Do we want to abolish relative poverty in five years? Here’s one way we could do it.
In December the Joseph Rowntree Foundation published its report UK Poverty 2017
The report states:
14 million people live in poverty in the UK – over one in five of the population. This is made up of eight million working-age adults, four million children and 1.9 million pensioners. 8 million live in families where at least one person is in work.
The question for Liberal Democrats is how can we eliminate relative poverty over the course of a five year Parliament.
The JRF report defines relative poverty as “when a family has an income of less
than 60% of median income for their family type, after housing costs”. They set out levels of income (after Income Tax, National Insurance and housing cost have been deducted) needed for different types of family units:
Family type £ per week, equivalised,
2015/16 prices
Couple with no children 248
Single with no children 144
Couple with two children aged 5 and 14 401
Single with two children aged 5 and 14 297
Source: Households Below Average Income 2015/16, table 2.2db
It is depressing to recognise that poverty among pensioners is increasing (from 13% in 2011/12 to 16% in 2015/16). In 2015/16 the Pension guarantee was set to £151.20 for single people and £230.85 for couples while the pension rates were only £115.95 (single) and £185.45 (couples). To eliminate poverty for couples we could increase the couple rate by 1.5% above the normal increase for 5 years (totally 7.73% compared to a shortfall of 7.43%)
In 2015/16 Jobseekers Allowance for those over 25 was £73.10 a week (the same as it is today). If we replaced the Income Tax Personal Allowance with a Basic Citizens Income of £48.08 a week (cost neutral for those in work in 2020) we can then increase it by £5.14 the first year after it is introduced, then £5.50, then £5.89 and finally £6.29 so that by the fifth year of government the Basic Citizens Income would be £70.90 which when added to the Job Seekers Allowance makes £144.
A couple without children would receive £70.90 each plus the 2015/16 rate of £114.85 making £256.65 which is over the poverty rate of £248.
Child Benefit in 2015/16 was £20.70 for the first child and 13.70 for the second. The JRF state that the extra needed for two children is £153 a week in 2015/16. I think the Jobseekers rate for each child was £66.90 and for Universal Credit £63.94 for the first child and £53.46. Making the total for two children with Universal Credit £151.80 and under Job Seekers Allowance £168.20. It would be beneficial that the amount of Child Benefit is increased rather than rely on benefits such as Jobseekers Allowance or Universal Credit. It would make sense to increase Child Benefits to £28.90 for the first child and £21.90 for the second and each subsequent child. The Child Benefit could then be increased by the same amounts as the adult Basic Citizens Income by £5.14 in the second year, then £5.50, then £5.89 and finally £6.29 so that by the fifth year of government it would be £51.72 for the oldest child and £44.72 for each subsequent child.
To assist those who rent we need to abolish the benefit cap. We could do it completely in year one or phrase it out over a five year Parliament by increasing it by £3,000 to each rate each year making them in year four – £35,000 main, £27,410 single in London, £32,000 main, £25,400 outside London. In the first year of our government we should restore all LHA rates to the 30th percentile and the next year increase them to the 33rd percentile, followed by the 36th, 38th and 40th by the fifth year.
With the introduction of a Basic Citizens Income of £48.08 a week the Income Tax allowances have to be changed by being reduced by £11,500 based on 2017 figures for the basic rate and £12,500 for the higher rate.
Income Tax
Basic 20%
£22,000 40%
£87,500 50%
It would be silly to keep the lower higher rate (40%) for those earning above £125,000 (2020 figure) or the lower additional rate (45%) for those earning above £150,000 (2017 figure).
With average earnings in 2017 at £28,600 it would be fair to have a higher rate of 60% on earnings above £137,500, 70% on earnings above £170,000 and 80% on earnings above £200,000.
An important change needed with the introduction of a Basic Citizens Income is increasing the lower rate of National Insurance from 2% to 12% on earning above £45,000. Not having to pay it on the Citizens Income would equal raising the threshold from its current £8160 a year to £12,500. National Insurance should also be applied to all forms of income not just earnings as well as to pensioners on earnings above the Pension guarantee rate.
In 2015 George Osborne introduced the National Living Wage suggesting it would be £9 an hour in 2020 60% of average earnings. This is too low if we have successfully increased benefit levels to 60% of average earnings. Therefore we need to increase it to 70% of average earnings which if £9 is 60% means it would be £10.50 an hour.
If we truly wanted to eliminate relative poverty we could adopt these policies and at the same time dramatically reduce income inequalities. I wonder if we are radical enough!
* Michael Berwick-Gooding is a Liberal Democrat member in Basingstoke and has held various party positions at local, regional and English Party level. He posts comments as Michael BG.
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37 Comments
Redistributing income is part of the solution but it would be difficult to do it through that alone.
Perhaps even more important would be to reduce the cost of living by reducing house prices. Lowering rents and mortgages would do as much to reduce poverty – possibly more.
I thought the idea of the universal Citizen income was, it was to abolish Job Seekers Allowance and Child Benefits, not be paid for on top.
I thought the whole purpose of Universal Citizen Income was it did away with the stigma of who does and does not deserve benefits.
As Chair of a Food Bank, I obviously agree with the Joseph Rowntree Trust analysis and see it every day.
However, I see nothing in Michael’s article about the Paradise Papers and the billionaire non-doms such as Michael Ashcroft (who recently told Staff at an exclusive private members’ club he co-owned to take a cut in their basic pay in return for a share of the service charge, in a move that could leave low-paid workers vulnerable while reducing the company’s tax payments. Workers at the Devonshire Club in London, where members pay £2,400 a year for access to a 68-room boutique hotel, brasserie and champagne bar, were asked last month if they would take a formal pay cut that would reduce their earnings to the level of the legal minimum wage.
The party should set up a panel to realistically examine all the options asap, to research findings by the JRF, Shelter, the Child Povery Action Group and others instead of leaping into the next quick fix it notion.
It is impossible to abolish relative poverty, as no matter how high incomes are there will still be many people earning less that 60% of median incomes.
If everyone’s salary doubled tomorrow, many people would in fact no longer be poor but we would still be left with a large statistical number in relative poverty, even if in reality many people had been lifted out of it.
The opposite is also true, should there be massive redundancies in the months ahead and the average income reduces, some people will be statistically lifted out of relative poverty by the fact that the bar has been lowered, even though they are in exactly the same position as before, regarding their own finances.
We now need to look afresh at how we define poverty in the UK.
Recently on Question Time the Labour MP Chuka Umunna described the number of poor in the UK as living in absolute poverty, which is less that $1 a day and may be applicable in some parts of the world, but not here. If the “experts” on TV can get confused, it is no wonder the public do not know what to believe.
There are no doubt many people in the UK living in real poverty, however it is defined, but clearly there are others who can get along fine, even with low incomes, such as pensioners with no mortgage or rent, free transport and healthcare including prescriptions (here in Scotland) and much more. While others with a higher income, but with much higher housing costs and other costs will struggle to feed their children, even on an income above the defined poverty level.
Income inequality and poverty is a major problem and we must work towards its reduction here in the UK and abroad where we can, but we must first agree what it actually is in the UK, so that our policies can work – if we are ever lucky enough to be able to implement them.
Michael is right to emphasise the subject here.
Those with children do get more from the system, and that is at a far higher level even today than those without. To fall on hard times with children , means they should get that support. There was a culture of having children thinking that the system, would support them. There are many who consider that not responsible and therefore do not have children because they cannot yet do well by them. The low wage economy and the availability of job security makes these blurred areas for policy and solving those now.
I agree with David Raw here, the greed and hypocrisy and immoral behaviour in the very top of some areas of the economy has got to be dealt with.
Liberalism is not it’s wrongly named non friend or relative, neoliberism, any more than decent democratic socialism is awful national socialism!
Seebohm Rowntree published his seminal work “Poverty, A Study of Town Life” in 1901. It is widely regarded as spurring radical Liberals to action not least due to the fact that barely enough men could be found who were actually fit enough to fight the Boer War.
Rowntree defined poverty as falling below a calculated minimum weekly sum of money ‘necessary to enable families to secure the necessities of a healthy life’. 28% of York’s population were living in the most serious poverty (or absolute poverty), unable to acquire even basic necessities such as food, fuel and clothing. There were discovered to be two chief reasons for such poverty. Firstly, in 25% of the cases, individuals or families were impoverished as a result of an absolute lack of income, on account of the chief wage-earner being either dead, disabled or otherwise unable to work. However, in around 50% of cases, the chief wage-earner was employed in regular work, but paid mere pittance, unable to sustain a healthy level of living. In the remainder of the cases, income was satisfactory to purchase necessities, but the spending of it was often “unwise”, or simply unnecessary. Importantly, the study revealed that poverty in Britain was widespread, and not simply confined to the sprawling urban metropolis of London.
While conditions have improved immeasurably since the beginning of the 20th century, many of the same underlying issues remain. Daniel Henry points the way when he says “Perhaps even more important would be to reduce the cost of living by reducing house prices. Lowering rents and mortgages would do as much to reduce poverty – possibly more.”
If you want to increase govn revenue from income tax you actually need to decrease it as current levels are a disincentive to risk takers and whilst there are many small businesses they are not, in large, doing anything innovative or particularly productive (and often dependent on tax credits to actually survive)… gaming of the tax system and moving “production” overseas is very prevalent in the more successful players, especially those who have exponential earnings once they get motoring (so in effect they use UK tax breaks to set up and then the next thing you know they are producing stuff in third world countries (in tax free zones) and making all the profit disappear as far as the UK tax man is concerned. This actually makes “good sense” on quite low profit/turnover so trying to steal 70 percent of someone’s income would see a mass exodus.
Obviously, the article highlights one of the big problems with citizens income, it can be highjacked and reformatted in a way that would bankrupt the country, unless it is going to replace the whole benefit system and make people work to top it up then it will end up turning the country into a fiscal mess.
With food and basic clothes so cheap not sure there is any reason for increasing benefits but govn needs to expand hostel places to cope with the rough sleepers etc.
Yes, Michael. Another glorious proposal. Almost tops your May 2016 article suggesting we leave the EU and ban freedom of movement. As the preamble to the Lib Dem constitution states, “we seek to balance the fundamental values of equality, equality and equality.”
@ William Fowler I gather you recently joined the Liberal Democrats because you were disillusioned with the Tory Party – but unfortunately you seem to have brought a bit of baggage when you say, “If you want to increase govn revenue from income tax you actually need to decrease it as current levels are a disincentive to risk takers”.
You are suggesting what is known as ‘the Laffer Curve – ‘which is widely discredited (as long ago as 1980 by the Institute for Fiscal Studies).
The Laffer curve – Institute For Fiscal Studies – IFS
https://www.ifs.org.uk/publications/2870
You should really call it “tax cuts for the rich” – as practised by Ronald Reagan, Margaret Thatcher and currently by Donald Trump. I struggle to understand with why you think there’s a ready audience for it in the Liberal Democrats.
It is great to see such bold proposals so carefully costed and with such a fine aim – thank you, Michael. The debate you have started here is so worthwhile, and will hopefully bear fruit in party policy.
William Fowler 3rd Jan ’18 – 2:23pm…
Your comments remind me of the Reagan/Thatcher ‘Trickle Down’ promises…One might think the Reagan/Thatcher era was the most utopian in history, when everyone prospered; tax cuts allowed productivity and hard work to be rewarded and provided unprecedented nonstop economic expansion.How could we have forgotten this? Those of us who lived through it know why – because it never really happened that way….
Forgotten is the recession of 1981-82, which began shortly after the Reagan/Thatcher first tax cuts. the worst recession since WW2 which lasted almost two years. Also forgotten is the fact that Reagan was forced to raise taxes several more times and Thatcher, even with the North Sea oil bubble and selling the ‘family silver’, doubled ‘VAT’ and increased tax on fuel, etc…
,She raised interest rates in order to cool down the economy. In keeping with her free enterprise ideology she lowered income taxes. The tax rate for the most wealthy was cut from 83 percent of earnings to 60 percent, and the common rate was reduced from 33 percent to 30 percent. She believed that this would “benefit the economy by encouraging entrepreneurship and investment.” …To balance things she cut spending for most government programs and money for housing, local governments and education…
Even with all this, a rise in Inflation (prices) continued and the economy plunged into recession. Unemployment climbed to ten percent and was soon around 12 percent. Private investment declined to around 11 percent. It was Britain’s worst recession since the end of the war. The mass unemployment in the inner cities was seen as contributing to riots across Britain in 1981. By December 1981, Thatcher’s job approval rating fell to 25 percent. Only the ‘engineered’ Falklands conflict saved her bacon…
Although eventually there was job growth and the stock market rose, one thing that did not rise accordingly was wages for middle- and lower-class workers. What did start was an obscene rise in corporate executive wages, bonuses and severance packages. This trend has not abated. Trickle Down????? More like a Golden Rain’ for the wealthy.
William,
If you are going to push the Laffer curve remember
Laffer was recently asked about the mess that is Kansas, and he responded by saying Gov. Sam Brownback, R, had the right idea in cutting taxes. He just failed to cut taxes massively enough.
So he’s now saying the cuts have to be massive to work, what public services are you thinking of doing without to balance that? NHS, Police, Armed Services, Pensions perhaps?
If none of the above I think you need to find a new economic policy because the one you have doesn’t balance.
Some light reading about Kansas http://www.chicagotribune.com/news/opinion/commentary/ct-kansas-sam-brownback-tax-cuts-20170321-story.html
Brownback promised tens of thousands of new jobs and an economic renaissance in Kansas. He was elected, pushed his legislative agenda through the Statehouse, and signed his bill in May 2012. It initially lowered the top personal income tax rate to 4.9 percent (now 4.6 percent) from 6.45 percent, and eliminated income tax on profits for owners of limited liability companies, subchapter S corporations and sole proprietorships.
The results have been disastrous for Kansans. Massive budget shortfalls, huge cuts to basic services such as road maintenance, and slashing of education budgets became annual events. You can’t blame broader conditions for the state’s weak agricultural- and energy-based economy; as Bloomberg columnist Justin Fox pointed out, Kansas lags its economically similar neighbors in nearly every major category: job creation, unemployment, gross domestic product, taxes collected. Pretty much across the board, the gap between Kansas and nearby states has widened, and it has been getting even wider lately.
So when Laffer made the claim that the Kansas tax cuts were not big enough, he was correct — but not for the reasons he claims. Theoretically, incremental changes in tax policy can change the behavior of homo economicus. The problem is modest incentives fail to rise to the level needed to change the behavior of homo sapiens.
Why is this? A tax cut of only a few percent is not worth the attempt to change people’s inertia or habits. It is doubtful that it is going to nudge people to make big new investments or hire new workers, or attract new residents to your state.
In my article I am not sure I emphasised enough that all the figures used for benefits and income tax level changes need to be increased by inflation from the date from which the figure is being used from. For example the £144 needed for a single person is the figure for the 2015/2016 year and needs inflation applied to it for two years to get to the current figure and thereafter needs to be increased by inflation to when the general election takes place and for another five years of increases for after the general election.
The other point I failed to make is that the income tax increases could be phrased in as the benefits are increased. The income tax rates and allowances are after five years, but take no account of inflation and so the allowance levels would need to be increased with inflation from what they would be when the changes are brought in.
@ Daniel Henry
I agree we need to build more houses to reduce house prices and rents. However, my article is about the amounts of money people need not to be in relative poverty excluding housing costs.
@ John Barrett
“It is impossible to abolish relative poverty, as no matter how high incomes are there will still be many people earning less than 60% of median incomes” (edited).
According to common sense this appears to be true. However if incomes for the poorest are increased and the incomes for the richest are not then it is possible. I put some figures in a spreadsheet with 35 incomes that produced an average of 100. I then increased the bottom 11 (28%) to 70 which increased the average to 108.8571. 60% is 65.31 but none are lower than 70. Which means it is possible. I don’t think it is easy. If there was the political will it could be done. My question is do we have the political will?
Expats.
If you actually look at what many advocates of supply side economics and trickle say it’s full of obvious deception. So you get co-existence of trickle down with the desire to lower wages to make industries more competitive, carrots for the wealthy , sticks for the workers. It’s just the protection and concentration of power and wealth masquerading as a noble endeavour.
But Glen you voted for the Tories to carry out Brexit and guess what they love a small state
‘The talented and hard-working have nothing to fear,” says Dominic Raab, Conservative MP for Esher and Walton, with just the faintest hint of menace. It is an airless, lazy day in mid-August. The House of Commons cafe is half-deserted. But Raab, firm-jawed, slightly gaunt and a rising star of the Tory right, is spending the parliamentary recess in the traditional manner of ambitious politicians: using the Westminster news vacuum to attract attention to himself and his ideas.
Wearing jeans, the 38-year-old backbencher is talking – warily – about transforming the British workplace. He thinks current employment law offers “excessive protections” to workers. “People who are coasting – it should be easier to let them go, to give the unemployed a chance. It is a delicate balancing act, but it should be decided in favour of the latter.”
https://www.theguardian.com/politics/2012/aug/22/britannia-unchained-rise-of-new-tory-right
I do hope you are one of the hard working and not a coaster.
Trade unions have issued a warning about the possible impact on workers’ rights if Britain leaves Europe’s single market and instead seeks to join a flagship Pacific trading group after Brexit.
After claims that officials had embarked on informal talks about future membership of the Trans-Pacific Partnership (TPP), the TUC general secretary, Frances O’Grady, said such a move would be “scraping the bottom of the Brexit barrel”.
“Trade unions around the world have opposed this deal because it allows labour abuses, it puts public services at risk and it gives too much control to corporations,” she said of a trading pact that has lost the support of the US but still includes 11 potential members including Australia, Japan and Mexico.
https://www.theguardian.com/politics/2018/jan/03/liam-fox-says-uk-considering-option-of-joining-pacific-trade-group
I know my brave Brexiteer tis not the Brexit you voted for, but as I keep telling you “You get the Brexit you are given, not the Brexit you want”.
I am sorry, I made a mistake in my article by not looking at the correct table for the current allowances for income tax. My intention was to reduce the current 40% starting level by £11,500 but mistakenly thought it was £33,500. However it is £45,000 so my £22,000 figure should have read £33,500.
@ William Fowler
It is important to tax all profits generated in the UK, not just those made by UK companies. However, in this article I have concentrated on the need to increase Income Tax and National Insurance to reduce inequalities of income. (As a Liberal I think it is not a good thing to eliminate all income inequalities.) I do not think you agree with the need to reduce inequalities of income. Taxation is not theft. I do not think you see the need to increase the income of those in relative poverty to give them more of an equal amount of liberty to those not in relative poverty. It appears you do not accept the Joseph Roundtree Foundation report based on the government’s own figures.
However I do think the government should increase the number of hostel places for homeless people to ensure no one has to live on the streets in the UK.
I don’t recall the last time I saw you comment on comments made on your comment in a thread. I do hope that you will engage with people as you did when you had an article published here.
@ Lorenzo Cherin and Katharine Pindar
Thank you for your supportive comments
@ David Raw
You might not like my suggestion for how we could eliminate relative poverty, but it clearly points out that it can’t be done within the current level of taxation. When the party last considered our welfare policies the working group was constrained to produce policies within the then current budget for social security without the proposed Conservative cuts of £12bn and produced Policy Paper 124 “Mending the Safety Net” (https://d3n8a8pro7vhmx.cloudfront.net/libdems/pages/12524/attachments/original/1470309098/Social_Security.pdf?1470309098) which was passed at our Autumn Conference in 2016. It does not even try to reduce relative poverty.
@ Liberalise
You have misunderstand what I was calling for in my May 2016 article. I was not calling for us to leave the EU. I was calling on us to try to reform the EU so all EU governments would have to manage their economies to achieve full employment, which I defined as only having 2.5% of those of working age being unemployed. By doing this the push factors of economic migration would be reduced and having full employment would reduce inequalities and we could appeal to the disaffected. I have not rejected liberty or community. In fact increasing freedom is my motivator for reducing inequalities. People who are poor are not as free as those who are richer. Everyone should be as near equally free as society can achieve.
@ Matt
Some people want to abolish all benefits and replace them with Citizen Incomes dependent on age group. I don’t support this. In the recent past I had supported reducing Jobseekers Allowance by the amount of the Basic Citizens Income once Jobseekers Allowance is restored to the real value it had in 2010 so the costs of introducing a Basic Citizens Income would be less. However, as we as a party are talking up that we should deal with poverty I have changed my position so unemployed people should receive the new Basic Citizens Income on top of their Jobseekers Allowance. Also I think as liberals we should have as our policy the abolition of all sanctions on unemployed people except the need to sign on every two weeks providing some evidence they have been looking for suitable work during the previous two weeks.
Frankie
I didn’t vote for the Tories to do anything, I was given a vote on the EU and voted on the EU. And actually it appears the Tories were weakened by the Leave vote. Anyway I’m not going to backwards and forwards with you because it’s pointless.
wouldnt we do better to focus on actual poverty , rather than relative. brexit will help improve the latter anyway by damaging the more productive and higher paid parts of the economy like the City
@David Raw @ Frankie (@ William Fowler)
You say Laffer is discredited and you’re probably right but you don’t seem to know why you’re right beyond referencing the highly neoliberal, and therefore unreliable, Institute For Fiscal Studies.
If we consider a simple tax, like the tax on cigarettes, it’s pretty easy to understand that if the tax is ultra high that Govt won’t get much revenue. People will either stop smoking completely or they will buy only imported or smuggled cigarettes on which there is no tax due to the Govt. On the other hand, if the tax is ultra low that won’t bring in much revenue either. So there must be some optimal level of tax at which the Govt maximises its revenue. This is Laffer’s argument, so there is something to it.
However, it gets a bit more difficult when we are considering income and other taxes. Particularly on the higher bands. Its quite possible that if we put up the top rates that revenue will fall from that particular tax because there will be a switch to taking income in other ways, perhaps in the form of capital gains. Maybe, in total, the tax tale will still increase. So we need to take into account the total revenue from all taxes and this is where it gets tricky.
Say we put up VAT. It’s quite likely that VAT receipts will rise. But everyone will have less to spend so then the amount of money that circulates will fall. The economy will become more depressed and therefore the tax tax could well fall.
So it always comes back to the point that nothing is easily “costable” either in terms of extra spending or extra taxation. Governments should make adjustments to both to regulate the economy rather than worry about revenue per se. A tax cut can be a Keynesian stimulus injust as extra Govt spending can be.
It’s much easier to understand all this if you just consider that Government spends money into existence and destroys it when it collects it back in tax. The deficit is therefore what is saved by the users of the currency.
@ Peter Martin “but you don’t seem to know why you’re right”
How the ……. can you possibly know what I don’t know ????????????? Happy New Year
No Peter we are right because we can point to examples where Laffer has been tried Kansas and the total failure it was. So you can point at your theoretical models and we can point at facts and experience. The strange thing is real life trumps models every time. Models need to be changed to account for real life, hence Laffers squeal that it failed because they didn’t cut taxes enough. He is wedded to his model (as are you) and no matter what happens he will never believe it won’t work (even when it doesn’t, his response will be “we need more tax cuts”). Personally I don’t think economics is a science as it deals with the irrationality of mankind (Bitcoin anybody), all models will fail as they struggle to deal with the fact that mankind (and womankind) can hold numerous conflicting and totally irrational views at the same time. I suppose if an economic model can ever capture the irrationality of the human species you might have a chance, but we can’t yet and until we can all models will fail under the right or wrong circumstances.
Glen,
You voted for Brexit when we knew the Tories would implement it. Therefore either your happy they will implement it or you just voted for it without thinking of the consequences, either way it’s your baby and your responsibility.
Glenn:
You may not have voted for the Tories, but you did vote with an unpleasant wing of the Tory party who were always likely to make the running on Brexit. This was and still is obvious. Perhaps you did not notice that there was no plan (and still no plan), nonetheless, the Brexit you get is the Brexit you voted for.
@ Frankie,
Yes you are right to place observed results above theory. The problem for your argument is that the Govt of Kansas is a user of the US dollar not the issuer. You’d really need to look at the effect of Laffer inspired policies at Federal level rather than local level. Supporters of Ronald Reagan, who was influenced by Laffer, would claim that the economy did well under him.
It did. He cut taxes and the economy recovered from a slump. Standard Keynesianism. The deficit didn’t shrink though, prompting Dick Cheney to famously say “Reagan proved that deficits don’t matter” some years later. Trump is thinking along the same lines.
https://newrepublic.com/article/133431/donald-trump-right-deficits-dont-matte
Martin and Frankie
And that kind of faulty logic would mean you voted with the supremely unpleasant Osborn.
The EU vote was on the EU and that’s what I voted on. I do not support the concept of the EU, was given a vote on membership of the EU, and voted on membership of the EU. I would vote the same way again. I think it was the correct thing to do and reaches further than transient political careers or wings of political parties. I respect your right to disagree with that decision and expect the same courtesy in return.
@ Glenn,
I agree. Whichever way we voted we’d have ended up in siding with someone we disapproved of. I’m not against the idea of an EU per se. If we had a collection of freely trading independent states I’d be happy enough with that. What we had in EEC days worked well enough.
There’d be no need for a European parliament or a common currency. The introduction of both has to mean that the EU is just a step towards a future USE. It has to happen otherwise the EU won’t survive. I’d rather get off the train now in case it crashes on the way!
Anyone is free to disagree with me if they like, but my argument isn’t any more extremist than wanting to go along with all that. I agree with you. We should be courteous in our disgreements. I’ve been called all kinds of things, like being uneducated, thick, xenophobic, even a Nazi. It’s quite out of order.
I do look at Michael BG’s proposals and wonder whether he has taken into account human behaviour; a 92% effective tax rate for anyone earning above £200k (80% income tax + 12% NI) will this seriously discourage people from working, or will they just find ways of avoiding paying tax as they did in the late 1970s when top tax rates were similarly high (83% on earned income and 98% on unearned income)? Will we see companies paying for employees’ houses, as an alternative to giving them higher pay?
I remember when the Government brought in salary sacrifice, originally to help the lower-paid with the cost of childcare, and during the Coalition Government companies like the one I worked for at the time used it to reduce their labour costs, by offering salary sacrifice in return for the employer paying the employee’s share of their company pension contributions. in this case the workers were not any worse off, but the employer saved on the employers’ NI contribution. The higher the level of taxation, the more incentive there is to avoid it.
Laurence Cox 4th Jan ’18 – 1:31pm…The idea that lower taxation reduces the ‘fiddlers assumes that their is a figure at which ‘fiddlers’ will stop fiddling…Sadly, that figure is ‘zero’…
Why is it that those who earn far more than they could ever spend are the worst offenders… Michael Ashcroft is one of the UK’s richest men and yet he is so greedy as to pick on an already low paid workforce to save a few quid…*
*He recently told Staff at an exclusive private members’ club he co-owned to take a cut in their basic pay in return for a share of the service charge, in a move that could leave low-paid workers vulnerable while reducing the company’s tax payments…
@ Laurence Cox
Thank you for posting regarding my article and for raising the issue of the 80% Income Tax rate and 92% deduction rate including National Insurance. I have already made clear than National Insurance should be extended to all forms of income and this would include payments in kind such as paying one’s mortgage or giving them a house. Income Tax already applies to these things and a company and/or employee who didn’t declare these forms of income would be guilty of tax evasion. It is likely that the government would need to employ more people to ensure people are not evading the increased taxes and to ensure those who do are prosecuted in the courts.
According to the JRF a single person needs £7488 a year to live on excluding housing costs not to be living in relative poverty. Every person receives £3686.80 a year in Basic Citizens Income (equivalent to an Income Tax Personal Allowance of £18,434). From their income up to £33,500 they receive £23,584 (more than three times what they need to live on, excluding housing costs). On the next £54,000 they receive £28,512 (a further 3.8 times more than they need to live on). On the next £50,000 they receive £22,000 (a further 2.938 times more than they need to live on). On the next £32,500 they receive £11,440 (a further 1.527 times more than they need to live on). On the next £30,000 they receive £7920 (£432 more than they need to live on).
Therefore a person earning £200,000 will receive including their Basic Citizens Income £97,142.80 after paying Income Tax and National Insurance. This is 12.97 times more than the £7488 needed to live on excluding housing costs. To have a further £7488.80 of income a person would need to earn a further £42,550. This seems fair. What on earth does someone need a further £7488.80 for if they already receive £97,142.80 a year?
@Michael BG
I don’t think that you can stop tax avoidance that easily. For example the current tax rates on Capital Gains Tax are much lower than your higher rates of income tax. Are you going to raise Capital Gains Tax to 92% for gains of over £200k as well?
Are you also going to stop people incorporating themselves as companies?
The University Vice-Chancellors salaries exposé shows that they already get free housing, no doubt it is treated as an expense because they are required to host events on behalf of the University; how are you you going to discriminate between this and,say, a country vicar who lives in a vicarage as part of his or her job?
I have also seen companies where people go on expensive foreign holidays cost-free; the companies include some lectures as part of it and it becomes a conference (so chargeable as an expense to the company).
And don’t get me started on the scams that self-employed people use; a friend of mine was a tax inspector until he retired a few years ago and he used to tell me about the running battles they had with taxi drivers over getting them to declare all their income. Of course, that is evasion not avoidance, but it is endemic amongst the self-employed, particularly those who can be paid cash-in-hand.
@ Laurence Cox
National Insurance and Income Tax do seem to be payable on payments in kind. I think the ONS state this came in from April 2016 but there are exemptions for carers and ministers of religion.
I would keep capital gains tax levels unchanged to not discourage investment and business growth. I would not stop people forming companies and giving up income for capital.
I found it quite difficult to find out who earns what. The latest figures I could find were for 2014-15 (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/608854/National_Statistics_T3_1_to_T3_11_publication_2014_15_revised.pdf). It states that 30.7 million people pay income tax. Only 18% pay tax at higher rates than the basic (on incomes above £41,866). Only 5% earn more than £70,000 and only 1% earn more than £160,000. It depends on your assumptions about people. Are all of these people going to try to break the law or 50% or 25% of 5%? Are they going to start breaking the law if they earn more than £45,000? If we assume that half of those earning more than £160,000 try to break the law that is 153,500. I think 1097 more people employed by the government could check out their tax returns. I therefore think less than 1000 new government employees would be needed and I think it is possible to police the tax system to ensure there is little tax evasion.
Do you know how many self-employed people earned more than £160,000 in 2015? Would the taxi drivers you are concerned about really be able to pay themselves in kind? I don’t think there would be much difference after my reforms than before with the problems concerned with self-employed like taxi-drivers who receive most payments in cash.
Do you really think someone would rather accept a free holiday for themselves rather than a much larger pay rise that they could spend how they wished? I don’t think many would.
@ Simon McGrath
“wouldnt we do better to focus on actual poverty , rather than relative.”
I am sorry I haven’t commented on your comment earlier. Relative poverty is the standard measure of poverty in the UK, there is little agreement on what is absolute poverty. Relative poverty is what affects a person’s freedom. If someone lives in relative poverty their freedom is relatively reduced. As liberals we should be concerned with relative poverty if we want a truly liberal society. If we eliminate relative poverty we will also have eliminated absolute poverty.
@Michael BG
You do not seem to understand the difference between tax evasion (which is illegal) and tax avoidance (which is legal, although the recently introduced General Anti-Abuse Rule discriminates between tax arrangements and abusive tax arrangements).
There was a big fuss back in 2016 where the BBC was found to have been paying many of their higher-paid staff through service companies, which reduced their tax liabilities. As they were doing this for tax rates (income tax + NI) of only 47%, how much stronger the incentive would be if tax rates reached 92% for the same income levels. We would probably find incorporation becoming an attractive option for the 5% who earn over £70k. How many taxmen will you need to employ to monitor around 2.5 million tax returns?
This is why I find your ideas half-baked. You propose massive income tax increases, but do not consider the effect these will have on human behaviour even though the last time that taxes were at these levels in the late 1970s there were major differences in behaviour. Because of your refusal to look at capital gains and incorporation, there are loopholes in your proposals big enough to drive a coach and horses through. Much better to concentrate on tax evasion, which even the Inland Revenue accepts costs us £6bn every year (and some people think is much higher than this).
@ Laurence Cox
I don’t know why you think I don’t understand the difference between tax evasion and tax avoidance. I am very clear on the difference.
I don’t know where you get your figure of 2.5 million tax returns because 5% of 30.7 million is only 1.535 million. The figure of 1.53 million assumes everyone earning more than £70,000 would declare themselves as self-employed or as a company. I don’t think this would happen. My 1000 new tax workers should be able to police at least 240,000 tax returns a year, which is 15.68% of those earning more than £70,000. When I was self-employed the law was that you can only work at the same address or for the same company for a limited time. If this has changed we would need to restore it. The National Insurance rates for self-employed people would also need to be increased to 12% on all income.
Please give an example of how someone being paid £80,000 would pay less tax under my changes including the equalising of NI for the self-employed.
If they set up a company then they would be liable for employer NI of 13.8% and employee NI of 12% plus Income Tax at 20% on the first £33,500 and 40% on the rest they pay themselves. This would cost them more. I suppose they could not pay themselves any salary the whole £80,000 would be profit and they would pay £15,200 in Company Tax and then pay 12% NI on the £64,800 and Income Tax of 20% on the first £33,500 and 40% on the last £23,524. Again they would pay more. I don’t see how they would ever be liable for Capital Gains Tax because if they are the only person employed how they could sell their “company”.
During the general election we and the Labour Party published costing documents. We stated we would gain £2.5 billion a year from our anti-tax avoidance measures, while Labour stated they would gain £6.5 billion a year. I have not allocated these “mythical” increases to the government income to my reforms. I am sure if we were in government we could spend the money on something useful maybe Education (we promised £5.755 billion more in our 2017 costings manifesto).
Old age pensioners have free prescriptions in England as well as Scotland.
There will always be wage differentials and Trade Unions have been assiduous in maintaining them. Train drivers get more than guards for example and there would be another strike if that was changed. Human nature will ensure that there will always be relative poverty, even Christ recognised that.
@ nvelope2003
It would be possible in a utopian socialist society to have policies where everyone had the same income. However, liberals accept it is utopian and the enforcement is likely to be illiberal. However, my suggestion as I pointed out above (3rd Jan ’18 7.12 pm to John Barrett) is possible. No one would have an income less than 60% of the average but many people would still have incomes above the average.
Also I gave examples in some detail of the effects of the changes to tax on certain incomes. My suggestions would mean that a single person would always have an income of at least £7488;
that a person earning £33,500 would end up with £27,270.80;
that a person earning £87,500 would end up with £55,782.80;
that a person earning £137,500 would end up with £77,782.80;
that a person earning £170,000 would end up with £89,222.80;
that a person earning £200,000 would end up with £97,142.80.
As I stated above, “Therefore a person earning £200,000 will receive including their Basic Citizens Income £97,142.80 after paying Income Tax and National Insurance. This is 12.97 times more than the £7488 needed to live on excluding housing costs.”