The increase in the tax-free personal allowance is the biggest single item of expenditure in the Budget.
Under the Coalition deal, the allowance had been due to rise from £6,475 in 2010 to £10,000 by 2015. It previously only rose in line with inflation or rises in wages.
No, no, not at all. And it’s that the personal allowance did not rise in lockstep with even inflation, let alone wage growth, which has us in this insane position that we are in.
I mean seriously, someone working part time on minimum wage pays income tax? How did we ever end up with something as lunatic as that?
Fiscal drag, that’s how.
As a basic truth, one that isn’t true of each succeeding year but is of each such decade, wages rise faster than inflation. This is the same statement as productivity is rising, the country is getting richer, real GDP is growing.
So, things like tax bands and allowances should in fact rise with wage growth in order to make sure that such taxation doesn’t slide ever further down the income scale.
And the thing is, they absolutely never have done. It’s simply too tempting or a Chancellor to not upgrade the allowances and bands in line with wage growth. No one ever really thinks of it as a tax rise, even though it inreases taxes, so it’s just where the incentives politicians face is going to take them.
It actually gets worse: G Brown didn’t even raise the allowance by inflation, let alone wages, in one or two years.
And that’s how we’ve ended up moving from a system where income tax, a generation or more ago, was something that only those on average or above earnings had to think about, to the one we have now where people on minimum wage part fucking time find the taxman in their pockets.
The current raising of the allowance is thus, if we look at it properly, just a partial reversal of the fucks ups that everyone (yes, Tories too) have been inflicting on the tax system for the past 40\60 odd years.
Personally, as a moral issue, I’d argue that income tax should only kick in at average earnings. £22k or thereabouts. If that means a smaller State then so be it. I’m entirely happy with the idea that the rich pay for government but I would then insist that we only have as much government as the rich can actually pay for.
Which is, as you might have noticed, markedly less government than we have now.