Tory tax cuts to take minimum-wage earners back to 2010

UK Prime Minister David Cameron, on the pre-election campaign trail, has vowed he will do away with taxes for some minimum-wage earners, by increasing the amount that everybody can take home tax-free, in a scenario that, at first blush, looks a lot like basic income.

Under the proposed plan, taxes will kick in once you earn £12,500 a year; now they kick in if you earn £10,000 per year.

Minimum wage earners on yearly salaries of £10,000-12,000, roughly equivalent of 30 hours work on minimum wage per week, would stop paying income tax.

But will these hard-working, minimum-wage earners be better off than ever before?

No better than they were in 2010, when Labour left office, writes Fraser Nelson in Spectator and Telegraph. Britain was then under a 20-year Labour policy that used to update income tax thresholds with inflation rates, in a process known as “RPI indexing”, which Cameron did away with in 2013, by pinning down the threshold.

Pinning down the income tax threshold has effectively allowed the Coalition government to  help itself to a larger cut of wage-earners’ salary: it has cashed in on the fact that people’s income rises with inflation as the amount they need to buy houses and goods rises, but the tax threshold stays the same.

It also let the government exclude skyrocketing property and rental price rises in its calculations when deciding what the amount to tax should be.

Promsies, promises

It’s worth noting that tax pledges made at election time are not necessarily acted upon. Deputy Prime Minister Nick Clegg alleges Cameron has not revealed a source of funding to underpin the proposed tax cut, seriously undermining its real-life prospects.

This is same government that, after the campaign trail in 2010, was unable to implement an increase inheritance tax threshold for the dead relatives of sub-millionaires leaving less than £1m, (http://www.dailymail.co.uk/news/article-2588055/Only-rich-pay-inheritance-tax-Cameron-reveals-Tory-manifesto-revive-promise-free-families-levy.html ) and neither did it succeed in implementing a tax threshold change for first-time buyers of houses or land worth £250,000 or more.

The Coalition also bungled tax cuts this term with a much-criticized plan to add 20% VAT tax to sales of good alike Cornish pasties to finance tax cuts. ‘The pasty tax’ came under massive pressure from Trade Unions and fell through, BBC reported.

Now a moment for basic income

Cameron’s recent pledge, at least, shows he recognises that social welfare cuts and market downturn have heaped new burdens upon UK’s poor.

He should consider the £12,000 basic income handout put forward by supporters of Basic Income UK (BI), targeting the same people who would be saved by the tricky tax rebate, as a way to proportionately simplify the unfair tax system.

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