Last week's budget sought to tackle economic inactivity. The chancellor introduced a range of measures to get more people back into the workplace. Post pandemic there has been a workforce shortage, with more people of working age deciding to leave the workforce. It is essential for growth and productivity to boost the numbers of people in work, remove barriers to work and incentivise people of working age to stay in work longer.
Work brings many benefits, from a sense of identity, a social network, to a sense of self-worth and achievement. We know work is good for mental health and is the best route out of poverty. Post pandemic people have left the workforce through early retirement, or to care for young children, or older relatives, through increased ill health due to backlogs. The effects of this on the economy have been significant, with large numbers of unfilled vacancies in many sectors.
So, the Chancellor decided extended free childcare, offered more support for disabled people and long term sick wanting to get back into work and incentivised senior public sector workers, to stay in work rather than retire early. That's all welcome, but as well as removing barriers to work it's vital to incentivise work through the tax system. It is key to any successful economy that hard work is rewarded, making sure people are better off in work and taking on extra work.
Instead of increasing the tax-free personal allowance in line with inflation, the Chancellor decided to freeze it at £12,570 meaning that more low paid people will be brought into the tax system. It has been a long held objective to take more people out of tax altogether. Freezing tax thresholds during a period of inflation can mean there's no incentive to do those extra hours, or even go for that next promotion, there may be no incentive to take on a part time role at all.
Freezing tax thresholds is a stealth tax. Taxing people more is bad for productivity. I will be lobbying the Chancellor to look again at this decision to freeze tax free allowances.
