Tax Review

Before we get distracted by the headline rates and the methods of raising the extra tax, I think we should pause for a moment to reflect on the enormity of the proposals. We are talking about raising an additional £74 million every year from a population of just 63,000 people (as of January 2021). That works out at £1,175 per person. But by the time you filter out the over 65s and under 19s, you are left with around half of the population paying £2,350 each. That equates to £4,700 per couple. If, let’s say, half of those earning are low-income earners so don’t pay any more, then those that are left will be paying £4,700 each - that’s nearly £10,000 per couple. Or, looking at it another way, it would be equal to the top 7,500 income earners paying £10,000 each. No matter how you look at it, it’s a serious amount of money at every income level. I don’t believe that raising that level of additional personal tax should be undertaken unless there is absolutely no alternative.

Restructuring of Social Security

While I don’t believe that the rates should increase at this early stage in the Tax Review, the proposal to restructure it is something which I think is long overdue, and should take place now regardless of whether more tax needs to be raised. Currently, people in different income classes are charged different rates and treated differently, which is not fair. Also, some people are assessed on their total income, and some are not. Some people are entitled to a personal allowance, and some are not.

The example they use in the Tax Review using £50,000 of income demonstrates the different amounts people pay very well.

So, if I have £50,000 of income and: All of it is employed income: I pay £3,300 (plus my employer pays £3,300). I have £10,000 of employed income and £40,000 of unearned income: I pay only £660 (plus my employer pays £660). All of it is unearned income: I pay £4,300. All of it is self-employed income: I pay £5,500. I am over 65 I pay a reduced rate and I pay £1,400

There are other advantages too:

• It would streamline the assessment process, as it could be driven off tax assessments, and reduce administration time needed to administer it.

• It would remove the need for judgement, and with that the uncertainty, and the risk of large bills as a result of future reassessment. This would also bring company rental income into the net for all, not just those currently classed as non-employed.

So, in conclusion, I believe that the social security contributions should be restructured without delay, but don’t believe that raising the proposed level of personal tax should be undertaken without a much more detailed review of other possible sources.