Thursday, 8 January 2015

Low pay caused low tax revenue

Low wages have been a major factor producing disappointing income tax receipts for the government, according to new analysis of official figures.

The proportion of earners with incomes below £18,000 rose to 44% from 39% in the six years to 2014, after the financial crisis and including the recession.

Behind the trend was an increase in the number of low paid part-time workers and below-inflation wage rises for those working full time.

The Office for National Statistics, which published the figures, adjusted them for the effects of price rises over the period.

Income tax receipts rose by just 0.1% a year, while the economy grew on average by 2.4% annually.

The other significant factor holding back tax revenue was the reduction in the Personal Allowance -- the point at which we start paying income tax.

The Allowance rose from £5,225 six years ago to £9,440 in the 2013-14 tax year and currently stands at £10,000.

The combination of depressed wages and more earners being exempted resulted in weaker tax revenue for the Treasury.

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