taxallowance

As we regularly point out here, at the ASI we’re not party political. But we do propose policies that we think would be good to political parties. As such it’s nice when someone, anyone (we’re not proud!) decides that implementing a policy we’ve been recommending would be a good idea. So it is with the announcement that the LibDems are going to have a £12,500 a year personal tax allowance in their manifesto:

The Liberal Democrats have pledged to raise the income tax personal allowance to at least £12,500, in manifesto plans announced on Thursday.

The party has also signalled it would seek to increase the amount people can earn before paying National Insurance.

Danny Alexander, the chief secretary to the Treasury, said the allowance would rise by the end of the next parliament. The move would cut income tax for 30 million workers and save the typical basic rate taxpayer £400 a year, the party claimed. It would also benefit more than six million pensioners.

The ASI has for years argued that the personal allowance should be much higher. But we started to point out, a few years ago when the Living Wage movement first started out, that it’s simply ridiculous that people earning the minimum wage face income tax. The entire point of the minimum wage is that this is a minimum politically or socially acceptable amount that people should earn (whether you believe there should be a minimum wage is another matter). That at the margin government then nicks 40% of it in various taxes is just not on. so we’ve been saying that, even if people don’t like our flat tax plan (£15k personal allowance and a flat rate income tax above that) can we all at least agree that the personal tax allowance should be that full time, full year, minimum wage?

The reason that Danny Alexander is saying £12,500 a year as the allowance is because that’s what that minimum wage was a couple of years ago when he was first asked about the suggestion.

We would go further though (we always go further) and insist that it should rise to the current minimum wage, whatever that is in any year. And also that the NI contribution limits (yes, for both employers’ and employees’) need to rise to that same level. For we do still have that simple problem. If the minimum wage is the irreducible minimum that it is just and righteous that someone receives for their labour then it’s just not on that government dip its sticky fingers into it.

And it’s also worth pointing out that doing this will immediately make the minimum wage above the Living Wage. For we don’t actually have a low wage problem in the UK: we have tax poverty.