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.

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.