OBR set out scale of tax losses from low pay growth
Yesterday’s OBR report sets out the impacts that low wage work is having for tax revenues, suggesting that the £17bn shortfall we assessed that low earnings have created to date (as set out in IPPR analysis for the TUC last week) is likely to be even larger.
Firstly, the OBR point to various evidence on the increasing prevalence of low wage work, noting significant rises in low paying self-employment and the relative growth of jobs in low paying occupations compared to those where incomes are higher:
The number of people in self-employment has continued to rise rapidly and annual growth was 6.6% in the third quarter of the year. The limited amount of information on self-employment suggests that the growth in self-employment has been concentrated at the lower end of the income distribution, which would reduce the overall effective tax rate.
Much of the growth in employee numbers between 2010 and 2014 occurred towards the lower end of the income distribution.
Add to this their stark analysis of overall real wage falls, and the picture of a low paid recovery is complete.
The OBR analysis then moves on to tax revenues, with income tax and NICs in 2014-15 expected to be substantially lower (£4.5 billion) than was even the case in the March forecast, let alone their assessment of June 2010. This shortfall extends over the OBR forecast period, reaching £15.2 billion by 2018-19, with subdued earnings presented as ‘the key driver’ for reduced PAYE and NIC receipts. The OBR assessment is that over three quarters of the shortfall (relative to March 2014) results from poor pay.