This year’s government target for income tax could be unattainable, despite record employment, according to the Office for Budget Responsibility (OBR).
The UK budgetary watchdog said this was likely due to many new jobs either being low paid, or created through inconsistent self-employment.
HMRC say the problem is that 35% of those working for themselves earn an annual wage beneath the level at which they have to pay income tax – currently £10,000 a year.
This figure has almost doubled since the financial crisis of 2008, when only 20% of self-employed earned below the taxable threshold.
Robert Chote, chairman of the OBR, told the BBC:
“We’ve been getting fewer pence of revenue coming in for every pound of wages and salaries that’s generated. From the perspective of the public finances that’s not particularly good news.
“This continued story of earnings growing less rapidly than expected and employment growing more rapidly than expected does perhaps suggest that we are more likely to be disappointed than over-achieve on income tax receipts this year.”
The rise in low-paid self-employment is just part of the problem.
Firms’ hiring intentions are at a post-crisis high as of September, according to research released on Monday by business services group, BDO.
However, the Bank of England halves its forecast for 2014 wage growth last month to just 1.25%, suggesting that real wage growth will remain stagnant for some time.
Image by Hans Splinter