It is also worth pointing out that it is a pretty clear cut message that tax on income is only paid by those who are earning enough to do so – which should surely be approved by most commentators here?

” the measure would do nothing to help the very poorest, who don’t have income large enough to pay tax”

this sort of argument also applies to things like the living wage, which also does nothing to help the poor households who are not working.

I find it astonishing that left-wingers are queuing up to denounce a reform that will help low-paid working households. People who are earning £10k to £20k, let’s say.

If you don’t like the fact that it also helps higher paid households, you should also introduce an offsetting tax increase on these households so that on net the change only helps lower income earners.

“The distributional analysis above suggests that the benefits would fall disproportionately to the better off”

I think that’s wrong Duncan. The people it will help the most are (roughly) people who are working full time in low to medium paid jobs, say £10 to £20k. These people are actually quite high up the income distribution (because of all the poorer households who don’t work or work part time only) but they are not the sort of high income household for whom we say the marginal propensity to consume is low.

Expanding Tax credits would achieve more for less.

Watchman @ 1

People on low incomes pay very little income tax, hence income tax. However, people on low incomes do pay Council Tax (for example) and threshold for that kicking in is very low, miles below ten grand a year and will often dwarf an income earner income tax bill.

If you want to help the poor, then use this 11 billion quid to reduce or remove the regressive tax burden and leave the proggresive tax alone.

The thing is those on lowest incomes (earned income) like part time workers will see very little of that 11 billion quid. Saving them three quid a week while their council tax is still around 70 to 80 quid a month and annoucing you have taken ‘the poor out of tax’ is a sad joke.

Income tax is increasingly an irrelevance to the poor. The problem is the Thatcher/Blair obsession with the regressive indirect taxation. 20% VAT. Numerous othr taxes. The poll tax/ council tax. If central govt wants a national education system they should fund it 100% from central govt taxation. That m3ans raising more tax from the richest 40%.

That will make up for the huge tax reductions the top 40 % have had for the last 30 years. They pay less income tax, less property tax, less tax on their savings ( some people have millions in PEPs and ISAS from all those years ) They have huge tax avoidance on their pensions.

The idea as some batty tory woman said the other day on Newsnight that th3y pay 62% tax is bullshit.

Jim,

Or just abolish property-based taxes (leaving aside the issue of land value tax, which I’ve never understood) and find a better way to levy local taxes?

I would like to take the poor out of each and every tax. In the meantime, lets get them out of income tax first – it may not be the best battle to win, but it’s still an improvement.

Cylux,

Expanding Tax credits would achieve more for less.

A system that fails to help some of those entitled to it as opposed to a change that means everyone (declaring their income) gets the benefits, and you think it would achieve more? Perhaps you mean more targetted money for the poor at less cost to government, in which case you are correct – but you are also stating that despite the fact you work, you need government support, which seems rather odd. Tax credits are to help the needy, not those working at beyond the minimum wage, surely?

I’ve never understood how tax credits are meant to be a good thing anyway – basically giving back tax money is far more complex than just not taking it in the first place, which has to be cheaper and involve less error.

This policy is a pet hate of mine.

Watchman @ 1 – “It is also worth pointing out that it is a pretty clear cut message that tax on income is only paid by those who are earning enough to do so – which should surely be approved by most commentators here?”

I approve of the principle that only people who are earning enough to do so should make any net contribution to the tax and benefits system. But raising the tax threshold is an incredibly crude and inefficient way of reducing the net contribution made by low and middle earners.

As Cylus says @ 4, expanding tax credits would achieve far more for less – because it would mean de facto tax cuts could be targeted at low and middle earners, and in a way that took household composition into account, rather than being given to everyone (including childless couple on 40k each, etc.)

Luis @ 2 and 3

“I find it astonishing that left-wingers are queuing up to denounce a reform that will help low-paid working households. People who are earning £10k to £20k, let’s say.”

No-one objects to *that* aspect of the policy. We object to the facts that 1 – the distributional impact is regressive (higher-income households benefit more than lower-income hosueholds) , 2 – it’s a ludicrously expensive way of helping those low-paid households (compared to increasing tax credits, say) and 3 – the whole thing is a con trick, since all the lost revenue is being recouped via the rise in VAT.

The overall pattern is of a shifting of the tax burden down the income scale, with the poorest paying more (in VAT), higher-income households paying less (in income tax), and people in the middle maybe breaking even (on balance).

“If you don’t like the fact that it also helps higher paid households, you should also introduce an offsetting tax increase on these households so that on net the change only helps lower income earners.”

Yes – the simplest way to make the policy fairer would be to implement it in a revenue-neutral way by increasing the basic rate of tax at the same time as raising the personal allowance. That way, you wouldn’t have had to raise VAT and the picture would be of somewhat better-off households subsidising a tax cut for somewhat worse-off households, rather than the other way round. But that’s not the sort of thing the Tories would consider doing.

G.O

I agree with all of that (esp. point about VAT) except this bit: “(higher-income households benefit more than lower-income hosueholds)”. Only if you’d also say that about the living wage, which would have the largest benefit for full-time minimum wage workers.

No. Households in the middle of the income distribution (for example, a household with one full time bus driver and one full time factory worker) benefit more than households in the bottom of the distribution, which are either not working or only working a few hours part time. High income households – say those now disqualified from claiming child support, do not benefit as much as households with a low paid full time worker.

A policy that has the largest proportional benefit for people like bus drivers, care workers, factory workers, shop assistants etc. should not be described as “benefiting high income households” the most.

Watchman @ 8

“Tax credits are to help the needy, not those working at beyond the minimum wage, surely?”

What makes you think that no-one working beyond the minimum wage is “needy” – especially if they have dependent children?

In any case, tax credits are as much about making work pay as helping the needy. I started work as a young parent pre-tax credits, and my family’s benefits were simply withdrawn at a rate of £1 for every £1 I earned – leaving us worse off than we’d been on the dole by the time I’d bought my ticket to work. Tax credits are withdrawn more slowly, so as to make it worthwhile starting work, or going full-time, or pursuing a promotion. An inevitable consequence of that fact is that even people on pretty good incomes get *some* tax credits, although past a certain level of income they’ll pay more in tax than they get back.

“I’ve never understood how tax credits are meant to be a good thing anyway – basically giving back tax money is far more complex than just not taking it in the first place, which has to be cheaper and involve less error.”

Firstly, tax credits don’t just “give back tax money” – many families receive more in tax credits than they pay in tax. And secondly, no, it’s not cheaper to just “not take the money in the first place” – because you have to not take that money from every taxpayer, regardless of what their partner earns, whether they have dependent children, etc.

So if you’re wanting to *target* tax cuts in a way that reflects ability to pay, the cheapest option is to give what amount to “tax rebates” to targeted individuals.

I’m going repost an excerpt from a comment I made at Lib Dem Voice a while back.

This illustrates the relative efficiency of tax credits vs tax cuts with some figures, and also hopefully puts to bed the idea that tax credits are just an expensive way of giving their own money back to them:

Common sense tells you that the best, most efficient, least wasteful way to reduce the net tax burden on low earners is simply to take them out of tax altogether by raising the personal tax allowance. But common sense also tells you that the world is flat. Sometimes common sense gets it wrong.

To address some of the points people have been making in response to this post:

A family on £15,000 a year with two children, for instance, is entitled to £6,805 in Working Tax Credit and Child Tax Credit, assuming one adult is working at least 30 hours a week. (Source: http://www.hmrc.gov.uk/leaflets/wtc2.pdf.) But they are paying, at most, £1,505 in income tax (source: http://listentotaxman.com/index.php). If we chose simply to lift that family out of tax, rather than maintaining the “vast bureaucratic machinery” of the tax credits system, they would be left £5,300 a year worse off.

Of course, even poorer families pay even less tax and receive even more in tax credits; for instance, a single parent of two earning £5,000 a year from part-time work pays no tax at all, but receives £9,535 in tax credits.

For an example of a family that was getting back in tax credits only what it was paying in tax, you’d have to look further up the income scale: a two-child family with one full-time earner on £21,000 and one part-time earner on £4,000 would, for instance, be at the ‘break-even’ point, paying out and then getting back £2,705.

Secondly: the government spends just under £24 billion a year on Tax Credits (source: http://www.guardian.co.uk/news/datablog/2010/jun/02/liberal-conservative-coalition-welfare). No doubt a proportion of that money is “wasted”, in the sense that it is spent on administration of the system, or lost to fraud and error, rather than going into the pockets of the low and middle earners the system is intended to help. I can’t find a figure for administrative costs, but figures of around £1 – £2 billion have been bandied around over the years in relation to fraud and error. We could take an educated guess that, say, £4 billion of that £24 billion is spent “wastefully” in the sense just defined.

By happy coincidence, the cost of raising the tax threshold to £12,500 has also been calculated at £24 billion. So we can do a direct comparison: for the same cost, which system does a better job of getting money into the pockets of low and middle earners?

Having considered a few representative examples of tax credits awards, the answer should be screamingly obvious. Spending £24 billion on tax credits boosts the income of a typical low-income family, on £15,000 a year, by £6,805; spending £24 billion on raising the tax threshold boosts their income by just £1,005. Obviously, then, most of the £24 billion it costs to raise the tax threshold is ending up somewhere other than in the pockets of low-to-mid earners. It’s being “wasted” – not spent on bureaucracy or lost to fraud and error, but simply left in the pockets of people outside the low-to-middle income group the policy supposedly targets.

After the last Labour government rewarded the rich whilst punishing the poor like no other and by removing the 10p tax level I think everyone should just support this action and shut up.

Taking less money off the poorest workers in society would once have been a Labour Party initiative. My how things have changed…

Watchman @ 7

I would like to take the poor out of each and every tax. In the meantime, lets get them out of income tax first – it may not be the best battle to win, but it’s still an improvement.

Oh, you sleekit* dog. I see what you have there. 10/10 for chutzpah.

You are a Right Winger. No offence intended, by that, but lets state the obvious. Ideologically, the Right are less inclined toward progressive taxation and in favour of regressive taxation. Again, I am not trying to catch you out with that, nor I am I trying to force you into a position that you will find difficult to defend.

So the best way to ‘take the poor out of tax’ is to start with most progressive tax and then ‘move’ to the regressive taxes’? No, you do it the other way around. You look at the taxes that actually hurt the hardest and remove the poor from those taxes first and leave direct taxation alone. Here is a little clue. You do not take ‘poor people’ out of tax by increasing VAT. Okay what about this? Scrap council tax and punt the whole lot onto income tax, thus removing a huge chunk of the tax burden from the poor. Oh and not only that, it will help the benefit trap too. Surely, that is what we all want? The working poor sheltered from taxes that act as a deterrent to finding work?

http://www.bbc.co.uk/news/uk-england-leeds-16714439

This is an idealistic tax cut, pretty badly dressed up as helping the poor. Billions given away in a tax cut to undermine the very nature of the tax burden. He is moving the Country’s tax slowly, but surely toward a more regressive tax regime. Clegg is showboating with this due to a complete lack of opposition.

Has anybody ever been to a game where one team are that far in front that the goalie starts taking corners or prop forwards are dropping for goal? That is when you know you are at the end of a humiliating defeat.

Any decent opposition would have sniffed this out immediately. I am dreading Question Time tonight. I cannot watch some useless Labour knobster and/or a wet Leftie nodding as his own side are being outclassed by a dishonest Lib Dem who is cosying up to the Tories. Labour’s complete shambles of a Party is one (but not the only reason) I vote SNP.

*Yesterday was Burns night.

@ Luis

“A policy that has the largest proportional benefit for people like bus drivers, care workers, factory workers, shop assistants etc. should not be described as “benefiting high income households” the most.”

This point about “proportionality” always strikes me as rather perverse.

Yes, a £500 tax cut for a household with one earner on 12k and one earner on 7k gives them a “proportionally” bigger income boost than a £1000 tax cut gives to a household with one earner on 40k and one on 30k. £500 is a lot of money to a family on 19k and could make a big difference to them, while £1000 may be neither here nor there to a family on 70k.

But to me, that rather invites the question: why not just give £500 to the low-income family and not waste another £1000 on cutting taxes for a family that will barely notice? Why not use that money to do something more useful?

@1 – Not really. It gives the Tories a further hammer to use against the poor, that they’re in no way contributing, which makes them sub-human.

@2 – And it does nothing for the poorest. In fact, other taxes will have to be raised (the cost is ~11 billion) to do it. So it’s likely to *hammer* the poorest, for who any tax rise is hard.

@8 – It works. Expand it to part-time workers, and…

@12 – Keep lying. Keep RIGHT ON lying. The right have done hundreds as much times as damage as the removal – which was compensated for – of a mistake. Keep right up with the attack on anyone who’s not a 1% anglo-saxon.

And of course you have no idea what this policy would actually do. That would require reading, not evil.

Watchman @ 8

I’ve never understood how tax credits are meant to be a good thing anyway – basically giving back tax money is far more complex than just not taking it in the first place, which has to be cheaper and involve less error

The term ‘tax credits’ is a swizz to ensure the system was kept under control of the Treasury, rather than the DWP. There are people who get far more out of WTC than they pay in income tax.

G.O

you are right but (perhaps) beside the point, if the point is sensible changes to the tax system, with one proviso.

If I wanted to spend money to raise the incomes of the very poorest working households, those working part-time, tax credits is the way to go.

If I wanted to raise the take home pay of badly paid working people more generally, raising the income tax threshold still looks good to me. The proviso being that it needs matching with measure to recoup the money from the better off .. it doesn’t have to be revenue neutral, but it should at least be neutral as far as the well-paid go. That’s a sensible to change to the tax system, and it no less sensible because tax credits are better at doing something else.

G.O

although seeing as the govt is proposes to introduce this tax cut without an offsetting increase for the well paid, I think it’s my arguments that are besides the point, not yours.

a separate point, regardless of its merits, opposing a policy that is going to put more money in the pockets of millions of badly paid working people, strikes me as being rather daft, politically speaking.

Luis @ 18

If I wanted to raise the take home pay of badly paid working people more generally, raising the income tax threshold still looks good to me.

A general cut in income tax means you are giving two young guys on £15k an equal tax cut, but, what if the first is a boy racer, living at home who punts about town with a very large disopable income, while the second is the same age, but married, doing lots of overtime and pays out forty quid a week in bus fares? You may freeze his council tax, but what if the council cuts his subsidised bus in the process? Tax credits can target money at a better proportion of the Country and better target at the lower end of the income scale.

@20 – But it won’t. Because the cost is sure, with this government, to be recouped from all tax payers, including the poorest. Or simply from the poorest with service cuts.

Luis @ 20

If we have 11 billion quid lying around and we want to give it to the poor we should do it in a way that it goes to the people who need it most.

Labour will meekly go along with this but really they have missed an open goal from inside the six yard box.

I think I am coming at this from another perspective. Look at it this way, what would an ideal progressive tax system look like? it would have a high threshold before you start paying and be highly progressive thereon it. Roughly speaking. So I like reforms that move the tax system further in this direction.

Raising the income tax threshold without offsetting tax increases for high earners isn’t something I’m advocating. Nor funding it with VAT increases. And tax credits etc. are all to the good as far as I’m concerned.

@24 – Realistically, though, where is this government going to find the funding?

That’s why I oppose it, although now I’m working for 3 universities I’m earning enough that I’d benefit…

@ Luis

“If I wanted to spend money to raise the incomes of the very poorest working households, those working part-time, tax credits is the way to go.

If I wanted to raise the take home pay of badly paid working people more generally, raising the income tax threshold still looks good to me.”

Even though it costs three times as much to get the same money to the same people? (Two thirds of the money it costs to raise the tax threshold ends up in the pockets of households in the top half of the income distribution. So if by ‘badly paid working people’ you mean those in households in the bottom half of the income distribution, targeting one-third of the budget for that tax cut at those people, via the tax credits system, would boost their incomes by the same amount.)

Not to mention the fact that the tax credits system would allow you distribute that money in a progressive way – more for 10k earners, less for 20k earners – rather than giving a flat £500 tax cut to everyone.

Luis @ 24

If we want a progressive tax regime, we need to reduce or eliminate the regressive elements of it before tinkering with the part that is most progressive. Income tax is possibly the least objectionable part of the tax burden.

It seems strange that a tax change alleged to be taking ‘the poor out of tax’ exactly not a single penny of the 11.5 Billion quid will end up in the hands of the lowest* three quarters of a million workers currently earning around one hundred and forty quid a week or less. Where as Clegg himself will be about twenty quid a week better off. I mean if, he converted that to one-penny pieces and dropped it from the cargo bay of a B52 bomber as it flew from John O’ Groats to Lands End more of that money would end in the pocket of the poorest in society than Clegg’s plan. By any reasonable defination, most of this money will go to better off.

I cannot believe that no one has pointed that out to Clegg.

*from memory, I may stand to be corrected on this figure. Anyone got up to date figures on how many people earn less than £7000 pounds a year gross?

@ Luis again

“Look at it this way, what would an ideal progressive tax system look like? it would have a high threshold before you start paying and be highly progressive thereon”

Maybe, but Leon’s point @ 16 (responding to 1) is a good one. Lift people out of tax and they cease to belong to the class of ‘hard-working taxpayers’ beloved of voters and policymakers, and join a largely invisible underclass.

If you doubt that this underclass is largely invisible, you only have to consider the very policy we’re discussing. It’s the Lib Dems’ flagship policy on helping low-income people, but it’s designed *only* to help low-income people who are taxpayers. Point out that it does nothing to help those who *aren’t* taxpayers, and the typical Lib Dem will roll his eyes and say “well of course it doesn’t help THEM!” – and that’s supposed to be the end of the matter. Why would we want to help THEM? Who are they anyway? Scroungers probably. And there can’t be many of them, can there? No, bollocks, let’s ignore them and stick to helping ‘hard-working taxpayers’.

And of course, each rise in the tax threshold sees more people pushed into that “them” group.

So I suspect the best option is to blur the line between ‘hard-working people who pay their taxes’ and ‘feckless scroungers living on benefits’ by having most people *both* paying taxes *and* receiving tax credits. Which may sound daft but really isn’t; once you consider that the tax system is supposed to reflect people’s ability to pay, and people’s ability to pay depends on their partner’s earnings, the number of dependent children they have etc., it makes perfect sense to use tax credits to adjust the net contribution people make.

I’m not baffled by Nick Clegg – I mean, if he suddenly believes that the economy needs an immediate stimulus through the expansion of the personal allowances – then, surely, that is a tacit admission that austerity hasn’t worked.
Which beggars the question – why on earth would he want to continue to prop up a government that has austerity and public sector cuts written at its very core – if all it is doing is creating economic and social misery.

I expand upon my confusion in the following article, please feel free to read and comment:
http://www.allthatsleft.co.uk/2012/01/im-confused-by-clegg/

@ Jim

“Where as Clegg himself will be about twenty quid a week better off.”

In fairness, I *think* the 40p threshold is being reduced as the basic rate threshold is raised, so that higher rate taxpayers don’t benefit.

This post ties in quite well with Chris Dillow’s piece “Adjustment Costs vs Steady States” at http://stumblingandmumbling.typepad.com/stumbling_and_mumbling/2012/01/adjustment-costs-vs-steady-states.html

Extracting tax from people who don’t earn enough on which to live and consequently paying them benefits is plain daft. Unless your ideal society is one where civil servants take £20 from poor citizens at one hatch and hand back £19 at another one. At the very least, this system is demeaning to civil servants who could be doing something useful in their jobs, opportunity cost and all that.

Raising the tax threshold inevitably requires that tax is raised elsewhere to meet budgets. Few people sanely argue that another £11.5 billion can be found by cuts. Fairness requires that the £11.5 billion is paid by those who benefit from the threshold rise but who are not poor. Can we agree on the principles at least?

Twiddling around with tax benefits compounds the problem. One of the arguments for raising the tax threshold is to provide transparency and simplicity*. Citizens should not need the assistance of welfare rights volunteers to determine whether or not to change job.

Citizen basic income is not part of the political agenda. Simplifying the tax system and the tax benefit system is therefore the imperative; politicians hate increasing taxes on any group beyond “the rich” (this suggestion may seem strange to conservative readers**, but is true all the same) so systems are created which try to mitigate change but introduce complexity that is destined to fail. Sooner or later, and we are probably past later, UK government has to face up to the fact that the current system is a complete shambles.

So I wish Nick Clegg best wishes with his proposal, and more specifically for the proposal’s vector towards simplicity.

My thanks to Luis for his generous and positive contributions above.

* It seems a long time since I heard anyone use the expression “benefit trap”. Did the “benefit trap” disappear with the introduction of tax credits?

** Disgruntled citizens throw eggs at politicians rather than at conservative blog contributors.

Two points:

1) Everyone so far has missed Duncan’s comment that even a flawed demand stimulus is better than no demand stimulus. Raising the tax threshold doesn’t benefit the very poorest, true. But it does benefit everyone else. Which should enable them to spend a bit more, which would help the economy.

2) I am not a fan of tax credits as currently constituted. They can’t cope with the complexity of people’s lives and they undermine the right of women to be taxed separately from the men they live with. I’d be happy with expansion of tax credits only if they were fundamentally reformed.

G.O. @ 30

Fair play with Nick Clegg, but the point still stands that someone on seven grand will get nothing, someone on twenty eight (four times as much) will see the tax bill reduced by a thousand pounds.

@32. Frances_coppola:
“1) Everyone so far has missed Duncan’s comment that even a flawed demand stimulus is better than no demand stimulus. Raising the tax threshold doesn’t benefit the very poorest, true. But it does benefit everyone else. Which should enable them to spend a bit more, which would help the economy.”

The proposal, as interpreted by many readers, is that the tax threshold can only be raised if other income taxes are adjusted (ie that tax revenue stays the same). Preferably, in my opinion, without twiddling with tax benefits.

In such circumstances, the biggest winners from raising the tax threshold would be low earning single people who currently pay tax and who are ineligible for tax credits. It would be £500 a year in their pockets and they would spend it.

34 Charlieman

Exactly so. Not exactly progressive, but stimulating.

I think there are some good arguments here that tax credits are the better way to go if you want to rise the take home pay of lower earners.

I suppose handouts for everyone are more of a winner at the ballot box.

Charlie @ 34

In such circumstances, the biggest winners from raising the tax threshold would be low earning single people who currently pay tax and who are ineligible for tax credits. It would be £500 a year in their pockets and they would spend it.

Then use some of this 11 billion quid that happens to be lying around to make them eligible. Reduce the hourly threshold to 16 hours thus encouraging unemployed people to work part time. Single unemployed people get less than 70 quid in benefits. If he gets a hundred quid a week part time wages and fourty quid tax credit, he comes of the dole, pays no tax. Win Win Win for everyone.

Well execpt Nick Clegg who will have ACTUALLY helped the poorest workers. Oh, the irony.

@31

Citizen basic income is not part of the political agenda. Simplifying the tax system and the tax benefit system is therefore the imperative

I wish CBI were on the agenda, but as it isn’t, I agree with you.

It is interesting that the hard left commenters on this thread, (Jim, Leon and anyone else who wants to self define as being in their gang), none of them want to see the IT threshold increased and have hard working, low earning citizens stop paying tax.

It’s almost as if the possibility of working, without paying the government, opens up a scary Pandoras Box. Once people realise it’s possible to not pay, they worry that it’s going to be hard to get them used to doing it again and, God forbid, others might want to opt out too.

Where will the Stalinist state be then?

@36. Luis Enrique:
“I think there are some good arguments here that tax credits are the better way to go if you want to rise the take home pay of lower earners.

I suppose handouts for everyone are more of a winner at the ballot box.”

On the first point, you are wrongish. If we seek to simplify tax and benefits, we have to reduce the need for tax credits. Taking people out of the tax regime is part of reducing reliance on tax credits or housing benefit. At the same time we have to maintain take home pay, which means tax credits…

What are the universal handouts? I do not receive any beyond my tax allowance (tax thresholds) and the Council Tax discount for being the only soul in my home. Am I missing out on anything?

@ Jim

Sure, the big picture is the same; it’s a regressive policy.

@ Charlieman

“Extracting tax from people who don’t earn enough on which to live and consequently paying them benefits is plain daft.”

Well… ish. If there was a neat way to work out what each individual needed to live on, taking into account their partner’s earnings, number of dependent children, childcare requirements etc., and then tax them (or pay them benefits) accordingly, then yes, it might make sense to just do that. But as things stand, we don’t assess people’s living costs (and hence ability to pay) before we tax them.

So at the minute it’s poorly targeted, hugely expensive across-the-board tax cuts or nothing; the only way to extract less tax from low-income households is to extract less tax from pretty much all households.

We *could* try to design a more complex set of tax codes to take children etc into account, but why bother? We’d still need the tax credits system to top up the incomes of non-taxpayers. Why not just use that same system to handle taxpayers as well?

@38 – That’s right, I don’t believe that a tax break for the middle class which WILL be funded by hurting the poorest is a good idea.

I’m so sorry you love misery, sadist, but I’m not like that. And Stalinist. I see, I mean despite the fact I’m technically an anarchist, not a socalist. Fascists like you… (what? You decided to start slinging meaningless crap…)

@31 – …This government is NOT going to raise £11 billions by taxing only the wealthy. I’m interested in the practical effects, not pie-in-the-sky theory.

@28 – Quite. And you’ll notice that if you get a part-time job, you can’t claim tax credits. Regardless what you’re earning. And of course there are hundreds of thousands who have been forced into part-time working,,,

@ Leon

You self define as an anarchist?

That noise you can hear is Proudhon and Bakunin revolving in their graves……

@40. G.O.: “If there was a neat way to work out what each individual needed to live on, taking into account their partner’s earnings…”

The neat way does not exist. However we support people, some people will be disgruntled when the rules change. The rules have to change because the system is unsupportable.

@43 – And you’re thus supporting writing off millions of people! Great!

We’ll end up paying MORE cleaning up the mess than paying the “unsustainable” expenditures.

@42 – No, that noise is your brain attempting to spin up to 1RPM. Don’t worry, I’m sure you’ll get round to the concept of Mutualism in a few decades,

I run a small business now severely damaged in part by the immigration cap and the discouragement of foreigners coming to UK through rhetoric.

Profits are down to 7000. I am shifting into a new niche but it will take time.

It will make only a small difference to me. An increase in WTC and child benefit would be far better.

Indeed the 10000 threshold also helps those higher up the income scale considerably.

It will help those in PAYE employment around 10k, it will not help those in part time work below the exisitng allowance- around 6200k. Neither will it help the low waged self employed like me.

I only carry on because I have a small mortgage around 60 a week.

It demonstrates that the these idiots are out of touch millionaires who have no inkling of life on a low income

G.O.

“The neat way does not exist.”

The tax credits system comes close to achieving the same end, though…

“The rules have to change because the system is unsupportable.”

…and extending that system would be a lot more financially supportable than an £11.5bn tax cut.

I think the fundamental problem here is the tension between two objectives that both look desirable in their own right: on the one hand, having a *simple* tax and benefits system, and on the other hand, having a tax and benefits system that recognises need and ability to pay.

Considerations of simplicity pull in the direction of setting a nice, clear, high tax threshold for everyone, maybe at a level equivalent to an annual Living Wage, and ditching tax credits. But the amount of tax people were paying under that system would not remotely reflect their need and ability to pay: a low-income family on 15k, say, might be £5,000 worse off, while a high-earning childless couple would be £2,000 better off.

The problem with the tax credits though is that it heavily means tested and the bureacracy fails to reflect the work and life patterns of the people it intends to help.

Typically somebody recieving tax credits is part of the unemployment/low wage contract/temping cycle, which means frequent changes and re-calculations. However the system stupidly assumes income is static, people don’t change jobs, and have simple and stable family situations (this is a wider problem with the whole benefits system). It just doesn’t work for a transient population and casualised workforce which is essentially what we mean by the low to middle income group.

It also is there primarily to target income at households with children, I’ve no problem with this as a policy objective, but if we are talking more generally about how to help low to middle income households we have to also consider the childless and the single.

A childless couple frankly get fucked by the benefits system. If one loses a job, then means testing means the other only has to be working part time min wage and the person isn’t entitled to housing benefit/council tax benefit – and essentially relies on NI contributions for the rest. A single person (even prior to IDS reforms) will probably have to move to a bedsit. Tax credits themselves won’t be available if you enter a relationship with somebody on a job above around 15k (just over min wage then).

The other main problem is the total inability of the system to cope with people who are temping and having short periods of unemployment and employment combined. Each time you get a job – even if it is only a couple of weeks – you lose your HB, JSA and council tax benefit, and then have to re-apply when the employment comes to an end. Each re-application loses you 3 days automatically, and then takes ages (months for some local authorities) before you get what you are entitled to (and in the meantime you’re probably on your next 2 week job and thus having to withdraw applications). Add tax credits to this and the whole system is a nightmare.

Another factor you have to consider is the impact of high withdrawl rates and low personal allowances make low paid/temp work carrying essentially a 90% tax (more in some situations). That’s just absurd. In my view the case for the proposed changes to simplify the system into Universal Credit plus a high personal allowance is overwhelming (it is the actual details of how the universal credit is calculated, with its compenent parts being slashed by osbourne now, that is where IDS is doing the damage). Particularly as the system will require just one monthly declaration of work (which won’t see benefits withdrawn at such a high rate) and changes of circumstances only having to be reported once. It isn’t the be all and end all, but it gives us something to work from in building a better welfare/support for low income households system. We also have to abolish council tax, and provide far more free childcare for parents who work, and I think those things are where effort should be focused on.

Looks to me that this discussion is moving away from supporting the working class to supporting the non-working class. I’m not suggesting that we should abandon the unemployed – I’m one of them this month, just can’t see why someone on minimum wage should be paying NI and income tax.

Jc @ 48

Should that person be paying Council tax? Why bother complaining about thirty quid a month , tax and insurance, when they are paying at least double or even that treble that in Council tax?

You want to cut tax for the poorest workers? Start with council tax.

In fact all this talk of ‘simplyifing the tax system can be done with a simple stroke of a pen. Scrap Council tax and whack the whole lot onto income tax. Easier to have one tax system than two surely?

“You want to cut tax for the poorest workers? Start with council tax”

Never a truer word spoken. Whilst conservatives ignore this tax and whinge about inheritance tax they cannot truly be a tax cutting party.

My problem with tax credits is that they tend to be a subsidy for the rich and paid for, in part, with the taxes colllected from those on low pay. Some may get the value back from claiming the credits but many who don’t have children, and are poorly paid, do not. These are the poor people subsidizing the wealthy, but what would you expect from New Labour?

G.O. “Yes, a £500 tax cut for a household with one earner on 12k and one earner on 7k gives them a “proportionally” bigger income boost than a £1000 tax cut gives to a household with one earner on 40k and one on 30k. … But to me, that rather invites the question: why not just give £500 to the low-income family and not waste another £1000 on cutting taxes for a family that will barely notice? Why not use that money to do something more useful?”

Absolutely, but it’s possibly even worse than that – alone, this policy might reduce the income tax of the working lower income family significantly, yes… but if Polly Toynbee is right (a concept which I appreciate will seem laughable to some contributors here, but her argument seems plausible in this case), for many of them their housing benefit will be reduced by ~85p for every £1 their tax is reduced by, meaning an even greater proportion of the benefits of the tax cut go to the well off.

http://www.guardian.co.uk/commentisfree/2012/jan/26/tories-bloody-battle-benefits

@ 48 JC

“can’t see why someone on minimum wage should be paying NI and income tax.”

I’ve written plenty of long answers above, but short(ish) answer: the tax threshold is the same for everyone. So if you raise it for people on 10k, hence ‘lifting them out of tax’, you also raise it for people on 20k, 30k or 40k, hence giving them all a £500 tax cut. It’s therefore very expensive, and a lot of the cost is wasted on giving tax cuts to higher earners rather than reducing the tax bill for lower earners (which is supposedly the whole idea.)

So the most efficient way to reduce a minimum wage earner’s tax and NI bill to zero – which in itself is a good idea, or course – is to pay him at least as much in tax credits as he pays in tax and NI.

Jim: “In fact all this talk of ‘simplyifing the tax system can be done with a simple stroke of a pen. Scrap Council tax and whack the whole lot onto income tax. Easier to have one tax system than two surely?”

Absolutely.

@ jungle

Thanks for the link. It’s a good point about the taper rate of HB; a clear case of ‘tax cut evasion’ by the very people this policy is supposedly intended to help. If only they could evade the VAT hike and the cuts to benefits and tax credits so easily.

I think we can get the Lib Dems onside with this, after all they want to ‘take the poorout of tax’. Why not someone in the Labour Party to push this up the political agenda? Surely we could strap a pair onto one of the Eds in their sleep?

If there is about 11 Billion quid lying spare that is earmarked for taking the ‘poor out of tax’ why not push for something radical and headline grabbing?

Take the poor (and everyone else) out of council tax? That way we:

Save even more from the huge benefit bill because the unemployed will no longer need council tax rebates
The unemployed do not get any money in hand from it.
Demolish almost all of the benefit trap that remains.
Scrap whole layers of pen pushers.
Remove the working poor from tax.

All boxes ticked, so what is the problem? Labour still not convinced? Okay what about we take couple of grand from the huge savings and buy a couple of dozen batons and batter seven shades of shit from a passing disabled guy? There you go ‘hard but fair’.

” Okay what about we take couple of grand from the huge savings and buy a couple of dozen batons and batter seven shades of shit from a passing disabled guy?”

That should clinch the deal!!

Lets go further than scrapping council tax – I don’t think it is very controversial to suggest that local government as a whole in the UK is a joke. Whilst some the services they do are vital, it is riddled with corruption and incompetence (mainly senior management and local councillors rather than the junior staff who are overworked and underpaid). Scrap the lot of it. Then as I can’t be arsed to think of what we replace it with we can outsource that thinking to another blog.

The heart of the matter is not where the tax burden falls, but the size of the tax burden itself. If people want a massive interventionist state, policing the world and taking care of everyone from cradle to grave, then inevitably we’re all going to have to pay for it. The poorer you are, the more you realise just how high taxes have become. We can’t afford this kind of government! It’s way too high maintenance.

Besides the fact, admitted back at the time when there was a 95% top rate, that you can’t solve the problem by merely soaking the rich, you should note that if you take away rich people’s money, you are confiscating savings which then won’t be invested in the economy, but rather will go to pay for current government consumption. How is the economy to grow if there is no money for investment?

The aim should be for government spending to be reduced across the board, and taxes likewise. Leftwingers should retire their worn-out class warfare nonsense. There is no real conflict of interest between different income brackets, except when you have a massive state interfering in everything, and doling out favours and benefits to those who lobby most effectively.

” We can’t afford this kind of government! It’s way too high maintenance.”

It might be worth considering that a country with high levels of crime, low levels of education, and a poor infrastrure is likely to have higher maintenance costs than one with low levels of crime, high levels of education and good infrastructure. You then might like to consider how countries can move from either end of that spectrum.

@ Trooper Thompson

“The poorer you are, the more you realise just how high taxes have become.”

They haven’t though, have they? The tax burden has been around 40% of GDP for ages. (Prior to the crash, anyway.) And speaking as a former poor person myself, I can confirm that the introduction of tax credits reduced my net income tax and NI burden at that time by c. £4000 a year to nil. Did Gordon Brown sneakily claw that whole £4000 back through ‘stealth taxes’? Of course he bloody didn’t.

“There is no real conflict of interest between different income brackets”

On the contrary, there is the clearest possible conflict of interests between the 95% of people whose well-being depends fundamentally on the standard of state schools, state healthcare and state pensions, and the 5% who never need to see the inside of a state school, go on an NHS waiting list, or worry about their income in retirement. The former group might have some interest in tax cuts, but not if they come at the expense of public services. (And note that if tax cuts are funded by reductions in spending on cash benefits – e.g. the state pension, child benefit and tax credits – they may not even be better off in cash terms.) The latter, though, can be pretty confident that tax cuts will make up for any negative implications spending cuts may have for them. (If a 5% cut in your tax rate leaves you £5000 a year better off, it doesn’t much matter to you if it’s been funded by a 5% reduction in the state pension. You just put another £1000 into your private pension and spend the other £4000 on a holiday.)

@46 – No, it does not even remotely come close, when hundreds of thousands of people are being forced into part-time work, where tax credits simply don’t apply.

@49 – So essentially the poll tax again? You’re punishing many low-end workers again. Shared housing is currently only affordable for many of the lowest paid workers because they can split the council tax, you’re going to drive them onto the streets with that plan.

@58 – “How is the economy to grow if there is no money for investment?”

It’s not growing anyway. And that’s not the problem.

“There is no real conflict of interest between different income brackets”

Quite true, the 1% are in the same bracket: Avoiding tax.

Quite true, the 1% are in the same bracket: Avoiding tax.

Is that Leon the Anarchist?

Since when were anarchists in favour of tax compliance?

Are you sure you don’t mean you are a collectivist?

@62 – And that’s why I don’t usually say it. Because idiots like you instantly jump to the wrong flipping conclusions and go off the deep end. I said “technically” anarchist, since the school of thought I belong to is heavily associated with anarchy, I *don’t* consider myself as such, or behave as one.

I’m a mutualist. I’m fully in favour of government (although I’d get it out of a number of places it’s currently in), tax and the free market. What I’m *not* is a capitalist.

Keep pushing Corporatism, snowflake. Which is a form of collectivism, of course.

@ Leon

But you’re in favourvof taxation as a redistributive tool. That’s not Anarchism. Not even technically anarchist, whatever that means You are an authoritarian socialist.

Get used to it or get smarter.

@64 – Ah yes, the “YOU MUST CONFORM TO HOW I VIEW THE WORLD” reply.

So, when are you going to admit to the attempted murder of millions, Corporatist? Because under your logic, you have no defence against the charge.

64
Nope, a socialist is someone who believes that the economy should be distributed fairly in the first instance. Therefore, no need for a massive state to redistribute social goods.
And you believe that socialists are not anarchists within a capitalist society?

@ SteveB,

“Nope, a socialist is someone who believes that the economy should be distributed fairly in the first instance. Therefore, no need for a massive state to redistribute social goods.”

In the first instance? What happens prior to this first instance of yours? Round-ups and digging holes in forest clearings?

As for Leon and his strange Humpty-Dumpty definitions of his own and everyone else’s position, I suggest anarcho-communist may be the most accurate label.

At least libertarians know what libertarianism means. There seems to be as many versions of socialism as there are socialists. Even if me and Pagar disagree on some things, which is likely, I’m sure we can agree on the basic definition.

@67 – Oh yes, thanks for that textbook case of ignoring reality.

In reality, anarcho-communist is VERY VERY different from mutualist.

I don’t advocate abolishing: The state, markets, money, private property.

Anarcho-Communists dislike mutualists, in fact, because we advocate using fiat money, because we fully support a free market, reject the anarcho-communist land schemes…

Nor do we advocate “”from each according to his ability, to each according to his need”, but *increased* worker ownership, on a gradualist basis, *explicitly rejecting* revolutionary theory.

That value of labour should have a far greater role in remuneration that today – that things are /less/ uneven, that land “title” should be held for active use, that mutual banking is good, that…

There is *very little* commonality between Mutualism and Communism, and it stresses individual rights. Essentially, you’re accusing me of being a revolutionary when I think John Lewis is a great example of a well-structured firm!

You? You’re a textbook corporatist. Group rights for legal fictions over individual rights.

@67. Trooper Thompson: “In the first instance? What happens prior to this first instance of yours?”

Please do not explode in my face because I am discussing an idea, not promoting a political cause.

steveb proposed that: “Nope, a socialist is someone who believes that the economy should be distributed fairly in the first instance. Therefore, no need for a massive state to redistribute social goods”, which raised the question about “first instance”.

Social democrats (ie mainstream Labour in the 20th century) consider the first instance to be “now”. From “now on”, they would redistribute newly created wealth; bestowed wealth would be subject to inheritance taxes.

Revolutionary socialists believe that if you confiscate all of the wealth, that is the “first instance”. Wealth of the state would be delivered equally to Moskvitch taxi passengers as to ZIF/ZIL limousine riders.

Whilst considering myself on the left, neither proposition appeals to me. But I can see that they are different.

Apologies for crude generalisations to social democrats and revolutionary socialists who think beyond the narrow boxes that I defined.

@68. Leon Wolfeson: “…that land “title” should be held for active use…”

So I would not be allowed to buy a field, and for the purpose of personal wonderment, to observe how nature transforms the land. I would be insufficiently active. To be active would destroy an exercise conducted on my own property.

How active should a property or land owner be? Aren’t you just recycling 1970s squatter arguments? “Hey man”, (draw a drag), “the owners don’t live here and whilst we are in it, the builders can’t come in.”

@ Leon,

if you’re a mutualist, fine. It’s just you never come across that way, amd you seem to have a violent dislike for libertarians, which is bizarre, given the fact that other mutualists put themselves within the libertarian fold, whereas you prefer to label them fascists. Also, if you are not opposed to private property or free markets, then I fail to see what your proclaimed anti-capitalism consists of.

@ Charlieman,

I’m not sure why you expect me to explode in your face. I do accept a difference exists between social democrats and communists but it is largely in means rather than ends sought, and neither can overcome the inherent flaws in the socialist economic model.

@71. Trooper Thompson: “I’m not sure why you expect me to explode in your face.”

Thank you, Trooper. My request for non-explosion was directed generally not to you in particular.