Yesterday, I had an article published on Lib Dem Voice.
Here it is. This is the text as submitted, rather than as edited - so you can play spot the difference!:
Earlier this week I saw this tweet from Paul Lewis of BBC Radio 4's Moneybox programme:
The 2014 rise in personal tax allowance worth £112 a year for basic rate taxpayer but £39 if on U Credit, & £195 for higher rate taxpayers.
— Paul Lewis (@paullewismoney) April 2, 2013
This struck me as odd, so I asked Paul how he calculated the £195 figure (I do not know enough about benefits and Universal Credit to make a judgement on the £39 figure). He quickly answered:
As I was busy with other things at the time, I was only able to have a brief look at the document and, initially, slightly mis-interpretted the info:
@paullewismoney Thanks! Have had look as puzzled - down to interaction of Personal Allowance rise equating to 0.6% vs. 1% increase in HRT
— Andrew Brown (@oneexwidow) April 2, 2013
The glaring mis-calculation I made was the percentage increase in the Personal Allowance (PA) which is of course 5.9% rather than 0.6% as I wrote! The underlying analysis however was right - the discrepancy in figures is due to the interaction between the increase to the Personal Allowance and the increase in the Higher Rate Threshold.
It stuck in my mind as something worth looking into further - and worth questioning whether this met with our aims of Fairer Taxes.
By 2014, the Personal Allowance will have increased by over 54% from its level in 2010. It's something that we're justly proud of, and which we can be reasonably sure neither of the other two parties would have done alone (as I outlined here http://oneexwidow.blogspot.co.uk/2012/12/a-free-ipad-mini-for-everyone.html).
Since 2010, the threshold at which Higher Rate Tax become payable has fallen to help offset the rise in the Personal Allowance. This has led to the Basic Rate Limit (earnings between the PA and the Higher Rate Threshold) being squeezed from both ends, and to the upper threshold being reduced from £43,875 to £41,450.
Next year, however, the Higher Rate Threshold will rise by 1%, and it is this rise which gives every taxpayer earning above the new limit (but less than £100,000) a tax cut of £195 as opposed to "just" £112.
So, the question: is this fair?
Now, it could be argued that £112 is worth much more to someone earning £10,000 than £195 is to someone on £41,865 or above - and this is certain to be true in the vast majority of cases. It can also be argued that reducing the Higher Rate Threshold is, effectively, a tax on aspiration - and I am not without sympathy to this view. But at a time of austerity when we are making a big spending commitment on increasing the Personal Allowance, should we be providing greater benefits to Higher Rate Taxpayers?
Although the numbers of Higher Rate Taxpayers have increased over the years, it should be noted that the threshold at which 40% becomes payable (£41,865) is still some way above the median gross income (£26,500).
It may not be the stuff of popular campaigning, but perhaps we should be pushing behind the scenes for the Higher Rate Threshold to be frozen. Going forward, we should consider how we manage tax bands so that they remain progressive whilst minimising such anomalies.