If you want to increase the tax take, pay people more

The Budget of Office Responsibility (OBR) has been warning that an increase in the personal allowance means less income tax revenue. The solution? Pay people more.

The boss of the OBR has said the Treasury's coffers will not be filled with as many of your wages over the next year. The reason is two-fold: firstly the personal allowance –the part of your wages that you can earn tax free – is increasing. Secondly, despite the decline in unemployment we've seen, the jobs being created are low paying, meaning again that people are paying less tax.

Article continues below

There's a solution

What's wrong with this picture? It's certainly not the fact that the personal allowance is rising that lets people take more of their hard-earned wages home, it's the fact that people are still being paid so little that the country's tax take is reducing despite rising employment.

This all says to me that people are being paid far too little and that the minimum wage is just not enough. It's especially not enough when you consider the fast rising cost of living, with property becoming more expensive for those who can afford to buy, and rent increasing for those who can't. We hear constant warnings about gas and electricity bills set to sky rocket again while the suppliers cream off large profits at the consumers' expense.

For those aged 21 and over, the minimum wage is a paltry £6.50 an hour, far below the living wage, calculated as £8.80 for London and £7.65 for the rest of the country.

If the government needs to bring in more tax receipts why not increase the minimum wage? Its benefits are three-fold: it would give workers more money in their pocket to buffer them against the rising cost of living and allow the government to take a few extra pence from every increased pound that is made.

And thirdly, it would mean the country would well and truly be on its way to a recovery. The Bank of England's chief economist Andrew Haldane warned that poor productivity and weak wage growth are the things tempering what otherwise would amount to an economic recovery in the UK (after all we have low inflation, increased employment, and strong growth which are all the markings of an economy in recovery).

It's time the government stopped thinking of its citizens as tax cash cows and took a more enlightened approach to boosting wages overall to reach the same tax outcome.

Read more:

Osborne backs minimum wage rise

Minimum wage too low for London

Income tax threshold to rise in Budget 2014?