Scottish £5 and £10 note

Image credit: Creative Commons: Howard Lake

On Saturday the 6th of April higher earners in the country will benefit from a major tax reduction as both the personal tax-free earnings allowance is increased from its current level of £11,850 to £12,500, and the threshold for higher rate tax is increased from £46,501 to £50,001.

(Tax bands are the thresholds of income for which a particular rate of tax is levied, the changes are illustrated in the below table)

Tax year

Personal allowance 0%

Basic rate band

20%

Higher rate band

40%

Additional rate band 45%

18/19

£11,850

£11,851 – £46,500

£46,501 – £150,000

£150,001 +

19/20

£12,500

£12,501 – £50,000

£50,001 – £150,000

£150,001 +

What this means is that anyone earning up to £12,500 will pay no tax at all and people earning more than £46,500 will now pay less tax than previously, with no circumstances in which basic rate taxpayers benefit as much as higher rate payers.

Tax policy in favour of higher earners

According to the government’s own impact assessment, in the 19/20 tax year (Apr 6 – Apr 5) a basic rate taxpayer will have an average real gain of £66, a higher rate taxpayer will have an average real gain of £387 and an additional rate taxpayer will have an average real gain of £236.

The cumulative changes to the personal allowance and higher rate threshold since 2010/11 mean a typical basic rate taxpayer has made an overall cash gain of £1,205 in 19/20, whilst a typical higher rate taxpayer will have an overall cash gain £1,818 in 19/20.

This is the government blatantly telling us who it favours most. Clue – it’s probably not you.

Illustrative examples highlighting the effect of policy changes

  1. Someone earning £50,000
Tax Year Basic rate tax Higher rate tax Total tax Tax reduction
18/19 6,929.80 1,399.60 8,329.40
19/20 7,499.80 0 7499.80 829.60
  1. Someone on a full time contract (37.5 hours p/w) earning minimum wage of £16,009.50 (using the 19/20 rate of £8.21 for fair comparison):
Tax Year Basic rate tax Higher rate tax Total tax Tax reduction
18/19 831.90 0 831.90
19/20 701.90 0 701.90 130

Tory masquerading

The impact assessment suggests that as a result of the 19/20 policy changes it will lose £2,790m in tax revenues as money moves from the hands of government to the hands of individuals.

They of course tow the line that taking people out of tax is a good thing. With this sentiment reinforced by the right wing media, they’ve spent the best part of a decade attempting to convince low earners that tax is bad, and that tax, not austerity or the lack of a living wage, is the reason that they are forced into debt to pay their bills, afford school uniform or put food on the table.

This is a clever ploy at masquerading the real motives for this policy – to reduce tax for higher earners.

Tax policy in favour of men

Neither the personal allowance nor higher rate band increases help people doing vital unpaid work, such as childcare or caring for elderly relatives. There are therefore also policies that favour men more than women, as it is predominantly women that carry out this unpaid work – work that is continuously ignored by the governments, both in measuring the economy and in government policy.

The Weekly National Allowance, a fairer, feminist alternative

Clearly the personal allowance only benefits those in work, but even those benefits are not evenly distributed among workers or genders. So what should we do instead to redress those inequalities?

The New Economics Foundation have proposed a scrap in the personal allowance in favour of a new national allowance of £2,500 per person, or £48 per week, with the exception of the richest 1%. This would mean the first £1 of earnings would attract tax at 20%, but low-earners (i.e. basic rate taxpayers) would not lose out (20% of £12,500 = £2,500).

The net distributional effect of the Weekly National Allowance is to shift around £8bn currently spent on tax allowances for the 35% highest income families and reallocate this to the remaining 65% of families.

This, a policy backed by both John McDonnell and Caroline Lucas, is fairer for people with earnings as everyone benefits equally, it’s fairer for women carrying out unpaid work as their contribution is valued instead of ignored, and it could help to lift 200,000 families out of poverty.

Plus it is a cost neutral proposal.

No brainer then? Unfortunately logic doesn’t prevail in this government.

Rowan Van Tromp

About Rowan Van Tromp

Rowan is Head of Technology at Sussex-based PJCO Chartered Certified Accountants, co-founder and finance director of Norwich FoodHub, a massive Norwich City FC supporter, an aspiring vegan, and here to excite your mind with provocative, persuasive and creative content covering tech, tax, economy and environment, sometimes all at once, probably in shorter sentences.