This is no ordinary recovery. Not only has it taken a hell of a long time to do not very much, it’s seen collapsing productivity and very little wage growth, even for those who appear to be highly skilled. As a result of all this, even though the economy grew at over 3 percent, the tax revenues didn’t increase at the same rate.
As Sarah O’Connor reported in the FT:
[T]ax receipts have grown just 2 per cent so far this year, compared with the 5 per cent growth the Office for Budget Responsibility forecast in March.
As Ben Chu’s chart shows, most of the rise in tax revenue since the recession is due to VAT.
Record numbers of people in employment, it seems, hasn’t led to record levels of income tax.
When you break out the figures for income tax, as Michael O’Connor did earlier this week, there is a marked difference between receipts from those on PAYE and those on self-assessment.
Falling self-assessment receipts are, for the most part, a symptom of falling self-employment incomes. Around three-quarters of the employment growth since the recession has come from self employment yet between them, the self-employed are still delivering a lot less tax. We won’t see the final 2013 HMRC figures for self-employment incomes until January but these charts suggest that the spectacular fall in self-employment earnings between 2008 and 2012 hasn’t improved by much. Probably the closest estimate we have for self-employed pay since 2012 is by Laura Gardiner at the Resolution Foundation. The low tax receipts indicate that self-employed earnings may have continued to fall or are, at best, stagnating.
Things might be about to get worse for some of the self-employed. As Ben Dellot explains, the new Universal Credit system could leave many of them worse off. According to the RSA’s calculations, 37 percent of the self-employed earn less than the minimum income floor, which is set at around the full-time minimum wage. (That sounds about right. A study by the IFS found that 40 percent of the self-employed earn less than the minimum wage.) Not all the self-employed currently claim tax credits but those who do, and who fall below the income floor under the new system, will find their benefits cut. The self-employed now account for almost a fifth of tax credit claimants so this is likely to affect a lot of people.
It is yet another symptom of the uncertain situation in which many people find themselves. The low tax take and stubbornly high social security costs are two sides of the same story. The number of people in employment might have increased but a lot of that employment is insecure and doesn’t pay very well.
Income tax, VAT and National Insurance are three of the state’s biggest sources of revenue. If any one of them fails to deliver as promised, the government is in a financial hole. People whose employment status and earnings are precarious don’t deliver much in tax. This isn’t a normal recovery. Along with the other epithets being used to describe it – low-wage, slowest-for-a-century, low-productivity and so on – we can now add another; taxless!