Hiking the personal allowance is welcome, but there's more to do

January 26, 2015 10:01 AM

It’s almost like there’s an election coming. Both the Liberal Democrats and the Conservatives are talking today about how much they’ve cut taxes for hard-working people in the past five years – largely because of the increase in the Personal Allowance before individuals start paying Income Tax. 

Now, that increase is of course welcome. But it is not the only tax change we’ve seen under the Coalition – and one of them was particularly unwelcome.

Increasing the rate of VAT, which both Nick Clegg and David Cameron pledged not to do prior to the election, of course hit those on the lowest incomes hardest – as our recent research showed.

But further, the claims that the poorest have been taken out of tax are on shaky ground. This is largely because there remains intense dishonesty at the heart of our tax code. The threshold at which an individual starts paying Employee National Insurance has remained resolutely below the point at which you start paying Income Tax, and is levied at 12%.

The Treasury all but admitted that Income Tax and National Insurance go into the same pot when it released “Annual Tax Summaries” towards the end of last year. It’s time for honesty. We need to increase Employee National Insurance thresholds to the same level as Income Tax as a first step towards abolishing the former. 

Why wouldn’t a Government take this simple step? The only possible rationale, one suspects, is that doing so would admit the basic rate is 32%. And that might not go down too well…

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