Rennie calls for UBI summit to help those who can’t get government support

Scottish Liberal Democrat leader Willie Rennie has today called for an intergovernmental summit on a universal basic income to take place to ensure that support is urgently made available for those who have fallen through cracks of the current furlough and income support measures.

He highlighted the plight of self-employed workers who were not trading for the entirety of the last tax year, PAYE freelancers,  self-employed workers who are paid in dividends, people who work from home and those who have recently changed jobs as examples of people who have experienced a sudden and dramatic loss of income as well as those struggling to access existing anti-poverty measures.

Across the UK, the Institute for Fiscal Studies estimate that roughly 675,000 people will be ineligible for the government’s Self-Employed Income Support Scheme, which mirrors the 80% wage subsidy scheme for the employed.

The IFS says another 1.3 million people with some self-employment income are likely to be ineligible because they received less than half of their income from self-employment last year.

His call comes as the The Poverty Alliance, Scotland’s anti-poverty network, has identified a number of shortcomings in the current crisis responses, including a lack of targeted social security support for families with children at either the UK or Scottish level, limited access to community care grants and gaps in employment protection programmes.

Willie said:

I fully understood and supported the decision to use the existing tax and spend apparatus to help people financially. Time was short and we needed to act fast. Now that those schemes are getting into place we need to take the next steps.

With economic uncertainty destined to loom for the foreseeable future, we need to ensure that everyone can afford to keep a roof over their head and a meal on the table.

We should be adopting the principles of a universal basic income: no one should be left behind. The UK Government has acted swiftly to back businesses and support furloughed workers but too many are slipping through the cracks and there’s a real risk that furloughed staff will lose their jobs when the current scheme ends.

The Scottish Government should work with their counterparts in other parts of the UK to convene an intergovernmental summit and deliver a universal support package that anyone in need can access swiftly.

For those who turn out not to need it, the money can simply be reclaimed through the existing tax system. There are huge advantages to making welfare support logical and straightforward. Canada has implemented a form of Universal Basic Income and Spain has committed to implementing it.  The international case for this comprehensive measure is growing.

We have taken some unprecedented steps in response to this virus which have been welcomed but now that we have identified the holes in the schemes, we need to go a little further. When I pressed the First Minister, she expressed an interest in a universal basic income.  But this is not an issue for later but one that we need to make a reality now.”

The 2019 Liberal Democrat autumn conference backed pilots of a guaranteed income scheme.

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  • Peter Martin 3rd May '20 - 7:18am

    ” self-employed workers who are paid in dividends,”

    You can’t be self employed a pay yourself in dividends.

    You set up a limited company, making sure that the shares are held only by yourself and family members. Then you pay yourself dividends instead of a salary and save yourself a heap of tax and National Insurance contributions in the process.

    These tax dodgers really don’t deserve any sympathy at all. They haven’t paid in as they should when times were good, and now that they aren’t, they expect the Govt to help them out.

  • Peter Martin is correct in what he says, but I think it’s a bit harsh to call us tax dodgers given that Gordon Brown set up the current system by which directors of Limited Companies top up their salaries with dividends (which are taxed, though at a lower rate). I would guess that his thinking was that it is easier to regulate people operating as Limited Companies than it is the self-employed, which I was before my accountant told me I had to become Limited. I’m not looking for sympathy, but in order to keep people employed my partner and I have not taken our salary for six months, let alone a dividend.

  • John Littler 3rd May '20 - 8:51am

    Peter Martin, it is true that those people are not self employed in the correct sense, but they are not in some way shirking anything. They are employed by their own companies and they do work legally within the system that the Government set up.
    They take money out and put it in via the Director’s a/c and make up any shortfall via a share issue, or else pay a higher rate of tax on that shortfall than the basic rate of income tax.
    Those people are not avoiding paying any legally required taxes. They pay N.I. and normally VAT and pay their own accountants to collect and assess it and other taxes for the government and possibly Import Duties. Most pay staff and employers N.I and collect staff Income taxes & N.I.

  • Peter Martin 3rd May '20 - 9:20am

    @ John Littler,

    Yes it is quite legal for company directors to pay themselves via Dividends rather than a salary. It’s in the category of legalised shirking! Tax avoidance if you like. But, I have to say I’ve run a business, I’m a company director too, both here in the UK and previously in Australia, and I’ve never resorted to such methods.

    Look, we all pay VAT, as consumers, whether or not we own companies. Like everyone else, who is registered for VAT, my company has to collect VAT on behalf of the government. But that doesn’t mean that the company actually pays the VAT. There have been times when we’ve actually net rebates when we had large export sales and we always receive partial rebates on VAT paid.

    I would say that nearly all company directors do have the choice of working for someone else if they wished to. Like anything else there are pros and cons. Obviously I consider there are more pros than cons but there needn’t and shouldn’t be a different set of tax rules for company directors.

  • Laurence Cox 3rd May '20 - 1:20pm

    @Peter Martin makes the relevant point that different forms of income are taxed at different levels. So earned income as an employee is taxed at 32% (20% income tax plus 12% employee NI) and the employer also pays NI, so the effective rate is even higher.

    A self-employed person will be paying 20% income tax plus 9% class 4 NI.

    Someone who forms a company can pay themselves a salary that is just below the income tax threshold and then make up their earnings in the form of dividends on which they pay only 20%.

    Someone who can afford to take account of the Capital Gains Tax rules can do even better as for standard-rate taxpayers Capital Gains Tax is 10% (or 18% on residential property).

    What this tells us is not that these people are tax dodgers; they are merely arranging their tax affairs so as not to pay more tax than required – a principle of British tax law; but that our taxation system needs reforming so that the same tax is paid on all income at the same level, regardless of how it is acquired.

  • Peter Davies 3rd May '20 - 4:21pm

    I agree with Freddie that we need to be specific about the form it takes. There are some really silly schemes out there touted seriously by the the libertarian right or the utopian left but mainly set up as straw men by those who can’t think of an argument against a more sensible scheme.

    We also need to be specific about how we pay for it. I’d go for equalising tax on all forms of income as Laurence Cox suggests and levelling up to the current level on employment income (32%) as a start.

  • Peter Martin 3rd May '20 - 6:37pm

    @ JoeB,

    “The tax shirking claims are just the usual ranting from those that have no comprehension of the risks and challenges involved with running a small business.”

    Did you even bother to read what I’d written earlier?

    “But, I have to say I’ve run a business, I’m a company director too, both here in the UK and previously in Australia, and I’ve never resorted to such methods.”

    Proof can be supplied on request.

  • Peter Martin,

    then you should be able to understand the plight of the Chauffeur business I cite as a example above.

    Why would you say “These tax dodgers really don’t deserve any sympathy at all. They haven’t paid in as they should when times were good, and now that they aren’t, they expect the Govt to help them out.”

    You must know that they pay corporation tax on their profits, national insurance on their salaries, and income tax on their dividends. They have paid in when times were good and are entitled to the same level of support as other self-employed.

  • Peter Martin 3rd May '20 - 7:59pm

    @ JoeB,

    I’m not a tax expert. We just pay whatever tax (income, VAT, NI, and corporation) our accountant tells us to pay but I do know that my income is taxed as normal plus NI paid as an employee of the company. The figures given by Laurence Cox above suggest that there’s no NI to pay on dividend income. Maybe I should have another think 🙂

    But, we don’t do dividends. There are some perks. We did have a company van for a time which I drove around. But it was sold and we don’t have any vehicles on the company books any longer. Vans are accepted by the taxman whereas there’re lots of questions about company cars. The laptop I’m using to write this is company owned but it is about 10 years old and was written off, for tax purposes, years ago!

    Look, I know it can be difficult in business at times. The difficult time for us was when we first started up but after that I’d say it was actually less stressful than in my previous job as an employee. But it can be difficult for anyone. We don’t say to those who have just lost their job that they are automatically entitled to a lower rate of income tax to make up for their loss.

  • @Peter Martin – paying yourself via a dividend may save yourself some income tax, but dividend income is non-pensionable, so you lose out on the tax benefits of pension saving.

    Withdrawing money from a company as a director is a complicated business as it involves balancing all sorts of different tax regimes (income, capital gains, corporation, inheritance, national insurance and all the associated allowances and rates).

  • John Littler 24th May '20 - 9:44pm

    Peter Martin,
    “it is legal for company directors to pay themselves via Dividends”

    Yes it is and if it is legal, people will do it until the tax code says different. It is not the law that suggests that Directors must be paid a salary.

    Individuals have to do a tax return at the end of the year and if the Directors a/c is in deficit without enough shares issued, they pay 20% on it
    The companies pay VAT, duties, various employers N.I . I know I have.

    The companies using that no salary format are often start ups. When I started my under capitalised new small business in ’96, I took little or no pay for some years. There has to be some flexibility in the system or countries end up being very discouraging to small business and start ups, which is what Germany does worse than us. They do most things better.

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