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.

28 = worst age

28 years old has been the worst age to be during the financial crisis, according to official figures, which show that those in their twenties have felt the tightest squeeze on pay.

Experts have looked at the hourly wages in 2009, at the height of the financial crisis, and compared them with last year, adjusting for the impact of rising prices.

Those in their twenties were being paid 12 per cent less last year -- that's effectively the buying power of what they were getting.

But the biggest impact of low pay and rising prices has been on 28 year olds: in 2009 28 year-olds were earning nearly 18 per cent more than the inflation-adjusted figure for 2013.

The Office for National Statistics says those in their 30s suffered a 9 per cent squeeze and those in their fifties were 5 per cent down.

Barclays millionaires

Barclays has revealed that 428 of its staff worldwide earned more than a million pounds last year.

It says it is the first bank to publish detailed information on the pay of all its employees. Many are likely to be working in investment banking and an undisclosed number would be in the US or elsewhere.

Barclays has been caught up in a series of scandals, from the attempted rigging of the Libor interbank interest rate to mis-selling Payment protection insurance - so the disclosure of so many staff getting over a million pounds is bound to stir up controversy.

The bank points out that the 428 total is down ten per cent from 2011 and that those earning over 5 million pounds are down from 17 to 5.

71,000 are on less than £25,000.

The information is being made public after Barclays appointed a senior banking figure, Sir David Walkers as chairman.

He'd previously recommended that all banks come clean about pay to high flyers.

Barclays has also given more detail on how its bonus pool has been reduced to reflect the various scandals the bank has been involved in.

We already knew the bonus pool for 2012 was £2.168bn, down from £2.578bn in 2011.

Now we learn that it was reduced by £290m for the Libor affair and by £570m for PPI and interest rate swaps.

There was also a 10% reduction to reflect that they are trying to bring down total pay.

Lowest pay in Britain

Torridge in Devon has the jobs with the lowest pay in Britain, according to this year's snapshot of earnings from the Office for National Statistics.

Typical pay in Torridge was £348 a week for full time work in April, 3.5% higher than last year.

It compared with £917 in the highest paid area, the City of London - where pay had fallen 5%..

In Scotland, lowest median pay was in East Renfrewshire, at £398 a week, and the highest was £574 in the centre of the North Sea oil industry, Aberdeen.

Highest in Wales was £503 in Flintshire and the lowest: Blaenau Gwent with £382 a week, down nearly 4% on last year.

Is pay 62% higher?

Do you feel like you are being paid 62% more?

That's the claim from the latest official stats which relate that the average hourly wage is 62% higher in real terms than in 1986.

Cash wages are more than three times as much - the percentage rise form the ONS is arrived at by adjusting for the impact of prices rises or inflation.

But whether you were already in work then, or started later but compare yourself to workers of the time, few of us feel that much better off, do we?

There are several explanations for the "we're paid paid more but it doesn't feel like it" effect.

One is that the years we remember best, the most recent ones, have been tough and wage-sapping.

Most of us are being paid less in real terms than before the credit crunch and financial crisis - in other words, since about 2007.

Inflation has outstripped wage increases and some people's wages have stood still or fallen in cash terms.

Another reason is that we spend more on things which seem necessary now but were deemed luxuries in 1986 or hadn't even been invented yet.

I'm thinking holidays, but also pay TV, mobiles and computers.

A typical family might have several mobile phones. That's a totally new cost.

Of course, all this new spending and new goods and services have expanded the economy as well. The whole thing is bigger. It makes us look like a richer country.

Finally, you can slice and dice these numbers in different ways and get different results.

The Office for national Statistics gets to 62% by using the Consumer Prices Index or CPI, the headline measure of inflation, to show the real buying power of wages in different years.

Well, why not? It gives a nice heart-warming result.

The more traditional measure, the Retail Prices Index or RPI, tends to be higher. So adjusting for RPI would have the effect of reducing the real increase in wages over 25 years.

Interestingly, the ONS is consulting on a different way of calculating RPI which would produce a lower figure - but that's another story.

Pay gap widens

Earnings increases for higher paid professions such as pilots and engineers have outstripped the lower paid by a wide margin since 1986, although workers have seen increases across the board.

Official figures show that the top ten per cent of employees have benefited from an 81 per cent rise in earnings, adjusting for the impact of price rises, while the bottom ten per cent have seen their wages rise by 47 per cent, widening the gap between the highest and lowest earners.

The very highest paid, the top 1 per cent, have enjoyed a rise of 117 per cent in real terms.

The Office for National Statistics says the average hourly rate of pay was £3.87 in 1986. In April 2011 it was £12.62, more than 3 times as much. But it emphasised that, taking price rises into account, average wages were up by 62%.

The minimum wage has improved the situation for the lowest paid - such as waiters and bar staff - who have seen their wages go up by 51 per cent since 1998, compared with 30 per cent for the richest earners.

Royal Mail boss's pay

In the light of the hike in the price of a First Class stamp to 60p, you might be wondering about the pay packet awarded to Royal Mail's Canadian chief executive, Moya Greene.

Last year she took home £637,000.

Her basic was £498,000 but she arrived during the year so she only received £350,000.

Then there was a performance bonus of £142,000.

And £145,000 for extras, including the cost of moving to the UK.

Moya Greene used to run Canada Post and she had a hand in privatising Canada's railways and deregulating the airline business.

Top HSBC pay packet

So what does the chief executive of HSBC, Stuart Gulliver, get paid?

For 2011 it breaks down like this:

£1.25m basic pay

£2.16m annual bonus - in shares

£3.75m long term incentive plan - in shares

Total: £7.16m

He has taken a hit for PPI mis-selling and the mis-selling of investments to elderly people by a subsidiary, NHFA. The total is £1.3m lower than it would have been otherwise.

He can't sell the long term incentive shares until he retires - and they can be clawed back over the next 5 years  if performance turns out to have been worse.

P45 lives on

The P45 has been given a temporary reprieve by tax chiefs after employers said they didn't want to see it go.


A plan to axe the form in favour of a "leaver statement" has been dropped by HMRC, the tax office - for the moment..


The P45 dates back to the year of D-Day, 1944, and the launch of taxation by PAYE or Pay-As-You-Earn. Showing pay and tax deducted in the year so far, it allowed the tax man to keep track and, with luck, avoid overcharging later on.


It wasn't long before being handed a P45 entered the language as another term for getting the sack. By law it has to be issued to workers when they move to a new employer or lose a job. 


Now, HMRC is moving to a system of Real Time Information ("RTI"), under which staff movements will be recorded in a much more timely fashion, making the P45 unnecessary - or so HMRC thought.


RTI trials start in April. The P45's days were numbered. Until today...


"Employers told us to keep the P45," said Stephen Banyard, head of personal tax, "which is exactly what we have done."


The point companies made as that P45s are widely recognised and widely used, not just by new employers, but by banks, tax advisers and public bodies, as evidence of identity. 


^{The "leaver statement" would be confusing and it might actually increase administration.}


So Once an employer joins RTI, starter and leaver information will be recorded automatically and P45s will continue to be used to exchange information between employees and employers.


But what happens once the new system is bedded in? A new attempt to get rid of the P45?


HMRC replies that it will consult on what will be needed once all employers are reporting via RTI.


Even so, tax experts expect another couple of years will go by before the idea of scrapping the P45 comes up again. 

Public sector pay is 7.8% higher

Critics of the public sector will be grinding their teeth at the sight of the public-private pay gap widening even further.

This is extra ammunition for those calling for public sector cuts and lower pensions.

However, the bald figures come with a health warning.

After years of contracting out, staff are more likely to be teachers or nurses than cleaners and caterers and many more have degrees.

Statisticians have to try to adjust for that.

Plus, they warn that most private sector bonuses and perks aren't counted in the comparison and nor are self-employed lawyers, businessmen and entrepreneurs.

What's your Squeeze Factor?

The income squeeze is around 3%. That's from today's figures on weekly pay without bonuses, up 2.1% in a year, compared with RPI inflation of 5.2%.

Take inflation away from the average pay rise and the result is a 3.1% contraction in what your pay will buy, something economists call a drop in real income.

But how much have our incomes been squeezed if we look further back?

I've had a rummage through the figures over the last 5 years to see how much our real incomes have contracted, looking at March average pay each year and the inflation number each April.

And I am calling the results the Squeeze Factor.

Over two years we've suffered a Squeeze Factor of 7%. Pay is worth 7% less.

It looks better going back five years. Real incomes are 4.1% down on 2006. But they're still well down.

You can improve the picture if you take average weekly pay including bonuses and compare it with the lower index of inflation, the CPI.

On that measure you get a Squeeze Factor of 2.8% for the last year, a slightly less painful squeeze on real incomes.

And looking back five years pay has grown slightly compared with inflation, by 0.3% since 2006.

So what can we say about the Squeeze Factor?

Our incomes have been squeezed by around 3% in the last year, as I mentioned.

Compared to two years ago, the squeeze is as high as 7%.

Looking back further, the effect is less marked. But the best we can say is that inflation-adjusted incomes have hardly grown since 2006. And by some measures they are significantly lower now than they were then.

Looking back	Weekly earnings minus RPI	Weekly earnings (including bonuses) minus CPI
1 year	-3.3%	-2.8%
2 years	-7%	-1.9%
3 years	-3.4%	-5.6%
4 years	-3.7%	-3.9%
5 years	-4.1%	+0.3%