“Raise tax-free allowance and stop living wage” – says think tank

The Adam Smith Institute called on the government to lower taxes for London’s benefit as it marked Tax Freedom Day on Tuesday.

Employees begin earning money for themselves rather than handing it over to the government on Tax Freedom Day, which falls two days later than last year, the tax campaigners said.

Dr Eamonn Butler, the institute’s director, said: “Tax Freedom Day, which the Adam Smith Institute has been calculating for 25 years, is the plainest way to show what the tax burden really is.

“That is why the Treasury hates it. They, of course, want to conceal how much tax we pay, which is why they are so keen on stealth taxes.”

The institute looks beyond income tax and national insurance contributions when calculating when Tax Freedom Day falls for the average employee. It also takes into account VAT, council tax, air passenger taxes, excise duties, vehicle taxes and fuel.

Increased VAT and the double-dip recession are among the reasons behind the date being 48 hours later than last year, Dr Butler said.

“The stark truth is that this burden costs us all 149 days of hard labour every year,” he added. “That’s not how long a rich person has to work – it is the time the average person must labour for the tax collectors.”

The government could help attract the very best workers to London by offering a more attractive tax regime, according to the institute’s head of research Sam Bowman.

He said: “London needs lower taxes to attract the best talent from around the world and to ease the tax burden on London’s low and middle-income workers.

“When national insurance contributions are taken into account, the basic rate of tax in Britain is a whopping 32 per cent.”

Bowman believes the government would be better off raising the personal tax allowance, rather than following suggestions to put in place a ‘living wage’ – a minimum hourly rate for a worker to meet basic needs.

“The cost of living is rising in London, hitting the poorest hardest, and high taxes are hitting their wages and their shopping bills.

“Instead of mandating a job-killing ‘living wage’, the government should raise the tax-free allowance to £12,600, so that London’s lowest earners are taken out of tax altogether.”