Under the Coalition Government, workers’ tax-free allowance steadily increased above inflation year after year, meaning a shrinking share of the population paid income tax to the Treasury. It was a Liberal Democrat policy, enthusiastically adopted by Conservatives as their own.
From 2010-11, the personal allowance rose from £6,475, reaching £10,600 by the end of the Coalition in 2015-16, and then £12,500 by 2019-20.
If it had increased in line with inflation, the threshold would have been closer to £7,800 - meaning workers paying tax on an additional £4,700 of their incomes.
We even know the name of the Lib Dem activist we convinced who then took it to The Clegg. CPS also had managed to convince Osborne so indeed it did happen. Today that good work is being put into reverse:
Alongside those smaller taxes, fiscal drag is now back with a vengeance. Rishi Sunak, when he was Chancellor, decided to return not merely to the old system in which the tax-free allowance and thresholds rise with inflation, as per the Brown era, but to freeze them completely.
This effectively puts fiscal drag on steroids, particularly at a time when inflation is rampaging at levels not seen in 40 years and wages are failing to keep up.
Indeed so. Although Brown wasn’t all that innocent, as we pointed out in 2008:
Allowances in each of Mr Brown’s Budgets - except 2003, when they were frozen - have risen by “statutory indexation”, in other words, by a similar rate to the Retail Price Index.
Yea, even Brown optimised fiscal drag. Which ended with:
We now have the absurd situation that someone working 20 hours a week or so on the minimum wage is paying income tax.
And that, we’re afraid, is vile. Think on it - the justification for the minimum wage is that this is the minimum that an hour of work is worth. We don’t agree with that, but that is the justification for it. Well, OK, if that’s the minimum value then that’s the minimum value. That sum has to be tax free. If the one boss isn’t allowed to take a slice to defray expenses then neither is the other boss to pay diversity advisers.
If there is to be a minimum wage then the personal allowance has to be that full year, full time, amount. So too with national insurance. If the Chancellor wishes to change the one then he has to change the other. Raise the minimum wage then the allowance rises, by definition.
We can even prove that people bought our argument that first time around. The £12,500 allowance is what the minimum wage was in that year, 2010, that they decided upon the policy. Time for us to be making it again.
If you want the working poor to have more money then stop taxing them so damn much. Which means that the personal allowance must be the minimum wage - at the very least.