By Daniel Hunter
Members of the UK200Group of independent accountancy and lawyer firms have commented Deputy Prime Minister Nick Clegg’s pledge to ensure that no one earning the national minimum wage has to pay income tax, if the Liberal Democrats remain in government after the next election.
Cormac Marum, former tax inspector, and head of tax advisory at UK200Group member firm Harwood Hutton: “Increasing the personal allowance is a distinctive Liberal Democrat policy. Nick Clegg thinks it’s fair. But, in the interests of fairness, what Nick Clegg should do is give equal prominence to the flip side of his policy — the remarkable increase in the number of people paying tax at 40 per cent.
“Before Nick Clegg finished third in the last General Election and joined the Government, tax was paid at 40 per cent only after people earned taxable income of £37,400. This year the comparable figure is £32,010. That is almost £7,700 behind where it should be if the 2010/11 threshold had kept pace with RPI. That costs individuals up to £1,537 in extra tax a year in real terms.
“If Nick Clegg manages to beat Nigel Farage to finish third at the next General Election and is still allowed to dictate tax policy in this country, the position will get even worse. If the personal allowance increases in 2015/16 to the current national minimum wage level, people are likely to face paying 40 per cent tax starting at just £30,000 of taxable income. At current rates of inflation, that will be £10,725 behind where the threshold should have been and will then cost individuals up to £2,145 in extra tax a year in real terms.
“Nick Clegg should be fair to the public and explain honestly the full impact of his policies.”
Jonathan Russell, partner, UK200Group member firm ReesRussell: “We could hope one day that politicians like Nick Clegg will understand the real world — the concept of comparing minimum wage with tax free allowances is nonsense.
“The annual tax free allowance has significance for all tax payers. To link this allowance with the minimum income deemed necessary for an individual to ‘survive’ would make sense in which case this number could be used as a guide for basic state pension, minimum wage and other benefits.
“Politicians need to be mindful of sound bite statements — they could well come back and bite them.”
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