Lord Sikka
Main Page: Lord Sikka (Labour - Life peer)(1 year, 10 months ago)
Lords ChamberTo ask His Majesty’s Government what plans they have, if any, to ensure that an individual with an annual earned income of £30,000 will not pay more in direct tax and national insurance contributions than an individual with an annual unearned income of £30,000.
My Lords, different forms of income are subject to different tax treatments. For example, national insurance contributions are charged only on earned income, reflecting their historic basis as a social security contribution. The Government have acted to reduce the generous tax treatment of unearned income, including reducing the generosity of the dividends tax allowance in 2018. However, the Government keep all taxes under review.
My Lords, I thank the Minister for his reply. A worker on £30,000 a year currently pays £3,486 in income tax and £2,092 in national insurance—a total of £5,578. A speculator with £30,000 of capital gains pays no national insurance, even though he uses the NHS and social care, and pays only £1,770 in capital gains tax. This means that the worker pays £4,000 a year more in taxes than a speculator. Can the Minister explain why the tax system hits the workers the hardest?
The noble Lord gives one example. As he knows, individuals can be subject to different tax treatments depending on the type of income they receive and whether they are employed or self-employed or working through a company structure. I reassure him that the Government have taken action to reduce this disparity in tax treatment, for example by reforming the taxation of dividend income, reforming the main rates of dividend tax in 2016 and reducing the tax-free dividend allowance from £5,000 to £2,000 from 2018.