23 April 2009

What counts as "attendance" and other thoughts on MP expenses

The Daily Mash has probably got the best summary of Gordon Brown's proposals that MPs should get an attendance allowance instead of a second home allowance:

"Mr Brown has proposed abolishing the controversial £24,000 a year second home allowance and replacing it with a £25,000 a year dragging-your-fat-arse-into-work allowance."

Although what counts as "dragging-your-fat-arse-into-work" if you are an MP? Will there be any requirement to attend the chamber of the House itself or take part in a committee meeting or will it be the clocking on and buggering off routine which is apparently prevalent in the European Parliament (the fact that Brown is considering adopting a system which is being so roundly abused in the European Parliament should be a clue that it is utterly rubbish)? 

On the other hand, in an era when people are able and are encouraged to work remotely rather than commute unnecessiarly, should we really be encouraging MPs to travel to Westminster when they don't need to be there.  There is also the danger that they will want to be seen to be "active" on days when they are claiming their allowance and appear in the chamber simply for that reason, rather than because they have something useful to contribute. 

I have a simple but radical solution: give all MPs a budget roughly similar to the aggregate value of their salary, allowances and staff budgets, then let them decide exactly how they wish to apply them.  If they want the money for themselves (as salary) then it will be taxed as income and if it is spent on staff or legitimate office expenses (including travel) then not.  It would then be simple for voters to compare what each MP decides to keep for him or herself and what is spent elsewhere.  

This would do something to deal with issues of what pay rates are needed to attract the right people (and just because there is a long queue of people wanting to become MPs, doesn't mean that they are the best people for the job, or that the "right" people will be happy to take a pay cut). 

More importantly, it would encourage MPs to look for savings wherever they can in how their offices are run as all savings could be put towards other Parliamentary activities - or even their own salary - which is the same position as any business owner is in when savings are made.

Having previously thought it was fair enough for MPs to employ husbands, wives and children, clearly the behaviour of a few has made this untenable and must be stopped. 

22 April 2009

Top rate of income tax could be 60%, not 50%

OK bear with me here, but I think my maths is correct....

In the budget, the Chancellor has just announced that the top rate of tax for people earning over £150,000 per annum will rise to 50% for income over that amount. Cue headlines "Top rate of tax now 50%". BUT, personal allowances are being withdrawn from people who earn over £100,000, with a cut of £1 of allowance, for every £2 earned over £100,000. (see page 109 of this document).

In 2009/10 the basic personal allowance is £6,475 - so anyone earning over £112,950 will get no personal allowance and instead they will pay 40% tax on their earnings over (in 2008/09) £34,600. What I am not clear about is whether the ending of the personal allowance lowers the rate at which higher rate tax payers enter the higher band or whether it is at the same overall level - i.e. that they pay the basic rate for longer.

Assuming it is the former, then the previously tax free personal allowance will effectively be taxed at 40% as well (or at least at 20%).

So, if you earn £100,000 and your salary increases by £2000, you will pay £800 on the increase, plus lose £1000 of personal allowance, so will be paying an additional £400 in income tax - total tax burden on the additional £2000 = £1200 or 60%.

Even if the loss of the personal allowance means you are paying only 20% on that element, the burden will be £1000 (£800 plus £200) on a £2000 increase - 50%.

As ever, the budget is rife with spin and misdirection, but it should be crystal clear that the marginal rate of tax is rising for people earning over £100k, and not just at £150k.