Lord Greaves writes…We must do more for wage-earners below income tax threshold

I have tabled an oral question in the Lords to ask the government what measures they will take to ensure that wage-earners who are below the income tax threshold will benefit from any future increases in the personal allowance.

In a little-noticed debate last September the Liberal Democrat conference debated social and economic inequality. Inequality, the conference decided in the obscure language motion-writers use, “is an obstacle to individuals determining their own destinies and reduces aspirations”.

The resolution also, equally clumsily, said that inequality “prevents talent from fulfilling its potential to the detriment of the economy and society”. And, more accessibly, that it “creates a sense of unfairness, weakening the fabric of society and setting groups of people against each other.”

And don’t we see that now as leading Tories, and some Labour too, talk about “strivers versus skivers” and denounce “scroungers” who dare to keep their curtains closed as they catch up on sleep after part-time working on the nightshifts at Asda and Tesco.

The motion went on to state that “Conference regrets that current levels of inequality in the United Kingdom are too high, leading to these problems.” And that it “believes that addressing socio-economic inequality benefits everyone, not just the poor.”

Unfortunately we are part of a coalition government that is presiding over a country where the level of economic inequality continues to rise (as it did during the 13 years of New Labour government). And since the government is systematically making the poorest people even poorer – most of those who live wholly or partly on benefits – these are not comfortable times for our party.

But are we not making great strides in raising the personal allowance, taking millions out of paying tax at all, with a target of £10,000 by the end of this Parliament and possibly up to the minimum wage next time? Yes: and I support these policies.

The problem is that they do not help the very people at the margin of living on benefits and working – the lowest paid of all. Almost 5 million workers in 2013-14 will earn too little to pay any income tax. When the threshold increases further, as the personal allowance as goes up even more, there will be millions more. And once you pay no tax, you get no benefit at all from the increase in personal allowance.

At the same time, even in work, you may be getting benefits such as the working tax credit and housing benefit. They are being capped at 1% (okay, thanks to Liberal Democrats that’s better than the 0% the Tories wanted) or in the case of housing benefit subject to all manner of arbitrary cuts. So you may be in work but the state is cutting your income and you do not benefit from the one act of state beneficence which is designed to specifically help the working poor.

Of the 4.3 million people already in this very unfair position, almost two-thirds (63%) are women. Of course most will have part-time and often casual jobs but that’s all the more reason for treating them fairly. My purpose in putting down a House of Lords question today is to spread understanding of the problem.

I hope this will start a real discussion within our party and beyond and lead to policies to solve what is really quite wrong – and in the words economists use, as a means of persuading people to get jobs it’s just inefficient. As well as very unfair.

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23 Comments

  • We need to start pushing up the National Insurance threshold too. This will help low earners. Most of those on benefits with children already get far more than the low paid.

  • Simon Beard 6th Mar '13 - 1:04pm

    Thomas

    Quite, whilst pushing the personal allowance beyond £10,000 would be good, sensible and progressive reforms to NI would be much better

  • Peter Davies 6th Mar '13 - 1:09pm

    The stated aim of the Universal Benefit was to ensure that nobody paid more than 60% of their income back in benefit withdrawal. If the Government can achieve that in this parliament, it will be a major gain for exactly the low earners you are talking about. Lib Dems should be looking to go further and get the figure down to 50%.

  • Matthew Huntbach 6th Mar '13 - 1:18pm

    Thomas Long

    We need to start pushing up the National Insurance threshold too. This will help low earners. Most of those on benefits with children already get far more than the low paid.

    Do they, or do their landlords? We are in the crazy situation where anyone with enough money to put a deposit on a mortgage for a right-to-buy property can have all further costs covered by the taxpayer. To describe the tenants of the housing as the beneficiaries of the payments, as you are doing here, is another example, of the nasty and misleading language that Tony was talking about. If the tenants were in council housing, where the rent is set at cost price, they would be receiving much “less” in the language you are using, but the quality of their lives and the money in their pockets would be no different. This is the inevitable long-term effect of the policy decision made in the 1980s to sell off council housing on the grounds that it didn’t matter because the housing is still there and the market will provide.

    Also the language you are using suggests these benefits go only to those who do not work, as soon as they go out to work and become “low paid” the benefits are taken away. Housing benefit is not paid only to those who do not work,m it is paid to those who do work but receive low pay for it. So you are continuing with this “strivers versus skivers” language by putting things in a very misleading way, so misleading in fact that one cannot help supposing you are doing it deliberately to wind up discord and to derogate people who are struggling in this era of high house prices by giving false impressions. Either that, or you haven’t a clue what you are talking about, and so are just repeating the right-wing propaganda lines you read in the Tory press.

  • The key issue for the low paid is getting the cost of living down to unshackle the poorest from welfare dependency.
    1. Keep inflation as low as possible.
    2. Enact policies to make the housing market affordable and drive rents down.
    3. Don’t be ideological about the use of benefits when looking at public policy in the round. e.g. I hope we decide to use carbon taxes to tackle climate change. While carbon taxes would be progressive (the richest output more CO2 than the poorest), we must still ensure that the inevitable increase in fuel bills does not cause hardship amongst the poorest. Using carbon tax revenues for cash welfare can do this.

  • Tony – I think your trying to address something that has bothered me, namely the in-work poor. There is a chunk of people who are in PT work but earn below the income tax threshold. They have benefitted from past rises but aren’t benefitting from any future rises.

    Often they would like to work extra hours but they aren’t available – and if they don’t have children may be earning below the thresholds for Working Tax Credit.

    I’m not even sure that benefits increases help many of these people as they will be above the thresholds for that.

    This is the group which will benefit most from the Living Wage idea

  • There are a whole spectrum of things we can do to help the worst off in society, including some things that don’t even fall within the normal tax and benefits debate.

    Building more public housing obviously has to be close to the top of the list. Making sure everyone’s housing is much more energy efficient can help protect them from energy poverty.

    Making sure bus and train fares are affordable is another crucial measure. The cost (and poor provision) of public transport can be one of the major barriers not only to getting to work but also to wider participation in society and most of the poorest don’t own cars.

    A chain of not for profit stores selling healthy food in the poorest neighbourhoods at affordable prices would also be a help, with free classes on food preparation.

    Basically, I don’t think politicians think in a joined up way. We need to ensure a better basic quality of life for people who do the right thing and go out to work. All the attention seems to go on household income and none on making sure the basic costs are not allowed to spiral out of control.

  • Ian Eiloart 6th Mar '13 - 2:40pm

    So, National Insurance is payable at 12% of income if you earn over £146/wk = £7,592/yr, and drops to 2% at £817/wk = £42,484/yr. So, I guess as we’ve raised the Income Tax (IT) threshold, it has been lifted above the National Insurance threshold. As we’re considering future policy, we should aim to equalise the two thresholds. Or at least to peg one to the other. And this should be considered as a prelude to abolishing National Insurance.

    The upshot of the NI rates is roughly to increase the basic rate of tax to 32% and the higher rate to 42%, which is pretty rough when you think about it. Raising the NI threshold help more people than raising the IT threshold, but not very many more. Raising the minimum wage would help more, but I really do think that it’s immoral to force employers to pay a wage that’s then subject to taxation: either the recipient needs the money (so it shouldn’t be taxed) or they don’t (so it shouldn’t be required).

    Perhaps the resolution is to consider minimum wage untaxable (so we’d have to raise NI and IT thresholds to say, 2000 hours at minimum wage), but provide incentives for payment of a (taxable) Living Wage. Perhaps, for example, companies could get some other taxation benefit in years when they pay at least a hourly Living Wage to all their employees. Maybe such companies could pay a reduced rate of corporation tax.

  • How about abolishing CTR and SSSC for starters?

  • Stuart Mitchell 6th Mar '13 - 7:14pm

    Duncan Stott has hit the nail on the head. Cutting taxes or increasing benefits are futile gestures when the cost of living is spiralling out of control.

    Tony Greaves: “At the same time, even in work, you may be getting benefits such as the working tax credit and housing benefit. They are being capped at 1% (okay, thanks to Liberal Democrats that’s better than the 0% the Tories wanted)”

    Some people lost all or some of their working tax credits. The biggest losers of all from the government’s fiscal policies are probably the 212,000 families who were hit by the increase in the WTC hours threshold. These are some of our lowest paid working families and they lost nearly £4,000 per year. Sadly, this received very little attention from politicians or the media.

  • Richard Church 6th Mar '13 - 7:19pm

    People earning below the income tax threshold continue to pay tax. They pay VAT. Meanwhile people on high earnings continue to benefit from raising that threshold.

    If we continue to raise the threshold, we need to raise the basic rate of income tax, using the increased revenue to cut VAT. The biggest beneficiaries would be people on low wages and benefits, and the biggest contributors would be people on higher rates of pay.

  • Joseph Donnelly 6th Mar '13 - 8:15pm

    Good article to start off a debate but I’d be interested to see a follow up from Tony Greaves with some of his own suggestions as to how we might go about solving the problems he has (rightly) identified.

    @Matthew Huntbach

    ‘Either that, or you haven’t a clue what you are talking about, and so are just repeating the right-wing propaganda lines you read in the Tory press.’

    Or is it not possible, somehow, that Tommy Long might actually have considered views on this issue himself and have reached some conclusions on it without recourse to being the hapless idiot you seem to assume anybody who disagrees with you is.

  • This especially affects those who give up working to be full time carers.

  • Tony Greaves 6th Mar '13 - 10:45pm

    Lots of interesting ideas here but hardly anyone has tackled the basic problem.

    It might be possible to use the working tax credit system to do so. It might be possible to do things to NI. Raising the Minimum Wage might help but it would (at present anyway) not just target the affected group. Any other ideas?

    Ideas such as more public housing and wider issues are important but do not target this group – they include many people who will benefit from the continued rise in personal allowance.

    Hywel hits the nail on the head – it’s about the working poor, and the poorest of that group.

    The exclusion of the 16-24 hours part-time people from WTC was a seriously wrong policy and should be reversed – but it’s an additional blow to that group of people to the one I have identified.

    I am getting more facts and information on who these people are. Many are part-time workers. Others are people in temporary jobs – who are in-and-out of work week by week or month by month. Most are probably people on the margin of the jobs market (though obviously some part-time jobs are permanent and stable and just what the person wants).

    Tony Greaves

  • This is a welcome intervention by Lord Greaves in raising this issue.

    My own preference to address this is a basic citizens income equivalent to the current level of JSA/Income support.

    The mechanics are relativelty straighforward:

    1. A combined flat rate of tax of 32% on all sources of income to replace the current basic rate of income tax and employee national insurance contributions as recommended by the Mirrlees review and Office for tax simplification.

    2. Replacement of the personal allowance/lower NIC threshold, JSA and ESA with a citizens income/minimum guaranteed income equivalent to the current level of JSA ( £71 per week £56.25 under 25,)
    payable by way of tax credit or direct Universal credit payments.

    3. Replacement of higher rate income taxes with a Land Value Tax on the top 15% or so of private landholdings assessed by rental value.

  • David Hall-Matthews 7th Mar '13 - 12:34am

    Sorry to hear you found the language obscure, Tony. But the policy paper is worth a read. A key point is that inequality is not just about incomes – it is not caused by differential incomes and is poorly measured by incomes. Many landed millionaires have very low incomes and, as you point out, some people with little chance to defend themselves are attacked for “too high” welfare-based incomes, when they are self-evidently at the bottom of the heap.

    To address inequality, you need to 1) admit how hard it is (both politically and practically), 2) look at its causes, not just its symptoms & 3) consider multiple aspects of inequality at the same time, e.g. including inequalities of wealth, education, political power, voice in the workplace (especially for part-time or short-term employees), access to services, etc. This is what the policy paper set out to do.

    It goes without saying that summarising a long, wide-ranging and complex paper in a short motion is not easy, but I hope most readers will recognise Liberal Democrat philosophy in its multi-clause sentences – and that some may even be inspired to read the full paper and get fuller exposition of the arguments. It can be found here: https://www.libdems.org.uk/siteFiles/resources/docs/conference/2012-Autumn/107%20-%20Tackling%20Inequality%20at%20its%20Roots.pdf.

    Best wishes,
    David Hall-Matthews
    Chair of Policy Working Group on Inequality

  • Matthew Huntbach 7th Mar '13 - 12:35pm

    Joseph Donnelly

    Or is it not possible, somehow, that Tommy Long might actually have considered views on this issue himself and have reached some conclusions on it without recourse to being the hapless idiot you seem to assume anybody who disagrees with you is

    This has been a major issue in the Tory press is recent months, extremely misleading comment about supposedly high payments to welfare recipients which ignore the facts that:

    1) The biggest element of these payments is housing benefit, which goes to the landlord, not to the welfare recipient.

    2) Housing benefit does not depend on employment status, so it is given to those in work on the same basis as to those unemployed.

    Ignoring these two issues leads to the assumption that huge amounts of money are being paid to unemployed people for them to spend on luxuries or alcohol or whatever, and that it is given to them only because they are unemployed. These assumptions are completely wrong, but they are stirring up hatred and discord, as they are the centre of the “strivers versus skivers” talk which Tony Greaves was writing about.

    If I am wrong, and Tommy Long did not mean these things, then he can come back here and correct me. Can he show there are some other payments he meant when he wrote about unemployed people getting “far more” in benefits than the low paid.

  • Richard Dean 7th Mar '13 - 1:11pm

    I’m surprised that the LibDem policy paper has this to say about inequality in the workplace:

    We will tackle inequality and insecurity at work by:
    • Increasing the power of shareholders

  • IS anything being done to reduce the burden of the council tax ??
    This tax must be paid by employed and unemployed alike.
    The council tax benefits system cuts off if you have SAVINGS of only £16,000, this sum will not generate much of an income from current investments or interest rates from banks or building societies today, so therefore, this is in effect a wealth tax for those who try to save their way out of poverty while at work and then happen to fall on hard times due to unemployment.
    – Council tax is the tax that gives working people a good kicking.
    Increasing the savings threshold here won’t do much for most.
    Even a higher threshold of £100,000 with today’s bank interest rates can only generate a small annual income.
    Flat charge council tax or rates are just unfair and perhaps it would just be better to switch to local income tax by way of IR presets.

  • Matthew Huntbach 8th Mar '13 - 11:01am

    Matthew Huntbach

    If I am wrong, and Tommy Long did not mean these things, then he can come back here and correct me. Can he show there are some other payments he meant when he wrote about unemployed people getting “far more” in benefits than the low paid

    I am still waiting. And if Tommy Long does not come back with a reply, will James Donnelly come back with an apology? Because if I am right – and no-one yet has contradicted me – Mr Long is shown up very much as what Mr Donnelly accused me of assuming him to be.

  • Matthew Huntbach 9th Mar '13 - 2:01pm

    Still waiting …

  • Matthew Huntbach 11th Mar '13 - 7:58am

    Well I guess it will never come. I am ashamed that there are people like Tommy Long and James Donelly in our party, who will spout out or support the spouting out of offensively misleading lines taken from the Tory press. These lines are designed to stir up hatred against vulnerable people by giving an impression about them that is completely false. I feel the same about what Tommy Long wrote as I would if someone who was a member of our party wrote something that was outright racism. As I said, if I was wrong, if the explanation for this idea of huge amounts money going to unemployed people was something other than housing benefit that goes straight to the landlord, then I was prepared to be humiliated by SOMEONE coming forward and explaining why I was wrong. But no-one has.

  • Mark Inskip 11th Mar '13 - 8:08am

    @Matthew Huntbach
    I suspect people are deterred from responding by your threatening and aggressive style.

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