Tory tax policies 'exaggerate gap between earners'

RESEARCH shows that the Government's tax policies have greatly exaggerated the increasing gap between high and low earners, writes Barrie Clement.

While the net pay of company chief executives has increased by 645 per cent since 1978-79, the take home pay of employees on average earnings has risen by 409 per cent.

Since 1979, the average gross earnings of senior directors had risen from pounds 18,333 to pounds 106,168 - or 579 per cent. The gross income of those on average earnings increased by just 403 per cent, Incomes Data Services reports in Management Pay Review.

Taking into account income tax and National Insurance contributions, the greatest tax gains have been for those receiving 500 per cent of average earnings. The biggest losers are married people with two children on 75 per cent of average pay.

According to IDS, whatever the individual circumstances of those with five times average earnings, the tax burden has fallen by about 30 per cent.

For those on three-quarters of average pay, the only slight gainers are single people whose tax burden has fallen by 7.4 per cent. Married people on three-quarters of average earnings are worse off, with the tax burden increasing by 1.3 per cent and 19.9 per cent. The review comments: 'When the movements in net pay are looked at, it can be seen that the tax changes over the last 16 years have had a quite dramatic impact on differentials.'

It points out that the net pay of chief executives has increased 66 percentage points more than their rise in gross earnings. Over the past16 years the 409 per cent increase in net pay of average earners is 236 percentage points lower than the rise in the chief executives' net pay.

Employees are less able to innovate if they are worried about losing their jobs or their performance-related pay awards, according to a report published by the British Psychological Society yesterday. In those circumstances they are more likely to 'play safe and avoid the risk taking and experimentation fundamental to innovation'.

Managemant Pay Review, published by Incomes Data Services, 193 St John Street, London EC1V 4LS.

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