Some of the blurb in the full 73 page document is most promising, because rolling most existing welfare payments into the the Universal Credit/Single Universal Taper scheme is a sizeable step towards a 'Citizen's Income'. For example, from page 55:
Establishing a single withdrawal rate, and eliminating the hours rules currently present in Working Tax Credit, has the potential to create a much more flexible labour market. Workers will be able to work the number of hours that most suits their needs and those of their employer, without being constrained by the structure of the benefits system. Employers will find that their workforces become more flexible and open to opportunities for progression.
For example, it will now be financially rewarding for a lone parent to work 15 hours per week, or 17 hours per week (both of which would not have been financially rewarded under the existing system which only recognised 16 hours per week);
and should more hours be available, the extra earnings will no longer face a Marginal Deduction Rate [MDR] of 96 per cent....
OK, they're focusing on lone parents. The MDR under the UC/SUT is explained on the previous page:
We expect the impacts on earnings incentives to be large. Universal Credit will improve earnings incentives for 700,000 current low earning workers. It increases their financial reward to work more hours or increase their wage rate, and as such
it creates a more flexible workforce.
The expected Universal Credit withdrawal rate of 65 per cent means that to all intents and purposes, the highest Marginal Deduction Rate 24 for low-earning workers would be reduced from around 96 per cent to 65 per cent for those earning below the personal tax threshold and to around 76 per cent for basic rate taxpayers*.
OK, 76% doesn't sound quite as bad as 96%, but that's a very misleading comparison. If we now flip to the last set of Tax Benefit Model Tables, Table 1.3a (Lone Parent with 2 children under 11, no child care costs) we see that the MDR is between 85% and 90% on earnings up to £180 a week, so it'd be a vast improvement for these lower earners BUT the MDR is then a flat 70%** all the way up to earnings of £520 a week (or £27,000 a year, far more than the median income - this figure would be even higher if the table included the 30-hour element).
I don't dispute that overall the UC/SUT will be an improvement, but as ever they are taking from the 'better off poor' to give to people further down, and anybody who thinks that 65% or 76% is the cost-minimising MDR needs his head examining (means testing is just like taxation, so the tax revenue maximising tax rate from the Laffer Curve must be the same as the MDR which minimises the cash cost of welfare payments).
* If you earn £100 and have £31 PAYE deducted, your net pay is £69, and they take away 65% of that in means testing = £45, so you end up with the princely sum of £24 extra in your pocket.
** UPDATE: SW in the comments reminds us that the MDR on basic rate taxpayers claiming Tax Credits is going to go up from 70% to 73%.
Put On Your Big Boy Pants, Maybe?
2 hours ago
19 comments:
All I see in this document is "lets fuck over basic rate taxpayers"
Tax credit withdrawal under the NEW rules starting from April 2011 is 41p per £1, basic rate tax 20p, NI 12p (i think they are still upping it..correct me if wrong) giving us a grand total of 73p withdrawal rate. So what they are actually doing is adding 3p onto basic rate by stealth!!
THE UTTER BASTARDS! REWARD WORK MY HAIRY ARSE!!
SW, well spotted, I have amended.
And yes, the Lib-Cons are going to merrily press ahead with Labour's proposed increases of 1% in Employee's NIC and 1% in Employer's NIC (or that's what the lecturer said at a recent tax update thingy).
O frabjous day! Callooh! Callay!
Why do I say that? Because, embedded in the political discourse for the next few parliaments is the idea that to get people off benefit and to provide for themselves, you have to reduce withdrawal rates. It is disappointing that the rates are not as low as we'd like and the tax credit taper is reduced, but this is a major change in how government thinks about benefits. It is indeed a step on the path to citizens income. Someone can now choose to work 15,16 or 17 hours, not perfom as the state insists. The end of unemployment is in sight, this is a great day for freedom.
Watch as the lefties struggle to understand that as the cost of employing and being an employee fall, more jobs will be created. They. Will. Not. Understand what is happening.
Yes but if you read the blog post fully, being in employment at the bottom of the ladder is being made worthwhile at the expense of basic rate taxpayers earning above minimum wage (unless the changes to base amounts are so significant as to make adding 3p to withdrawal net off)
Scott, that's true, but they could have done that without any attempt to fix the system.
Once the system is in place, it will be simple to change the withdrawal rate when the economy is recovering a bit.
MA, I have followed IDS' pronouncements closely over the past few years, and just as he was blundering his way towards Citizen's Income he was nobbled at the last moment by civil servants, for example...
a) How on earth can this take three years to implement?
b) Why don't they deal with benefit withdrawal through PAYE codes?
c) Why do they only intend to reduce DWP running costs by 10%? We know that the admin costs for non means tested benefits like old age pension or Child Benefit are about 0.1% or something.
I can only assume that in a final act of desperation, the civil servants deleted all references to the Laffer Curve and persuaded IDS that the cost-minimising MDR was 65% or 76%.
Which is clearly bollocks - the cost-minimising rate is about 50%, let's say. So the UC/SUT will only capture a small part of the gains which we'd get from Citizen's Income (lower cash cost, more people working, better social cohesion, better economy etc). So it won't be proven to 'work' and then the CI idea will fall into disrepute again.
It would be like introducing Land Value Tax but basing the assessments on the height of the chimney stack x the distance from the nearest church or something.
SW, sure, they could increase the UC to balance out the higher SUT, but I am right wing on this - if in doubt it is better to have the same or a lower basic cash entitlement and a much lower withdrawal rate.
The bloody Tories of course did the opposite with WTC/CTC - they increased the basic entitlement and increased the withdrawal rate to 41%.
This isn't particularly relevant to what you are saying exactly, but here's another clobber on the low paid but responsible from the white paper: capital rules will be as Income Support for Universal Credit. That is to say, if you are a NMW couple who gets something in the way of Child Tax Credit annually, but you manage to save a bit of money every year into ISAs or towards uni for the kids or whatever, then your stash will count against you. At present, for working and child tax credit, capital doesn't count, only taxable interest above £300 needs to be declared.
Jill, I read it yesterday and put angry crosses against the most outrageous parts to deal with over the weekend. I vaguely remember seeing that paragraph, but I can't find it on the spur.
Do you have a page number/paragraph number for it?
Jill, that is because the poor are supposed to remain poor. They must work, but they shouldn't become rich. Look what happened last time the poor started to become better off - we had to import immigrants to become the new poor and do all the shitty, badly paid jobs. Nobody likes immigrants, so we don't want to have to do that again.
MW: "The bloody Tories of course did the opposite with WTC/CTC - they increased the basic entitlement and increased the withdrawal rate to 41%."
Indeed not very bloody good at "making work pay" is it. I have estimated my net household loss after tax credit cuts & personal allowance increase to be somewhere in the region of £1,200
Mark: point 8, p71:
"Universal Credit will have the same capital rules as currently apply to Income Support. There will be an upper capital limit above which there is no entitlement and a lower limit below which capital is fully disregarded. An income will be assumed for capital between the lower and upper limits."
Presumably, this would include ISAs, which don't count at all for CTC and WTC at the moment, and notional, rather than actual, interest under £300 from all other savings, which also doesn't count now.
PS: thinking about it, it would be nice to know how many people this would affect. Not that many probably, as the numbers of people receiving the £500ish basic family element is going to decrease over the next couple of years. Off the top of my head, isn't it going from household income of £50kish to £40kish then £30kish?
Presumably, few people with children and a household income of under £30k are going to have savings of £16k or more?
I suppose it will hit dual-income households, where one partner gets made redundant and is out of work for six months or somesuch?
You're better at this sort of thing than me. What does it mean?
Jill, yes of course ISAs and so on are included for the Income Support rules, which are clearly far more savage than the WTC rules.
The Income Support rules are
a) If you have more than £16,000 (excluding - of course - the value of your home!) then you get nothing.
b) If you have less than £6,000 then it is ignored.
c) If you have in between, they seem to assume income of 0.4%, and count that as income.
I have no idea how many people this will affect, but as Bayard said above, it's all about keeping poor people poor, isn't it? It's like having a 100% tax rate on savings income of people who have saved up a few quid.
But on planet Home-Owner-Ist, the value of your own home or notional rental income is comlpetely ignored, which makes it all even more sickening.
Mark: yes, it is about serfdom with no escape.
Thinking back, I could very easily have suffered from this a few years back. There was a time when my husband (£35k ish) had a redundancy scare. At the time, I was building up my business and making tuppence (£7k ish).
We have considerably more savings than the average Joe because my old age pot is in ISAs not pensions - I got caught by Equitable Life and then managed to suffer from cancer twice, so we took the decision that the money needed to be where we could get at it.
For a couple of years we got the basic CTC family element, which we wouldn't get now. Although we didn't need it, but still. More to the point, however, is that if he had been made redundant, my ISA/pension pot would have been an even worse decision than going with Equitable in the first place!
Jill, don;t get me started on the advantageous treatment of 'pension' savings as opposed to any other kind of savings (apart from housing, which gets the most favourable treatment of all), the general idea being to subsidise the pensions 'industry'.
Sorry to be late to the party in replying. I've been nosing around all this stuff (you're a bad influence; I have better things to do!)
The capital tariff income: this is £1 per week or £52 per year for each £250 between £6k and £16k.
Good bloody god.
Jill, well spotted, I glibly assumed £1 per year (to arrive at 0.4% rate above)) not £1 per week, so they assume interest income of 20% per annum. GBG, as you say.
But this is an old rule, they have something similar for Pensions Credit, which discourages savings (or being honest about them) to such a degree that they then introduced a special Savings Credit to merely compensate for part of the Pensions Credit that you lose if you have savings!!
I'm truly shocked. Really, truly. I kinda half wish I had never looked at the White Paper and remained in ignorance about the whole thing.
No wonder families retreat to a generational dependency. What on Earth is the point of doing otherwise?
I'm imagining a dual, but NMW/low wage couple with children. If these capital rules are applied via Universal Credit, they really have no incentive to be self-reliant at all, do they? Not to mention the risk of having savings in a risky job market.
Jill, I refer you to Bayard above (who is Prime Minister in my Bloggers Cabinet) - it's about keeping the poor poor.
The welfare system is a Pandora's Box - every time you go back, you realise it's actually slightly worse than you remembered.
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