FOCUS: More tax plan case studies revealed

Thursday 12 January 2023

The States have provided further examples of how the proposed changes to tax and social security could affect different individuals and households ahead of the hotly anticipated debate on changing the way the island raises revenue from our earnings this month.

The Policy & Resources Committee's package which will be put to the States for approval contains these key elements:

• A new 15% Income Tax band on everyone’s income up to £30,000. For someone on median earnings (about £37,000 a year) this will reduce their tax bill by around £900 a year.
• An increase in the personal income tax allowance of £600 which will reduce people’s bill by £120 a year.
• A broad-based GST at 5% with relief for a limited number of things like rents and mortgages. This is expected to increase household costs by about 3.4%, which would be about £1,100 for someone on median earnings.
• A restructure of Social Security contributions to give everyone an allowance. This makes the system more progressive and would mean an employed individual on median earnings gaining about £600 a year.
• Pre-emptive increases to pensions and benefits to anticipate the inflationary impact of a consumption tax.
• A scheme to provide financial support to certain low- income households outside of the benefits system.

Express previously published several case studies when the proposals were first published. You can read those HERE. Those examples are not reproduced below.

Single adult with children (private market renter):

This household would keep an extra £1,045 per year because of the income tax and social security changes, but the costs of GST would significantly reduce this saving to £9.

Pictured: Different case studies are available to compare with your own situation. 

This assumes the parent or carer earns a total of £40,288 including benefits, but not income support. 

They would also not qualify for increased income support or a one-off cost support payment.  

Single adult (no mortgage):

An adult with a gross income of just £10,987 would not be charged a penny in tax or social security, saving them £557 compared to the previous system. 

Their GST costs could total £509 and a cost support payment, since they are not in receipt of benefits, of £450 would be provided.

This person would therefore be 4.5% better off when compared to the present system.

Single adult with children in the affordable market (social rental or partial ownership):

This parent or carer earning £14,771 including income support would also not pay income tax or make social security contributions.

They would see their income support increased by £739 per year to offset an estimated GST of around £700.

That would result in the household being approximately £40 better off than now.  

Pictured: Different case studies are available including couples with children, and without and single parents and single adults without dependents. 

Two adults renting:

If this household earned £31,595, they would make a saving of £1,466 after income tax and social security under the proposed package.

An expected GST cost of £1,142 per year would see an additional £324 in the bank. 

Single pensioner in Extra Care housing:

This person would qualify for additional income support and an increased pension to offset a GST bill of just over £900 per year.

They would be just under £500 better off assuming they were in receipt of £20,289 each year.

Pictured: Different case studies are available to compare with your own situation.

Two adults (no mortgage):

If this household earned £171,365 per year, they would be around £600 better off due to the new tax bracket and allowances, taking home a net £129,957. 

However, they have an expected GST bill of over £5,000 which results in them being thousands of pounds worse off than they are currently.

Two pensioners (no mortgage):

A pair earning £333,308 would also see a modest change in their tax and social security bill because of the reforms, but GST would incur upwards of £7,000 on most of their purchases.

Their pension would be increased by £119, but would still be worse off because of the consumption tax. 

READ MORE...

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Tax plan includes 5% GST - but P&R says most families will be better off

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"Unacceptable" and "damaging" service cuts if States reject GST

Is corporate tax the answer?