Setting the Agenda One Day Conference - WLD on Tax

4.57.00pm GMT Mon 15th Dec 2008

Workshop Discussion

The WLD Breakout Group workshop entitled 'An Innovative Approach to Tax Policy' at the One Day Policy Conference on 17th January was very well attended and generated a lively and often controversial discussion. The main proposal, to raise the tax threshold to the level of the minimum wage was generally supported. A full report will be available soon.

At present people earning the Minimum Wage lose a significant part of their income paying Income Tax and National Insurance. Because this results in some people ending up below or near the poverty line, the Government tops up their money via benefits.

Proposals Considered:

· Raise the tax threshold to the level of the minimum wage.

· Scrap National Insurance contributions.

· Freeze the National Minimum Wage for 3 years.

· Scrap the Tax Credits system.

WLD believe this is relevant because:

· Women who work fulltime earn 17% less than men

· The majority of employees on NMW are women.

· The majority of pensioners are women

It is especially relevant during an economic downturn as previous recessions have had a greater impact on women than on men. Women are at a greater risk of redundancy as they are more likely than men to be working in temporary employment, to be working part time and/or in low paid jobs. In addition, employers are more likely to cut down on flexible working and parental leave and this has a greater impact on women.

Points for discussion:

Income Tax

Tax rates would need to be increased to take the higher threshold into account. The better off would need to pay more in tax to balance the books - at what point would people be paying more tax?

Could this redistribution in wealth be afforded as well as cutting the basic rate of Income Tax to 16p?

National Insurance

Should this be scrapped too? For - it is a tax on jobs and is regressive. It is not actually tied to people's pensions or used directly to pay for the NHS.

Should the starting point be raised to start at NMW level?

Against scrapping - it is paid by all employers even those who do not make a profit and therefore do not pay corporation tax and could mean increases in Income Tax.

Freezing National Minimum Wage

The effect of raising the starting point in Income Tax and abolishing or raising the National Insurance starting point to the NMW level would give those on Minimum Wage the equivalent of a £1,942 per year pay rise or 16%. Therefore it would be reasonable to freeze any future uplifts for 3 years.

Should the Tax Credit System be Scrapped?

The system is so flawed that while the Government estimate that overpayments are running at around £1.5 bn (yes billion), child poverty advisors are recommending that parents do not attempt to claim it as the stress they will experience is far greater than the money they may get.

The Numbers:

From 1st October 2008 the National Minimum Wage is £5.73 an hour for people 22 and over, which gives a wage of £229.20p per week on a 40 hour week or £11,918.40p per year.

Of this only £6,035 is tax free

Working Tax Credits can be claimed by single people earning less than £250, pw (much more for those with children)

In 2005 five million people aged 22 or over were living in poverty despite working; i.e. they were earning less than £6.50 per hour. Of these two-thirds were women.

Income tax and national insurance contributions are paid by on incomes in excess of £116 per week

Therefore the government takes 33% of income above £116 per week and then returns some of it, as people are considered too poor to exist without this handout.