Saturday, 18 April 2015


The Conservative manifesto for the 2015 general election promised to "pass a law to ensure we have a Tax-Free Minimum Wage". The promise formed the centrepiece of David Cameron's presentation of the manifesto in Swindon on 15 April. It's a good sound bite. But between 400,000 and 500,000 people on the minimum wage will pay tax even under the Conservative plans.

Tax-free now
At the moment the adult rate of the National Minimum Wage is £6.50 an hour. That will rise to £6.70 from 1 October 2015. The personal tax allowance is £10,600 a year or £203.85 a week. Over the whole tax year - half the time at one rate, half at the other - 30 hours work at minimum wage would bring in £10,296 which is below the personal allowance so no income tax would be due. Another hour a week would sneak over the limit by £39.20 and about a penny a week income tax would be due.

So those working 30 hours a week or less already have a tax free minimum wage. And the promise in the manifesto is already fulfilled. People aged 18-20 could work 38 hours on the £5.30 rate and be below the personal allowance and 16-17 year olds could work 52 hours on the £3.87 rate.

Tax-free in future
"In the next Parliament, we will [raise] the tax-free Personal Allowance so that those working 30 hours on the Minimum Wage pay no income tax at all." (pp. 25-26).

The manifesto also says the party is committed to "a Minimum Wage that will be over £8 a week by the end of the decade." A minimum wage of £8.01 for 30 hours a week would produce an income of £12,495.60 in a year. And guess what? The manifesto also promises a personal tax allowance of £12,500 by the end of the next parliament.

So a tax-free minimum wage - on the manifesto definition at least - has already been achieved and would be achieved every year of the next parliament.

What is full-time?
The Office for National Statistics does define full-time work as 30 hours a week or more in its Annual Survey of Hours and Earnings. And the latest report of the Low Pay Commission, which fixes the minimum wage, estimates that 60% of the 1.4 million workers on the minimum wage work part-time, less than 30 hours a week, and 4% work 30 hours. So that leaves 36% - up to half a million - who work more than 30 hours and will earn enough to pay income tax.

The estimate is approximate as some working on the under 21 rates will be below the level to pay tax even if they work more hours. The actual number is probably between 400,000 and 500,000.

National Insurance
Income tax is not the only tax on earned income. National Insurance is 12% and begins at a much lower level £8060 or £155 a week. To escape NI you must work fewer than 24 hours a week on minimum wage. On average people on minimum wage work 26.2 hours a week and would pay £2.46 a week NI.

The Conservative manifesto makes no mention of raising the National Insurance threshold. Nor do those of any other major party.

18 April 2015
version 1.01


The three biggest parties – Conservative, Labour, and Liberal Democrats – are all committed to preserving the Triple Lock for the State Pension. The lock guarantees that the basic state pension, currently £115.95 a week, will rise by prices, earnings, or 2.5% whichever is the highest.

The Institute for Fiscal Studies says the triple lock cost £4.6 billion in 2015/16 alone compared with the cost of using earnings as the index to raise the pension from 2012. That represents a major transfer of state support from younger people to older ones. Over the next parliament the cost of the triple lock compared with raising the pension in line with prices will be much more.

The Office for Budget Responsibility (OBR) predicts that inflation will be just 0.2% this year. But under the triple lock the basic state pension will rise by at least 2.5% in April 2016. The OBR forecasts that the rate of CPI inflation will be below the 2.5% floor of the triple lock in every year of the next parliament.

So we know that the state pension will rise from the present £115.95 by at least 2.5% a year to reach at least £131.20 from April 2020. If the pension rose with CPI instead of 2.5% then it would be just £124.30 from April 2020. And that £6.90 a week extra will mean a cumulative extra bill for the state pension of £12 billion over the next parliament and another £4.6 billion in the year 2020/21 to be paid by the next but one government.

And it gets worse – or at least more expensive. The third ward of the triple lock is earnings. Over the last five years that has never been an issue as earnings have been outpaced by either prices or 2.5%. But earnings are already outpacing inflation and the OBR forecasts that average earnings will grow, as they have in the past, by around two percentage points above inflation. OBR predicts average earnings to rise by 3.1% in 2016, 3.7% in 2017, 4% in 2018, and 4.4% in 2019. So it will be earnings not the floor of 2.5% which will be used to raise the state pension after 2016. That implies a pension of £138 a week by April 2020 which is more than £13.50 a week above the level needed to keep up with prices alone.

There are about 13 million pensioners and that number is not expected to fall – in fact despite the rise in women’s state pension age the number receiving a state pension has risen in just about every quarter since women’s pension age began to creep up from April 2010. Then the number of state pensioners was 12.5 million, now it is around 13 million. So let us assume it will be 13 million on average for the next five years. The minimum extra cost of the state pension rising by 2.5% instead of prices will be £12 billion over the next parliament. And if the earnings figures turn out to be true the extra cost will be £17 billion. 

These are back of the envelope figures. Two factors mean they are too high. 

1. As their state pension income rises, pensioners will be floated off means-tested benefits such as pension credit, housing benefit and council tax support, saving the Government money.

2. Not everyone gets the full basic state pension. Some get less, some more. Any extras on top of the basic are not protected by the triple lock and rise just with prices inflation. So the triple lock only affects a maximum of £115.95 a week. 

But a third factor means the estimate is too low.

3. From April 2016 the new state pension for those reaching pension age will be a lot more than the basic state pension – probably at least £154 a week. As things stand it appears that new pension will be fully protected by the triple lock. So as each new wave of pensioners arrives the triple lock will cost more compared with prices indexation.

Whatever savings there are from (1) and (2) may well be offset by (3). So it may be back of the envelope. But it is not wide of the mark. And whatever the final figure of the cost of the triple lock over the next five years, it seems unlikely to me that the same commitment will make it into the party manifestos for the 2020 election. 

A final note on whether this comparison is a fair one at all. Before the 2010 election the three main parties were committed to raising state pensions by earnings rather than prices. So the extra cost calculated above using earnings as the index would have occurred anyway if that policy had continued. Comparisons with 'would have beens' or 'counter-factuals' as they are now called, are always difficult and needs choices to be made. My choice is to ignore this earnings link and compare the Triple Lock with a rise in prices, the standard way of increasing benefits and pensions for many years until 2010. However, even that assumes that the index would have changed from the RPI to the CPI. That, as I have noted in Triple Locked Down, did have a considerable effect on the level of the state pension at the end of the Coalition Government.

18 April 2015
Version 1.00

This blogpost is a corrected and updated version of my Money Box newsletter 17 April 2015. Subscribe to future newsletters 

Monday, 13 April 2015


In an election period government departments are reluctant to answer any questions that could be politically sensitive. They call it ‘purdah’ – a term which in fact describes the practice of some religions to hide women from the public gaze, especially that of men from outside their families.

So when I asked HMRC on 8 April for some figures which it had already made public through Freedom of Information requests I perhaps should not have been surprised when it refused to send them to me, citing ‘purdah’ for refusing. In Civil Service language purdah clearly means hiding facts from the public gaze just when men and women outside the political family need to see them most - when they are making decisions about political matters!

These now redacted figures cast light on non-doms - the 100,000 or so people who live and often work in the UK but are not ‘domiciled’ here. Hence non-dom(iciled). 

I learned about the existence of the numbers when some were published in a letter to the Financial Times on 8 March by a Mr Mark Davies. I wanted to check them with HMRC and that is when it drew the veil of purdah over them. Fortunately Mark himself was more forthcoming. Though I should say right away that Mark Davies Associates is a firm of tax advisers with the website Guess what it advises on! So Mark is not a disinterested party. 

What is a non-dom?
The figures later. But first what is a non-dom? The concept of domicile is a strange – and strangely British – one. It dates back to 1799 when the first income tax was imposed by Pitt the Younger to raise money to fight Napoleon. Under the Duties on Income Act 1799 (39 Geo. III c.13) the tax was 10% on all income above £200 a year with lower rates on income from £60 to £200. 

From the start the tax applied to all residents on their income arising in the UK or elsewhere and on non-resident subjects on any income on property that arose in Great Britain. At the time many people from the UK lived, worked, invested in, and profited from countries around the world that were part of the British Empire. It was seen as reasonable that money brought to the UK would be subject to the new tax. But overseas earnings which were spent and invested abroad should not be caught, even if the individual spent much of their time in the UK. The notion of ‘domicile’ was born. 

Nowadays, domicile is where you call home. Your original domicile is the country that your father (or your mother if they were not married) called home when you were born. That stays with you unless you choose to change it. To do that you must live somewhere else and call that place your home, probably plan to die there. Once you have changed your domicile that stays with you wherever you travel or stay unless you change it again. So UK citizens can change their domicile and keep that foreign domicile even if they return to live and work in the UK. HSBC Chief Executive Stuart Gulliver does just that – born in Derby his domicile is Hong Kong where he worked for many years and where he says he will return when his work in the UK is done.

For a registered non-dom any income (or capital gain) from outside the UK is taxed where it arises and is only taxed in the UK if it is brought here. That means the complex rules on domicile can be exploited by wealthy UK residents with worldwide income to reduce their UK tax liability. 

The idea of taxing non-doms further was first proposed by George Osborne, then shadow Chancellor, in 2007.In his speech to the Conservative Party conference on 1 October he promised "a flat annual levy of around £25,000 for those who register for non-domicile status".The idea was taken up by the Labour Government and from April 2008 a flat rate non-dom tax charge was introduced by the Chancellor Alistair Darling at £30,000 for non-doms who had lived in the UK for seven out of the last nine years. 

A higher band of £50,000 for those here for 12 out 14 years was introduced by George Osborne as Chancellor in the Coalition Government of 2010-2105. The higher charge began on 6 April 2012. And from 6 April 2015 a new maximum charge of £90,000 is levied on those who have lived here for 17 out of the last 20 years. 

Even after the change the Government said the system “remains a very generous tax regime.” Not least because in the first seven years of UK residence no charge is made. 

Non-doms and what they pay
So, the numbers. The figures provided by HMRC under the FoI request of Mark Davies show that out of the 110,700 UK resident non-doms in 2012/13, 64,000 of them chose not to take advantage of their status and were taxed here on their worldwide income. The remaining 46,700 chose to be taxed on foreign income only if it was remitted to the UK. And of those only 5000 actually paid the flat-rate charge. Which implies the other 41,700 had been here for less than seven out of the last nine years. Altogether those 46,700 paid £4.6 billion in income tax in 2012/13. Which indicates an average taxable income in the UK of around £240,000. The remaining 64,000 who avoid the flat-rate charge by paying their tax normally handed over average income tax of £24,687 – suggesting an average taxable income of around £87,000.

Those are the figures that HMRC decided to veil from the public gaze just at the time when that same public was trying to decide whether scrapping the concept of domicile would raise – or cost – the UK money. Thanks a bunch. 

I should add that the figures that HMRC was willing to reveal were slightly different giving the number of UK resident non-doms in 2012/13 as 114,800. That could be because the FoI figures relate only to those who complete a self-assessment tax return. But until after the election I shall not be able to clarify that.

13 April 2015
Version 1.01

This blogpost is a longer version of the introduction to my Money Box newsletter of 11 April 2015. Keep up to date by subscribing to future Money Box newsletters