Nigel Farage recently announced that he would take all those on the National Minimum Wage out of Income Tax. On the surface that sounds like a bold move. On the surface.
From 1st October this year, the hourly rate for someone on the NMW will be £6.50 per hour. If that someone works 40 hours per week, 52 weeks of the year then that works out at £13,520 per year. Their personal tax allowance will be £10,000 so they only pay Income Tax at 20% on £3,520. The amount paid works out at £704 or £13.54 per week. Certainly not to be sniffed at, but hardly the largesse that one might first think.
However, Value Added Tax is levied at 20% and, if those benefiting from Farage’s tax cut spend all or most of that £13.54 per week then they are receiving with one hand and paying most, if not all back to the Treasury with the other. VAT, being a regressive tax, bears down most on those with the lowest incomes, because, more likely than not, they will spend every extra pound that they receive, unlike those higher up the income scale.
It would also seem that some ukippers (on Twitter at least) think that VAT is levied purely to pay our annual EU subscription and so it too may be scrapped. True, it is a requirement of membership, but the money raised by it in the United Kingdom is well in excess of that needed to pay our sub. As a consequence, we will not be scrapping VAT any time soon, if ever, given Farage’s proposed (costed?) spending plans to date. Moreover, Farage recognises that we get £7 back from every £10 we pay into the EU and plans to continue (at the moment) with maintaining that 70% of EU spend, but not via Brussels.
The hourly rate for the NMW that I have quoted above is for those aged 21 and over. The rate for those aged between 18 and 20, inclusive, is £5.13 per hour or £10,670.40 per year. The amount of Income Tax paid being is £134.08. If Farage makes good on his promise the cut amounts to a pay increase of £2.58 per week for 18 to 20 year olds.
The NMW hourly rate for those aged under 18 is £3.79 (or £7,883.20 per year) and for apprentices is £2.73 per hour (or £5,678.40 per year). Neither group would, of course, benefit from Farage’s tax change. The rate for apprentices is for those aged 16 to 18 and those aged 19 or over who are in their first year of their apprenticeship. All other apprentices are entitled to the National Minimum Wage for their age.
I am not holding my breath as to whether Farage would raise the NMW for those not benefiting from his taking those on the hourly higher rates out of the range of Income Tax. Elsewhere in the ukip forest, influential members of ukip want to see the NMW scrapped. One assumes this is not so employers may pay more per hour. There are some benighted individuals who think the NMW keeps wages low. Perhaps it does, but do they seriously want to go back to the days before its introduction?
Also, you will have noticed that if you work 29 and a half hours per week, at £6.50 per hour for 52 weeks, then you already pay no Income Tax and, if you work 37 and a half hours per week, at £5.13 per hour for 52 weeks, then you too already pay no Income Tax. Who is more likely than not to work less than 40 hours per week for 52 weeks per year? Women, often in part time jobs; Black and Ethnic Minorities; People With Disabilities; anyone in part time work; people with casual contracts and those on zero hours contracts. Oh, and those white working class (left behind) males flocking to ukip to be shorn like sheep whose fleeces are more than ready for the clippers.
It has been estimated that taking all those out of the NMW out of tax will cost £13 billion per year. We have no idea where that money will come from, although as mentioned above, it may well be partly, if not almost completely recouped through VAT. And I have not added in the revenue accruing from purchases on which other imposts are levied, for example alcohol and tobacco.
Look at in another way, though. Farage would lose £13 billion of tax revenue per year were his proposal implemented and yet the resulting benefits per person on NMW would be modest, to say the least. There are, therefore, a lot of low paid people in the United Kingdom. If Farage really wanted to make a real difference to their lives, he would be lecturing his mates in the City, ukip’s big business backers and its members who are business people, like many of its MEPs, on the need for business to raise the pay of their workers. Instead, he is once more revealed as all style and no substance.
May be not, though. Join up the dots. You have taken everyone on the NMW out of paying Income Tax so why do you need the NMW and big government? You may scrap the NMW and promise to increase the 20% starting rate and the 40% starting rate every year by the Cost Price Index. I assume you will not wish to be overly generous by increasing it by the Retail Price Index?
We now have a policy that will be music to the ears of libertarians, like Douglas Carswell; business people with no sense of corporate social responsibility and the Hard Right of the Tory Party. Without the NMW there will be nothing to stop paying new recruits less than now as well as freezing pay for current staff and possibly even reducing it. And, increasing the 20% and 40% starting rates benefits those paying Income Tax at the highest rate the most. And there you were thinking a tax cut for the low paid was born out of pure altruism. Think again?
ukip, the party of the left behind? ukip, the party of the low paid working man (and sometimes working woman)? ukip, the party that cares for the plight of the young?
No! Not when Farage wants to cut the top rate of tax from 45% to 40%.
Now you know who will benefit from Farage’s tax cuts. People nothing like you, me and most of the electorate. Certainly not those whose pay is currently guaranteed by the NMW.
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The ramblings of a former DWP Civil Servant ... 