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The Living Wage Rises Again – Great, So Let’s Stop Taxing The Poor So Damn Much

One of these things which is truly difficult to understand is the manner in which we’ve a Living Wage – the amount that people should righteously earn for their labour – and yet this amount is something that is taxed. If there is this amount, this righteous and just amount, which people should receive for their labour then that’s the righteous and just amount. Those who would finance diversity advisers don’t get to dip into those paltry sums to pay for their own desires.

Or so a righteous and just system would have it.

This is something that I’ve pointed out before. In fact, this is something that I’ve won on before:

The background was the beginning of the living wage campaign. The idea that the minimum wage – something we shouldn’t have anyway but – didn’t produce the desired lifestyle, therefore everyone should pay more than this. We kept pointing out, along with annual calculations to show it, that if the minimum wage were not taxed then that post-tax income would be the same as that living wage taxed under the current system. So, to achieve that living wage just stop taxing the minimum wage. The personal allowance should be the full year, full time, minimum wage.

At which point, yesterday’s Budget:

The 20% tax band currently starts on earnings above £11,850, and when that rises to £12,500 next year someone earning around that mark will be better of by £130.

Another way to put the same point is that the personal allowance will rise to £12,500. Which is how we can date this pledge. For back when we were shouting about this – and we can track who we convinced, how the proposal moved through policy making committees and into manifestos – that full year full time minimum wage was some £12,500 a year.

Thus victory, do the Happy Dance etc.

No, really, do the Happy Dance:

Except, except, we’re not done yet. For note what that personal allowance is – it’s the full time, full year, minimum wage of some years ago. Our logic about not taxing poor people still holds. Therefore we must upgrade that tax notted amount from what is should have been to what it should be now. Which gives us the following.

Assume 37.5 hours a week. Assume current (well, that 12,500) allowances. Assume the current living and national living wages. So, that’s £17,550 and 15,268.5 for annual incomes. No, we shouldn’t consider the London wage for that very point shows us that we shouldn’t be having a national minimum wage anyway. By that very agreement that it shouldn’t be the same everywhere we’ve just abandoned the idea that it – well, obviously – should be the same everywhere, haven’t we?

By assumption the income tax free allowance is 12,500. The NI allowance is 162.01 a week, or 8,242.52.

Basic rate income tax is 20%, NI is 12%.

On that Living Wage, as calculated by the campaigners, £1,010 income tax is due (17,550 minus 12,500 x .2)and 1,116.90 NI (17,550 minus 8,242.52 x .12). That’s a total tax take – recall, on this minimum amount we all think that is the just and righteous price for someones’ labour – is £2,126.00. We’ve a system where the poorest workers in the country, those earning the barest crust worthy of a reasonable life, get well more than 10% of it nicked off them to pay for government ineptitude. And do note the next.

The National Living Wage is £15,268.50. The post tax Living Wage is £15,424.00. Or a £155.50 per year differences. Or even, an 8 pence an hour difference.

That is, if we didn’t tax the current minimum wage then everyone would be getting that post tax Living Wage. Which is, therefore, and obviously, what we should be doing. Stop taxing the minimum wage, the NI and income tax limits rising to whatever that full year, full time, minimum wage is and we’re done, aren’t we?

We’ve raised the income of all those in full time work to that just and righteous number that their labour is worth. And we’ve done it simply by nicking less cash off the poorer end of our society. You know, demanded that those working poor pay for fewer of our own pleasures like those diversity advisers.

Obviously and clearly this is what we should do. On the very simple basis that if you want the working poor to have more money then stop taxing them so damn much.

The income tax and national insurance allowances should be whatever the full year, full time, minimum wage is. Simples, we’ve just abolished working poverty.

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5 years ago

I don’t know how I became aware of it, but I started hearing about tying allowances and minimum wage sometime in the 2000s. Since our host started putting coherent arguments and numbers in print I’ve been raising it, but the big complaint I get is: it will be too expensive.
What, the £500 cost of going from £12k to £15k (20% x £3000ish) is too expensive, but the £1000 cost of going from £5k to the current £12k wasn’t?

5 years ago
Reply to  jgh

More importantly, we should be calling out the lie that tax cuts “cost” money. No money is flowing out of HM Treasury to “pay” for the tax cuts, they are merely extracting less from the taxpayer in the first place. The only way that tax cuts can cost money is if you assume that all of an individual’s income righteously belongs to the state and the taxman graciously allow said individual to keep some of it. The correct response to anyone who suggests that tax cuts are a cost is “you have no idea how much money I spend on… Read more »

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