Obviously with the National finances in the state they are in I don’t mean we can cut the amount we have to pay, but cut the bureaucracy and complexity of them.
Just take a look at what is happening with effect from the 6th April 2011.
The Personal Allowance (the amount everyone can earn before they pay tax) rises from 6475 to 7475 which is £622.91 per month. Now this is a good idea. By taking small earners out of the tax net altogether you can cut the cost of collecting tax substantially and boost the income of low earners and hopefully reduce benefit dependency. This is also part of the Lib Dems policy within the coalition to raise this figure to £10,000.
However, if you earn £100K per year you lose £1 for every £2 you earn over this limit. At £114950 you get no personal allowance. Not only is this far too complicated but it is unfair. The whole purpose of the personal allowance is that everybody should be able to earn the first portion of their income without paying tax. Just do away with this by reducing the threshold for paying the 50% rate to £85000. Mathematically the same difference but far less complicated and a fairer system.
The age allowance for those between 65 and 74 personal allowance increases by £450 to 9940. Not a big problem but a better alternative would have been to freeze this allowance until it is the same as the general personal allowance. Instead the amount of money spent on this increase should have gone into the pot and used to increase the basic state pension. Again this helps lower income pensioners more.
The age allowance for those over 75 rises £450 to 10090. Again, the best option would be to freeze the allowance or just increase the allowance to £10,000, the longer term level set for the general personal allowance, and use the money it costs to increase this allowance by an extra £90 to increase the basic state pension for those over 75.
Again not only does this simplify income tax, more money goes to pensioners on lower incomes. You also get the double whammy of getting rid of another horrible technicality. Age allowance clawback which means anybody over 65 with an income over £22500 loses £1 of allowance for every £2 they receive over this limit until they reach the general personal allowance level.
In summary aligning these existing allowances to one personal allowance will have the following benefits:
1 Major simplification of the tax system
2 Reduce the cost of collecting taxes
3 Helps those on lower incomes more
4 Fairer, everyone is entitled to some tax free incomes
5 Does away with the system that small increases in income means you are actually worse off.
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