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
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