Dear Mark Constantine
An open letter to Mark Constantine, co-founder and managing director of the natural cosmetics firm Lush, about tax rates and campaigns.
Dear Mark Constantine
I heard you on the Today programme this week calling on the Chancellor to change his mind about increasing the rate of Capital Gains Tax from 10% to 18% on the disposal of a business. The new rate will start in April. "That tax" you said "is going up to 18% in one jump…You can’t imagine any other tax band going up quite so dramatically. We’re talking about nearly doubling."
But next April hundreds of thousands of low paid employees will not have to imagine another tax rate doubling – they will see it in their pay packets. The tax rate on a chunk of their income will not ‘nearly’ but actually double. From April 2008 the tax due on earnings or pensions in the lower tax band will rise from 10% to 20%. People with earnings or a pension up to £15,075 a year who are under 65 will pay more tax as a result. Some on the lowest incomes will pay more than £150 a year extra in tax out of an income of around £7500. Someone on minimum wage working a full 40 hour week will pay £71.88 a year more tax and NI. This tax rise will affect many older workers, especially women, on part-time or low wages or on small pensions.
Those on incomes above £15,075 will not be affected because the cut in the basic rate of tax from 22% to 20% will more than offset the extra tax paid on the lower band. Indeed, many will see a tax saving – as much as £395 a year for the most fortunate and a standard gain of £297 a year for anyone earning £41,345 or more.
People aged 65 or over will be protected by a big jump in their tax-free age allowance. But low income people under 65 in work or with pensions will suffer a bigger increase in the tax rate than the entrepreneurs you are concerned about. Paying an extra £152 tax when your total income is just £7445 is a considerable extra burden. And there is another big difference between these people and the entrepreneurs. They cannot avoid it by taking action before April. Unless they give up work.
The problem was first raised in Saga Magazine in June. I do hope you will start campaigning for this other group who face a doubling of their rate of tax – some of them could be your own employees – as vigorously as you have protested about the tax increase on the proceeds of selling businesses.
Yours sincerely
Paul Lewis
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