 is less than £23,809. Considerably less in fact. Like, about £1,500 a year less, or back to hourly wages, 75 pence an hour less.
Note that this is all before we get to even employees’ national insurance, let alone employers’.
If the personal allowance were at the level of the minimum wage then the effective wage would be well above that “real living wage”. This was the point we made for that decade, the point which led to the personal allowance being raised. For it’s blindingly obvious that if you want the poor to have more money then just stop damn taxing them so much.
Which brings us back to the ethics and morals. The very point of the minimum wage itself is that this is what the politicians have decided is the minimum value of an hour of labour. Having done so they don’t then get to dip their wick in to pay for their version of a good time. This is the minimum value of an hour of labour, as declared, and it is expropriation, far worse than anything the capitalists do, to take a portion of that off the honest labourer.
True, this will then cause revenue problems. As we saw yesterday the higher end of the tax system is already well over the peak of the Laffer Curve. In fact, when we add in national insurance(s) and the taper rate for welfare benefits (so, 20% plus 8% plus 13.8% plus the taper which on UC is 55%) we find that the entire range of the UK tax system is at or over that Laffer Curve peak.
We’re already pulling as much tax out of the incomes of the population as can be done. We’re near certainly trying to pull more out than can be done in fact. The not just implication of this but proven lesson is that we will just have to get along with less government. And won’t that be a shame, eh?
Tim Worstall