Tax shortfall 'caused by low pay'

Low pay and the fall in real-terms incomes has led to a significant shortfall in income tax revenues for the Treasury, a new report has said.

The government is not collecting as much tax as it previously forecasted because of the low level of earnings growth in the economy, a report by the Trades Union Congress (TUC) has said.

It argued that government policies have only led to a limited recovery, in which new jobs tend to be low paid and contribute little in revenue.
According to the TUC figures, the tally of income tax receipts in the 2014-15 fiscal year will be £159 billion - £17 billion down on Treasury forecasts. It said that had wage growth levels been in line with the pre-recession level, then the government would bring in an extra £30 billion a year in income tax.

TUC secretary general Frances O'Grady said: “The government’s failure to get wages growing again has not only left families far worse off than in 2010, it’s put the public finances in a mess too. “ The economy has become very good at creating low-paid jobs, but not the better[-]paid work that brings in income tax.

She went on to attack the coalition's austerity policies and called for next week's Autumn Statement to "invest in growth and to put a wages recovery at the top of the agenda”.

The need to bring in revenues may continue to make the recruitment of tax professionals a priority for the government, while companies may need to do so to deal with any new tax measures that are introduced in the next few months, with one more Budget due before next year's general election.

Low-paid work has itself brought in less revenue for the government in this parliament than was the case for its predecessors, as the coalition instigated the Liberal Democrat pledge to increase personal allowances to £10,000 by 2015.

This is increased again to £10,500 by April and the possibility of it being raised further in future Budgets is high, with the Liberal Democrats already stating they will make a manifesto commitment to increase the figure to £11,000 in the first year of the next parliament, eventually rising to £12,500.