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Firstly some facts and figures:

The minimum wage is currently £6.31 and goes up to £6.50 in October – it goes up every October.

Putting it up to £8 by 2020, would be an increase of £1.50 per hour over 6 years (= 25p a year on average).  It went up 19p this year, so a pledge to make it £8 by 2020 is meaningless and, I think, fairly insulting to the low paid.  It should be £8 per hour now.  If you work 37.5 hours a week, earning £6.31, your take home pay will be about £217 a week.  With rents being as high as they are, I’m not sure who could afford to live on that – in the South of England at least.  If it was £8, you would get around £260 net.

There are always lots of announcements of changes to the tax rates.  I would explain some facts about the PAYE system and suggest some improvements:

We talk a lot about the top rates of income tax – currently the higher rate is 45% is you earn over £150,000 and there is also a 40% bracket between £31,865 (+ your personal allowance) to £150,000, but you lose your personal allowance at £100,000.  What many people won’t realise is that the National Insurance rate drops from 12% to 2% when you earn over £41,865.  So, effectively the tax rate doesn’t go from 20 to 40%, but to 30%, when you take the drop in National Insurance into account.

Now we get to my proposed reforms.

I don’t think that the low paid want to be taken out of the tax system all together and not pay any tax.  What worries me about the ever-increasing allowance is that so many people’s state pensions will be affected.  To be eligible for a full state pension, you have to make national insurance contributions for 30 years (at the moment – it’s going up).  So one obvious consequence is that lots of low-paid people will lose out when it comes to retirement.  If you’re not paying any tax, you’re unlikely to be eligible for a work-place pension, so what’s going to happen to all the people who fall through both the gaps – having worked all their lives, they’ll find that they can’t afford to stop.

I would suggest that we simplify the whole system by scrapping National Insurance.  Just have one clear PAYE tax.  A starting rate of 1p for up to £10,000, 10p for the next £10,000, 20p for £20-£30,000 and so on.  Obviously you can’t go over 100%, so it needs to tail off somewhere.  Some people are going to hate me for saying this I know, but I think it’s got to be somewhere around 70% for the highest earners (over £200,000?).

Before Thatcher and Regan came along, the rich used to pay about 90% tax.

We know we’ve got an aging population and we need to be thinking long-term, not about the next election.  Do we really want to drive the poor any further into the clutches of Wonga?

Was that too political?  Sorry!  Don’t get me started on the “Spare Room Subsidy” or auto-enrollment!

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