More Work, More Reward - A Secondary Personal Taxation Allowance For Supplementary Income

On a macroeconomic level the UK is very constrained. High levels of national debt hinders reductions in taxation, which could be used to stimulate the economy. The risk of higher inflation limits the effectiveness of interest rates to enable growth. A further quantitative easing program could lead to a much greater devaluation of the currency.

On a macroeconomic level the UK is very constrained. High levels of national debt hinders reductions in taxation, which could be used to stimulate the economy. The risk of higher inflation limits the effectiveness of interest rates to enable growth. A further quantitative easing program could lead to a much greater devaluation of the currency.

In short any kind of economic growth plan using the existing methods of stimulus would prove difficult, if not costly, assuming they would work at all. It could, however, be possible to achieve economic stimulus without other costs or consequences, like a loss of government revenue or a weaker currency. Additional beneficial outcomes may also be attainable.

A cut in taxation would reduce the income the government receives. Due to high levels of debt, which needs to be paid back, the government cannot afford to decrease rates of taxation. This does not mean taxation on further earnings on top of the existing level of output cannot be cut, if not taken away all together. Further earnings do not have to be taxed.

If the labour market was to be expanded through the workforce performing additional labour and services, the income whether taxed or not would not impact the existing taxation intake. By offering a second personal taxation allowance on supplementary income, where the individual works for or operates more than one business, economic growth can be attained.

There is an incentive for further output without impacting existing taxation revenue. If someone is prepared to work more, by taking an additional form of occupation, either by working for an employer or starting a new business, they will receive a greater financial benefit for doing so. More work more reward and economic stimulus at little or no cost.

The only potential cost would be the loss of taxation revenue deriving from people who already have more than one occupation. This should be offset, if not, dwarfed by the increase in the, 'dual occupation workforce' emerging from the supplementary personal taxation allowance generating a higher level of output and economic diversification.

An additional personal taxation allowance on income equal to the existing personal taxation allowance of £11,500, would be sufficient. For someone at the lower rate of taxation of 20% they would save £2,300, if they took advantage of the full allowance. For someone at the higher rate of taxation of 40% they would save £4,600, if they used the full allowance.

There is an additional rate of taxation of 45%, however it is questionable if the supplementary taxation allowance should still be viable because it starts at £150,000 per annum. If the supplementary personal allowance was enabled for the lower rate and the higher rate it should be a sufficient enough incentive for further growth, at little consequence to taxation revenue.

The other possible consequence is the increase in income could lead to a cut in benefits, if income surpasses the threshold entitling the individual to be recipient. As the new income is supplementary it should be excluded from the income threshold means test calculation. Benefit income is only impacted after the secondary personal allowance is exceeded.

When the secondary personal allowance is exceeded income over becomes inclusive to the benefit means test calculation. The question is whether the income which surpasses the secondary personal allowance should revert back to the rate of taxation on the first income or start at the lower level. Personally I think it should start again at the lower level and tier up.

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