I did some charts and workings to support my response to the DWP's consultation paper. I suggested replacing more-or-less the entire welfare system, means testing, Uncle Tom Cobley and, with 'Universal Credits' of £65 for the first adult per household, £52 for the second adult and £50 per child (the rates are to some extent arbitrary) and a 'Single Universal Taper' rate of 50%, collected via PAYE using K-codes.
Social rents/council tax would also get collected via PAYE using K-codes (so there would be an automatic abatement for lower earners - no need for Housing Benefit/Council Tax benefit). The same would apply to Housing Benefit for tenants of 'private' landlords, only I recommended we scrap that and build more social housing instead, that being a much better deal for taxpayers, the construction industry and society in general (and one in the eye for the Home-Owner-Ists).
Here are the four charts, comparing net incomes (after tax, benefit withdrawal and housing costs) for four basic household types living in social housing, under:
a) My suggested system (the thick black line), and
b) The current tax/welfare system. There are three separate dotted/dashed lines for the current system, as the precise level of net income depends on whether a household claims out of work benefits, 16-hour tax credits or 30-hour tax credits, taken from the corresponding tables in the DWP's Tax Benefit Model Tables.
As you can see, you can replicate the whole welfare system pretty accurately with a really simple system as outlined above, while doubling the net income from work for most claimants (i.e. marginal withdrawal rate goes down from between 70% and 100% to a flat 50%).
The biggest winners would be couples with two kids and low-to-average wages, apart from that, winners and losers more or less cancel out on a static basis. And yes, 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. Click to enlarge.
PS, thanks to whoever linked to this from The Guardian :-)
Wednesday, 11 August 2010
Universal Credits/Single Unified Taper
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10 comments:
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) and child benefit? What about if there's more than two adults in a household?
How do you incorporate the old age pension into this scheme?
(I do realise that this means I haven't been paying much attention over the years - forgive me.)
Ah, forget it. I've scrolled down, and lo!
RA, see next post.
D, indeed, rolling Basic State Pension and Pensions Credit into a Citizen's Pension is a shoo-in.
Nice graphs and a ton of good work behind them, but still too complex a system for me.
I'd give a cash ( yes cash) benefit to everyone, say £68 per adult, £40 child under 14 and' £50 child 14-8, maybe £80 for pensioners, £100 for 80 yr olds. This would replace income tax relief for everyone.
Tax any income at say, 50%
Scrap everything else you can, benefits and allowances, Nics (employers and employees)
I'd keep DLA.
Why the second adult thing? I don't think the state should care if people live alone or in couples, or more, that's up to them. If you have this difference between a first and second adult, the state necessarily has to snoop into people's bedrooms to work out who is sleeping with whom.
MA, yes of course, there's nothing that can't be made simpler or better, but that requires the politicians to be honest (with themselves or with the voters).
As it happens, the average effective marginal income tax rate is approaching 50%, but they cunningly split it up into VAT, corporation tax, income tax, NIC (in turn split into two) and means-testing, so were you to suggest such a rate you'd be shouted down by the morons who genuinely believe that the basic rate of income tax is only 20%.
Yes of course, DLA, AA is a separate issue. I've no opinion on that one way or another.
And yes, a lower rate for a second adult, or assessing 'households' rather than individuals is ultimately counterproductive, but I was trying to answer the specific questions posed in the DWP's paper.
The biggest problem I see with a different figure for a second adult is that the Tories pledged to "end the couple penalty" so to introduce a new system which effectively has a couple penalty woud be hypocritical. But then they are "big 3" politicians so I suppose thats an irrelevance.
I think you've hit the nail on the head as to the obvious problem with simplification. People really are THAT stupid, they wouldn't like such a high rate on an in your face tax even if it meant abolition of many other taxes which they don't realise they pay like Insurance premium tax, etc, etc.... The tax revenue/cost ratio of these small taxes must be pretty poor in comparison to taxing fewer things at higher rates.
It would take nothing short of a personalised before and after calculation would sway voters to switch to a certain up and coming party with an ugly purple & yellow logo.
SW, I chose the £52 because that is the current rate for 18 - 24 year olds. As it happens, the £13 weekly differential does not create a significant couple penalty.
Although my suggestions halve the couple penalty, the biggest contribution is the fact that welfare is assessed on a household basis and not an indivudual basis, i.e. if live-in boyfriend/father is not officially there, he pays normal/31% PAYE; but if they make it official, he pays 50% on the first few £ hundred of earnings per week.
Unfortunately, you have been a bit selective. Looking at your graph for a single person 25+ you don't appear to take any account of WTC! Looking at the source figures, the tables also seem a bit confused on this, though the graphs seem to pick it up?!?
For example your graph shows someone with income around £100pw netting around £60pw and performing better under your system. In fact, as shown in the appropriate DWP graph, such an individual would be better off under the current system provided WTC is added to their income: if they were working 30+ hours (many self-employed here) their income would be £150pw; even a part-time employee receiving the basic element would be slightly better off now. You need to redraw your graphs taking care to include basic and 30+ hours WTC.
EJ, well yes and no. My full response is here.
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