Andy Silvester is the Campaign Manager at the TaxPayers’ Alliance.
David Cameron and Nick Clegg have both lauded it as one of the proudest policies of Coalition – the decision to raise the threshold at which income tax is paid to £10,500. They’re so proud of it that both are planning to go further in their manifestos, wpromising a threshold hike to £12,500 in the next Parliament. The move, says the Prime Minister, “has lifted people out of tax altogether.”
The rise in the threshold has been a good thing. It has made life easier for those on the lowest incomes.
But the idea that it lifts people out of tax is frankly poppycock, as new TaxPayers’ Alliance research has shown. Indeed, taxation in fact hits the poorest hardest as a percentage of their income despite the changes.
We hear a lot from politicians about the cost of living crisis. It’s no surprise that of the many policies Ed Miliband has foisted upon the British public over the past four years, it’s the ones he’s tied to the feeling that economic growth hasn’t translated to Britain’s wallets that have gained the most traction.
But there is a deceit in pointing the finger at energy companies and the minority of exploitative employers and landlords. Taxation is the biggest contributor to the cost of living; indeed, according to the ONS, for those in the rental market the average household pays more in tax than it spends on food, housing or energy.
Mainly through National Insurance, VAT, Council Tax and duties on alcohol and tobacco, the poorest hand over some 47 per cent of their gross income in tax. It’s such a mind-bogglingly high figure that you feel it should come written out in brackets, in much the same way that the BBC used to emphasise how badly your football team had been battered on Final Score.
When those on the lowest incomes are handing over nearly half of their take-home to the Treasury, it’s clear that something has gone very wrong in the way we tax and spend. To be fair to the Coalition, the tax take across all income deciles would have been higher had the changes to the Personal Allowance not occurred. But we need to do much, much more.
The first step would be to bring National Insurance thresholds in to line with Income Tax, as a first step towards the former’s abolition. The Treasury all but admitted that the two now go into the same pot in the Annual Tax Summaries which landed on households’ doormats earlier this year. It is downright disingenuous to pretend that the poorest are being pulled out of tax, when they are still being smacked by National Insurance.
The second is as much about what the Government shouldn’t do. There are still calls for the deficit to be tackled through tax hikes – but politicians must resist them. Putting up VAT in particular would hit those who can least afford a rise the hardest. For those who say we must raise more in tax, answer this: what percentage should the poorest hand over? 50 per cent? 60 per cent?
And for those who want to make “those with the broadest shoulders” pay more? The average household at the top of the income scale coughs up more than £30,000 a year in tax than it receives in benefits or services. Again, how much more should they pay? I vividly remember an eminent senior statesman once telling me that anybody who uses the word ‘fair’ over the age of eight doesn’t understand what it means, but it’s hard to look at the tax burden on the poorest or the richest and think the system is indeed ‘fair.’
The answer to the deficit isn’t to make the burden on the wealthiest so heavy that they crumble or, like Hollande’s exiles, move away. The answer isn’t to put the weight of the deficit on the backs of the poorest. The answer is to cut spending, as it has forever been, and will forever be.