Even in an electoral period, it should be possible to track and even praise a specific policy, independent of the party that proffers it. This is my attempt to do so for the Reform UK proposal that the personal allowance for income tax should rise to £20,000 a year.
Full disclosure: I am not a current member of any political party, but I used to work for Nigel Farage and liked doing so. My enthusiasm for this policy, however, is far from partisan.
Part of my joy is that the basic idea is one I slipped into the UKIP manifesto nearly two decades back. It’s fun to see how long good policy lasts. But rather more it’s because, whatever the source or party, it’s a damn good idea.
The basic contention is that the personal allowance, and this should be for national insurance and income tax, should be at or above the full-year, full-time, minimum wage. If we’ve declared that this is the minimum allowable price for someone’s labour, then this is the minimum allowable price for someone’s labour. The bureaucracy should not, any more than an employer, manage to get a snout into that minimum level of pay for an hour’s work.
The idea really started with Maurice Saatchi and Peter Warburton at the CPS. Richard Teather arrived at the same idea – I think somewhat independently – for the Adam Smith Institute. I then – along with others, of course – had much fun over the years pointing out the logic of this. For example, I used to do an annual (at least) article pointing out that the difference between the ‘living wage’ and the minimum wage was always within pennies an hour of the amount being paid in tax. If no tax were payable on low wages then that ‘living’ would be the same as the current minimum.
This was all called ‘politically risky‘ by establishment types at The Economist and elsewhere. There was also an awful lot of shrieking from the Left that the major beneficiaries of a higher personal allowance would be the richer. Which wouldn’t be true but was a useful thing to be able to shriek.
Finally, going into the 2010 election I got the proposal into the UKIP manifesto, and I also convinced a LibDem activist who took it through their policy process. Meanwhile the CPS had already convinced George Osborne and so, under the Coalition, it became reality.
The personal allowance was moved, agreed in stages, to that £12,500 a year which was the full-year, full-time, minimum wage in 2010.
Fast-forward 14 years, and the personal allowance needs uprating again. Unfortunately, not doing so raises so much money for a Chancellor that the ‘fiscal drag’ has proved too tempting to resist. For low-earners, we are now back where we were before. The minimum wage (37.5 hours a week, 52 weeks a year @ £11.44 an hour) is £22,308 a year. The personal allowance is £12,570. That subjects £10,000 a year (it is left to the reader to do the detailed numbers) to income tax at 20% and there’s also employees’ national insurance (8%) on that same amount.
So we have effectively done two things. Insisted that there’s some minimum value to honest toil, while also insisting that these poor folks have to pay around 30% tax on half their incomes. Largely because no politician can make the sums work out, given how much they wish to spend, without taxing the heck out of the working poor.
If full Worstallism ever did become a reality then we’d have a special law stating that the full-year, full-time, minimum wage is the personal allowance for both income tax and NI. If the Chancellor of the day wanted to change one – say, by rewarding the low-paid with higher incomes – then the other would have to move in lockstep. If the personal allowance is to be subject to fiscal drag then so is the minimum wage. If the Chancellor couldn’t make the sums add up with such a restriction then more attention would have to be paid to spending.
Full Worstallism isn’t going to happen, obviously.
Yet I do think this remains a moral issue. So long as we have a minimum working income, then that simply has to be the starting point for the taxation of incomes. Uprating the personal allowance remains a good idea, whatever the source of the policy. The case is as strong now as it was in 2010.
The only problem with a £20,000 personal allowance is that it’s not ambitious enough. If you want the working poor to have more money, the obvious solution is to tax them less.
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