Thursday, 10 April 2008

LPUK: No 10p Tax Band. Or 20p. Or 40p.

The abolition of the 10p tax band, which previously meant that the first £2,230 of income above the personal allowance (£5,225 up until April 6) was taxed at 10% (HMRC) has met with some justified criticism from politicians and commentators pointing out that, in spite of the Government's rhetoric, the move will make the poorest workers worse off.

The Libertarian Party, of which I am a member, are of the view that a great improvement would be made to this policy by going two steps further.

Specifically, what is needed to put things right is for the 20p and 40p bands to be abolished as well.

Before, the income tax take from someone making a rather paltry £12,000 gross a year (approximately what might be earned in a year working full-time on an hourly wage a little above the legal minimum) was just under £1,223. Now it is £1,313*.

Now, you might call that type of calculation disingenuous, since it doesn't take into account benefits (or indeed other taxes, including National Insurance contributions). But, what it actually means is that over £1000 of what, say, a checkout operator is paid over a year goes into the Treasury instead of into his or her pocket. If they are able to navigate the labyrinthine tax credits system, they might just be able to claim some of it back!

Let's stop all of this 'tax them and make them claim it back' nonsense at once. And while we're at it, reform the whole damn taxation system. LPUK estimate that income tax could be abolished, and the money recouped solely by getting rid of most of Britain's QUANGOs.

Scarcely believably, in 2006 more money (£167.5 billion) was spent on QUANGOs than was taken in by the Government in income tax (£143.3 billion (PDF)). This is before we consider the money wasted in various Government departments, before we consider the costs of administration of income tax and tax credits themselves, and before we consider the costs of overseas military adventures including but not limited to the Iraq War.
Income tax could be abolished without taking a penny from health, social welfare, education, or our defence.

* Based on the Government's (HMRC) data, before any other taxes or benefits/credits are taken into account.


Caligula's Palace said...

Nice post.

It shows just how greedy and wasteful the govt is.

Mark Wadsworth said...

Only about half of what the quangos spend is pure waste, gives you £80 bn or so. And if you have to cut taxes, why not get rid of the worst ones first, i.e. VAT and National Insurance (nominal take £125 bn or so, but chuck in some dynamic effects and it's affordable).

Subsequently doubling personal allowacne and scrapping 40% rate is just tweaks.

QT said...

£80bn waste is £80bn too much (the clue is in the word "waste")

There's more than one way to skin this particular cat, but abolishing income tax is as good away as any. Abolishing National Insurance will be difficult to sell by anyone, because it is associated (with some justification) with essential services.

VAT, IMO, as a consumption tax, long as the appropriate exemptions for essentials e.g. children's clothes, is much less damaging to the WORKING poor than income tax. I expect (though I ain't working it out right now) that eliminating income tax would also provide greater savings on administration.