Rational Anarchist left a comment on my previous post Universal Credits/Single Unified Taper:
Please forgive the somewhat simple questions - I just want to make sure that I understand:"...'Universal Credits' of £65 for the first adult per household, £52 for the second adult and £50 per child..." I assume this would roughly replace the current tax allowance of 6470 (ish) (1) and child benefit? (2) What about if there's more than two adults in a household? (3)
1) Politicians don't seem to realise that the personal allowance is a kind of (nearly) universal benefit and a form of redistribution in and of itself, so I proposed leaving the official personal allowance at £6,475.
Here's how the Single Unified Taper works: claiming the Universal Credits is entirely optional, but if you do so, the total value of your UCs (including a notional amount for social rent/Council Tax) is divided by 31% and deducted from your £6,475 personal allowance to give a negative PAYE code (aka K-code). The PAYE deducted from your salary is then the lower of a) 50% of the cash salary or b) 31% of [the cash salary plus the K-code]. These are tried and tested PAYE rules already in existence.
As a simple example, single adult claims £65 per week UC, divided by 31% = £210. This is deducted from the weekly personal allowance of £125 (£6,475 divided by 52) to give a (weekly) K code of £85, and our hero earns (say) £130 per week. The tax deducted is the lower of £65 (50% x cash salary) or £67 (31% x [cash salary + £85]).
In other words, at that level of earnings (£130 per week or £6,760 per annum) the UC received and the PAYE deducted net off to nothing, this is the effective personal allowance (although not the official one - it would be helpful if the two were aligned).
If our hero earns more than £130 a week cumulatively over the course of the year, then his marginal tax rate falls back to 31%, but if he is sure that he will consistently earn more than that, he might not bother claiming the UC and just use his tax-free personal allowance instead.
2) In the spirit of keeping things simple, yes, I assumed Child Tax Credits and Child Benefit are rolled into the £50 per child per week. Not my personal preference, but hey, I was trying to answer their questions as to how it might work.
3) I suppose for consistency, third and subsequent adults also get the lower rate of £52 per week.
Wednesday, 11 August 2010
A bit more explanation on Universal Credits/Single Unified Taper.
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8 comments:
I like the idea but it still leaves in place the "tried and tested" PAYE system which employer's & HMRC staff do not understand. I assume that your system would amalgamate tax & NI FINALLY and shatter some of the misconceptions that NI actually means something different to income tax in the really real world.
Isn't this just the same as citizens income with added complications (increased admin costs) though?
"Isn't this just the same as citizens income with added complications (increased admin costs) though?"
Shhhh, don't tell them that! We might get this passed if they don't realise...
Thanks MW - much clearer :-)
SW:
1. The PAYE system ain't that bad. In any event, a third of earners would be on flat 50% deduction (nice and simple for payroll lady); the top half would quickly notice there is no point claiming UC and paying the extra tax, so wouldn't bother claiming and would have PAYE deducted as normal, it's only a sixth of earners who might drift between the two systems.
2. Another one of my campaigns is to get them to admit that NI is just income tax on wages and roll the two into a flat tax of (say) 31% (see Citizen's Income Trust, UKIP).
If people insist on the 'contributory principle' (which is in itself insane and the opposite of 'means testing' which is also insane) then we can work out contributory benefits on the basis of total income tax paid instead of NI paid.
And sure, landlords and the self-employed would pay a bit more in tax but hey, it's nice and simple and they'd be entitled to more in benefits if they fall on hard times.
4. Yes, it is a small step towards a proper CI scheme, see what RA says.
5. Further, the idea of collecting e.g. council tax through PAYE is in turn part of my cunning plan to a) replace Council Tax etc with LVT,
b) subsequently reduce VAT/income tax/NI and increase LVT (on a fiscally neutral basis), and
c) collect the LVT through the payroll (so you pay the lower of 50% of your cash income and the actual headline LVT bill). That way there is no whining about 'ability to pay'.
d) Pensioners will get a progressively higher Citizen's Pension with LVT deducted at source.
RA, thanks, I'm glad that people can read between the lines on all this :-)
Given the preference for governments to build on current systems already in place in order to limit upheaval in the civil service in the short term. Linking benefit changes to the PAYE system in such a manner I feel is a very good idea.
"not only would my system be fiscally neutral (the workings are tortuous, you'll have to take my word for it), but it'd produce large (but difficult to quantify) wider social and economic benefits."
Here i'm assuming that you expect this to be revenue positive in the medium term as behavioural changes filter through into the treasury.
SW, nope, it'd be revenue neutral from Day One, or from Month Six at the latest.
NB, the DWP costs £10 bn a year in pure admin costs. Fraud error and overpayment is about £10 billion. And as I said, the £65/£52/£50 rates were chosen to replicate the current system as closely as possible - I am perfectly happy to go with lower rates.
I think I did not word my last comment very well, the pitfalls of being good with numbers but failing entirely when it comes to utilising my own language.
What I mean is that by removing the stupid clawbacks based on working X number of hours, we would see greater short term employment amongst benefit claimants wishing to top up their income as the fear of doing so and coming out worse off would be removed. I understand that the system itself would be fiscally neutral based on the way that UK budgets are calculated but do they no ignore the dynamic effects of changes? Would those dynamic effects (greater part-time/temporary employment) make the system revenue positive as people become more familiar and comfortable with the way it works?
Well done! I second your proposal.
Sadly, I fear it may gather dust in the bowels of the civil service.
SW, on a completely short/term static basis, it would be fiscally neutral, in the medium term/dynamic basis it would of course be an overall saving for the taxpayer.
AC, ta, I have been watching IDS closely over the past few years, and he is stumbling ever closer to the idea of a Citizen's Income. But it's a numbers thing - please bash out your own answers to the 21st Welfare consultation thingy and send them to address provided.
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