Promises promises

[P. G. Tipps]

But that's the point; it is misleading to consider the effects of the income tax threshold in isolation from the rates of income (or indeed any other) tax in general to the extent that this clouds the issue as to the proportion of each individual's income goes in tax, whether when it's received (or paid in arrears) or when VATable purchases are made.

Where's amateur51 gone to when we need him to bring up things like goalposts ... <laugh>.

[french frank]

The question of what kind of appetite might exist for such a rejig is another matter altogether and I suspect that there may be those who would advocate such a move even if the result might not make the system less regressive, as well as others who would call for its introduction in order to reduce its regressiveness.

However, the principal aim should not just be to make it more 'efficient' but to make it fairer. What wouldn't make sense, I agree, is to treat income tax separately: it is the entire taxation system, including VAT, council tax &c. and especially those which hit the lower income families hardest.

It's more pressing to find a way to effect such a massive overhaul than to think up the various 'solutions'.

[aeolium]

The other important thing to remember is that it is wrong to consider just the impact of income tax threshold changes on the lives of the low-paid. There are all the other benefit changes since 2010 and still ongoing that almost certainly affect them. Not considering Universal Credit which at this stage is merely in pilot, there have been a whole host of changes to tax credits, housing benefit, disability benefits, social care and council tax benefit. The great majority of these changes have adversely affected claimants, and although many of those affected will be purely benefit claimants and not working (and therefore almost certainly not paying tax even before the threshold increases) there are plenty of those affected who are working. It is entirely dependent on individual circumstances but it's quite likely that for a significant number of individuals and families the negative effects of benefit changes outweigh the advantages of tax threshold changes, so that for these the overall impact of changes has been regressive. The benefits system like the income tax system is very complicated, but here are some summaries of relevant changes:

http://www.bbc.co.uk/news/uk-21706978

http://www.bbc.co.uk/news/business-11621984

http://www.disabilityrightsuk.org/how-we-can-help/benefits-information/timetable-forthcoming-welfare-benefits-changes

[ahinton]

Where's amateur51 gone to when we need him to bring up things like goalposts ... <laugh>.

Who's "we" here?

[ahinton]

However, the principal aim should not just be to make it more 'efficient' but to make it fairer.

Of course; the point that I sought to make was that, if it's made much simpler, the business of making it fairer would immediately become a good deal less noerous because any fairness and unfairness within it would then be much more transparent than is the case now.

It's more pressing to find a way to effect such a massive overhaul than to think up the various 'solutions'.

That's one reason (though not the only one) why I'd call for massive simplification; it would then be so much more obvious where the problems lay and how to address them equitably. Well, that's how it seems to me, anyway, although I'm not about to say that I'm necessarily right about it (as I'm not a "tax expert"!)...

[ahinton]

The other important thing to remember is that it is wrong to consider just the impact of income tax threshold changes on the lives of the low-paid.

That's exactly what I do keep "remembering"!

There are all the other benefit changes since 2010 and still ongoing that almost certainly affect them. Not considering Universal Credit which at this stage is merely in pilot, there have been a whole host of changes to tax credits, housing benefit, disability benefits, social care and council tax benefit. The great majority of these changes have adversely affected claimants, and although many of those affected will be purely benefit claimants and not working (and therefore almost certainly not paying tax even before the threshold increases) there are plenty of those affected who are working. It is entirely dependent on individual circumstances but it's quite likely that for a significant number of individuals and families the negative effects of benefit changes outweigh the advantages of tax threshold changes, so that for these the overall impact of changes has been regressive. The benefits system like the income tax system is very complicated

Exactly; your point about working people who are in the bnenefit system - all of whom are obviously among the lower paid otherwise they'd not be entitled to claim benefits to make up for their shortfalls in net income from employment/self-employment - is a particularly pertinent one, I think. A simplification of the benefits system for precisely the same reasons as ditto for the taxation system is long overdue.

but here are some summaries of relevant changes:

http://www.bbc.co.uk/news/uk-21706978

http://www.bbc.co.uk/news/business-11621984

http://www.disabilityrightsuk.org/ho...nefits-changes

Many thanks for these links.

[teamsaint]

I don't think that this is correct, actually. The problem with what you write here is that you appear to be selecting the "last 1k" earned by the 40% taxpayer, whereas I think that it should be the first 1k of taxable income (i.e. the first £1K above the Pesonal Allowance figure) which is, of course, taxed at 20%, because the order of income tax rates from lowest to highest is
Zero (income below Personal Allowance)
20% (income from Personal Allowance up to c.£31,800)
40% (income above c.£31,800)
45% (income above £150,000)
There is in addition a progressive reduction of the Personal Allowance for incomes between £100,000 and £120,000 (I think those are the sums that apply to this), so anyone with an income in excess of £120 pays income tax at 20% on all income up to £31,800 whereas those on incomes below £100,000 pay no tax on their income up to the Personal Allowance figure.


The first sentence is obviously true but the second isn't, especially given the depletion to zero of the Personal Allowance on incomes between £100K and £120K above which the Personal Allowance does not apply at all.

That said, your assertion that the lower paid generally pay a higher proportion of their income in tax is nevertheless true, because what you're referring to in so saying is not just income tax but taxes in general. The smaller the income, the greater the likelihood that a larger proportion (or indeed all) of it gets spent and some of that spending will inevitably include VAT; someone on, say, an income of £150K+ might well spend a far smaller proportion of his/her income and therefore pays a great deal less in VAT, so the proportion of his/her income that attracts taxes of any and all kinds is likely to be lower than that of someone on a low income who has no choice but to spend it all. Another example of top end benefit is that of the self-employed sole trader whose taxable profit exceeds c.£42K, at which point Class 4 NIC tax drops from 9% to 2%; likewise, above that same figure, employees pay no additional NIC1 taxes, so an employee whose income puts him/her in the 45% income tax bracket pays the same NIC1 tax as one whose employed income is £42K.

AH, I will admit to not being upwith the niceities of the figures at the top end. You are quite right, that earners over £100k above the allowance level do indeed have ther allowance gradually phased out. Not something that is an issue for me at this point.....

But, if I have worked this out right, (and it is 25 years since I left the revenue, and a lot has changed) an increase in the threshold would still give a person earning between £100 and £120k above the threshold a £400 tax break, and certainly higher eaners generally get a £400 break as opposed to £200 for

On reflection, £50 an hour is a bit steep for somebody who doesn't know the current rules !!
But rich versions of Mr Tipps wouldn't know if I was right or wrong anyway !!

Going back to FFs point, and as I mentioned, I think that lifting people at the bottom end out of income tax has much . But as ever with tax it is only a part of the answer.

The overall regressive nature of our system badly needs sorting out.
Unfortunately, those people who have most to lose are those with the loudest voices and biggest influence.

[french frank]

The other important thing to remember is that it is wrong to consider just the impact of income tax threshold changes on the lives of the low-paid.

The old SDP developed a policy to integrate the whole tax and benefit system. If Blair's government had had that policy they might have had time to achieve it ...

It is entirely dependent on individual circumstances but it's quite likely that for a significant number of individuals and families the negative effects of benefit changes outweigh the advantages of tax threshold changes, so that for these the overall impact of changes has been regressive.

Yes, the overall impact has been regressive but the changes to the personal allowance were an 'advantage' - not regressive as was claimed elsewhere.

[teamsaint]

The old SDP developed a policy to integrate the whole tax and benefit system. If Blair's government had had that policy they might have had time to achieve it ...

Yes, the overall impact has been regressive but the changes to the personal allowance were an 'advantage' - not regressive as was claimed elsewhere.

because of the withdrawal of the allowance for those on over £100k, it is impossible to say that the increase in the threshold are regressive in every case. In any case I assume the taper was a sop brought in to compensate for the reduction of the 50% rate to 45 %.

Increasing thresholds is still a regressive move viz a viz non Income tax payers, basic rate tax payers, and Higher rate taxpayer below £100k.
(different rules apply to the very well off, as we have seen !!!!)

However, that doesn't necessarily makethe raising of thresholds bad in all circumstances. bringing them closer in line with minimum wage made sense , and is personally important for those people on low incomes .

Going back to the reports on tax and income, it is significant that wealth is even more unevenly distributed than income. Wealth taxes, such as the mansion tax need to be a much bigger part of the mix, and could be a useful progressive tax measure, if anybody was minded to do it.

[french frank]

Increasing thresholds is still a regressive move viz a viz non Income tax payers, basic rate tax payers, and Higher rate taxpayer below £100k.

How can the policy be "regressive" in tax terms, since regressive means taking more proportionately from lower taxpayers than higher taxpayers - which is what the tax system does overall. Removing/reducing tax liability from the lower paid can't be described as regressive simply because it benefits all equally in pounds saved.

Not sure if I got an answer to my question about whether 'universal benefits' should be abolished?

[ahinton]

AH, I will admit to not being upwith the niceities of the figures at the top end. You are quite right, that earners over £100k above the allowance level do indeed have ther allowance gradually phased out. Not something that is an issue for me at this point.....

But, if I have worked this out right, (and it is 25 years since I left the revenue, and a lot has changed) an increase in the threshold would still give a person earning between £100 and £120k above the threshold a £400 tax break, and certainly higher eaners generally get a £400 break as opposed to £200 for

I'm not going to be dogmatic on this but I still think that you're wrong here because the Personal Allowance is a figure above which income tax begins to become chargeable, so an increase in it from £10,000 to £12,500 benefits every taxpayer with a taxable income of at least £12,500 in exactly the same way - i.e. £200; a 40% taxpayer with a taxable income of, say, £81,800 will pay 40% income tax on the £50,000 above £31,800 whether the Personal Allowance is raised by £2,500 or stays exactly where it is now but, if it is raised by £2,500, he/she will pay £200 less tax at 20%. For those 40% taxpayers whose taxable income exceeds £100,000, however, their Personal Allowance decreases until it's wiped out altogether, so if the Personal Allowance was raised to £12,500, the point at which it would be wiped out for those taxpayers would be a little higher than it is now; the "rich" (i.e. those with taxable incomes over, say, £125,000, will not benefit from any Personal Allowance increase at all.

On reflection, £50 an hour is a bit steep for somebody who doesn't know the current rules !!

Does that include VAT? Either way, I'm charging a fee in accordance with my status as a non tax expert - i.e. the same as Busoni used to charge for piano lessons(!)...

But rich versions of Mr Tipps wouldn't know if I was right or wrong anyway !!

Oh, some might!

Going back to FFs point, and as I mentioned, I think that lifting people at the bottom end out of income tax has much . But as ever with tax it is only a part of the answer.

Indeed; it's a good first step but not the only step if it's really to work both successfully and equitably. That said, the sheer amount of money that HMRC could ssave it is operated a very simple system would be considerable and, as such, it would enable further tax benefits for the squeezed taxpayers at the low end of the 20% bracket.

The overall regressive nature of our system badly needs sorting out.
Unfortunately, those people who have most to lose are those with the loudest voices and biggest influence.

In agreeing in principle, I think that most people - even including at least some of "those with the loudest voices and biggest influence" - would likely have something to gain from the savings arising from a massive simplification of the tax and benefits system. That said, I think that the "regressive" nature of those systems is at least as much the outcome of their respective eye-watering complexities as a whole rather than the particular bit about the Personal Allowance for income tax.

[teamsaint]

well i agree about the need for simplicity....viz our discussion about something as straightforward as income tax rates !!!

Going back to your point about the effect of raising allowances,the effects, as you suggest, do depend on how the charging bands are then applied. In the past governments have fiddled with these . But the basic point about raising the personal allowance, and all other things being equal remains..... the effect then is at the marginal rate (the top rate) not at the basic rate. Tapers,and changing the charging band have a complicating effect.

I am going to have a beer, with both VAT and duty regressively charged . Beersmileything !!

[french frank]

I'm not going to be dogmatic on this but I still think that you're wrong here because the Personal Allowance is a figure above which income tax begins to become chargeable, so an increase in it from £10,000 to £12,500 benefits every taxpayer with a taxable income of at least £12,500 in exactly the same way - i.e. £200;

I would be inclined to be dogmatic and say you're right. The increase in personal allowance doesn't have some sort of knock-on effect on all the other thresholds, all the way up to the super rich. The entire personal allowance, regardless of the amount/threshold will lop X pounds off the tax liability of every taxpayer whose income exceeds the amount of the personal allowance. It offers a fixed tax-free sum - that's all.

Personal allowance £12,500: income £12,500 - you would pay no income tax at all.

In 2008 the PA was £5,435, meaning that you would have been taxed at the basic rate on £1,000 if you then had an income of £6,435.

[ahinton]

well i agree about the need for simplicity....viz our discussion about something as straightforward as income tax rates !!!

Going back to your point about the effect of raising allowances,the effects, as you suggest, do depend on how the charging bands are then applied. In the past governments have fiddled with these . But the basic point about raising the personal allowance, and all other things being equal remains..... the effect then is at the marginal rate (the top rate) not at the basic rate.

We'll just have to agree to disagree about this, then!

Tapers,and changing the charging band have a complicating effect.

True, but I don't think that this fact justifies how you see Personal Allowance increases as benefiting the bitter awff more than those at the bottom of the 20% bracket...

I am going to have a beer, with both VAT and duty regressively charged . Beersmileything !!

I've got a brilliant and foolproof tax avoidance scheme that gets around playing VAT and duty on beer; would you like me to let you in on it?

[P. G. Tipps]

I would be inclined to be dogmatic and say you're right. The increase in personal allowance doesn't have some sort of knock-on effect on all the other thresholds, all the way up to the super rich. The entire personal allowance, regardless of the amount/threshold will lop X pounds off the tax liability of every taxpayer whose income exceeds the amount of the personal allowance. It offers a fixed tax-free sum - that's all.

Correct ... up to a point!

The personal allowance is reduced slowly from £10,500 to £10,000 above £27,000 pa, then at £100,000 pa it starts to reduce slowly again until it is abolished altogether at £120,000.

So not only in percentage terms but in real terms those on lower incomes benefit more than their richer counterparts (however slightly).

By any yardstick an Income Tax Personal Allowance increase can only be described as a progressive and not regressive tax measure as has been suggested by some.