In tomorrow\’s Times:
Once is happenstance, twice coincidence and the third enemy action, or so Ian Fleming had his character James Bond point out. By my reckoning this makes Gordon Brown Ernst Blofeld – no, after the sales of Britain\’s gold reserves at the bottom of the market, Goldfinger really wouldn\’t be appropriate.
The spectacular own goal of the abolition of the 10p income tax rate could have just been written off as happenstance. But when you look at all the other government actions that have increased the tax burden on the working poor, it\’s clear that “enemy action” best describes what Mr Brown has been up to. Economists, those drear and dismal souls, have a phrase, “fiscal drag”. Their point is that, in general, wages increase faster than prices. But a canny Chancellor will increase the tax-free personal allowance (or amount you begin to pay the upper tax rate) only in line with prices, instead of with the faster rising wages. This brings more people into the tax system itself – more will be paying both income tax and the higher rate of it, as has been happening for a decade.
Allowances in each of Mr Brown\’s Budgets – except 2003, when they were frozen – have risen by “statutory indexation”, in other words, by a similar rate to the Retail Price Index. And yes, the RPI has been rising more slowly than wages and as a result more of the low-paid have been sucked into the taxman\’s maw.
We now have the absurd situation that someone working 20 hours a week or so on the minimum wage is paying income tax. It may be true that the worker gets back some or all of their money in the form of credits or handouts, but why bother? Why not simply let them keep the money in the first place?
The tax and benefits system could have been designed by the evil genius of SPECTRE to attack the British way of life. In 2005 a married couple with two children on £200 a week would, if their gross income rose to £300, keep a trifling £8.52 of the rise: the rest was snatched by the taxman or lost on withdrawn benefits. The same year, a single parent on less than £400 a week lost 89.5 per cent of any pay rise.
Fortunately my fellow bleeding- heart classical liberals over at the Adam Smith Institute have a solution: simply take the poor out of the income tax net altogether by raising the personal allowance from its present rate of £5,435 to £12,000, perhaps even £14,000.
To tax the dustman to provide the Duke\’s opera, or the nursery nurse to feed the Navy, as we do, might be objectionable, but to tax the poor so that bureaucrats can give money to the poor is simply ludicrous. We should stop doing it.
Tim Worstall is a Fellow at the Adam Smith Institute
One thing that got lost in the editing process (which "Hi Robbie!", did of course make the piece better) was that I identified a fourth level, beyond enemy action. Active malevolence.
I should also note that Chris Dillow did the heavy lifting on those tax and benefit numbers. Ta Matey.