In a recent discussion with someone that works 37.5 hours a week @ £7/hour (£260/week; ~£14,000/year), which places them in the bottom 10% of the earning population and represents about 1.8M people, revealed that £70 goes on Tax and National Insurance - 27%. This seemed to be an extraordinary amount.
On the one hand, the picture doesn't seem too bad if you look at the results from a percentage perspective - 27% is less than the 38% that higher earners typically lose. However, what gets missed when percentages are discussed is how significant each £1 reduction is in such a modest amount.
I think that the issue that's missed is that the normal day to day costs that have to be met by the net amount are a significant percentage of the total. For example, the costs of going to work - £45 on fuel & maintenance (100 miles/week @ 45p/mile from AA costs) plus childcare costs of £69, represents 60% of the net earnings. This leaves about £80/week for everything else...
For someone on the median earnings - £479/year (Table 1 - All Employees) giving £350 net (0.27 x £479) the same costs represents 33% - though losing over 30% of your income just getting to work still seems excessive.
I think this could be addressed in two ways. Firstly, it seems to me that high earners (top 10% say) could wear a 1% increase in taxation that could translate in to a significant reduction in the lower rates paid. The logic being that if the top 10% of the population - who earn ~£1,000 week, pay an extra 1%, it could be passed on to the bottom 10% of the earning population as a reduction of 4% without any change in the Revenue's tax income.
Secondly, there needs to be a significant increase in the zero band threshold for lower earners - 10% tax band anyone?
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