Raising the NI threshold would have cross-party support
In Wednesday’s Budget we saw the personal allowance threshold rise again; starting April 2016, earnings up to £10,800 will be tax-exempt. The coalition knows that raising the personal allowance is a politically popular idea (not to mention good public policy). It’s great to see them inch slightly closer to taking minimum wage earners out of income tax all together.
But given how in-tune they are with the tax relief this policy provides to low earners, it’s hard to make sense of their decision to ignore the National Insurance threshold, which currently sits well below the personal allowance threshold at £7,956/year.
Especially when it would be politically popular to address it.
A pre-Budget poll from YouGov asked Conservative, Labour, Lib Dem and UKIP respondents which policies they would support or oppose if the Chancellor were to announce them on Wednesday. The policy that received the most support (83%) was raising the personal allowance threshold to £11,000, followed by “raising the National Insurance threshold, so it is no longer paid by the lowest earners”, which received 71% support.
It gets even more interesting if you break it down by party. On NI, both Conservatives and Lib Dems supported the policy with a 75% majority, followed closely by Labour at 72%. UKIP brought the average down slightly, but with a significant majority still favouring the policy at 68%.
Getting the poor out of tax has strong cross-party support and the Chancellor should, in theory, be able to implement changes to the NI threshold without extreme push back from any opposition parties. Yes, the coalition should be credited for their reforms to the personal allowance, but now is hardly the time to go soft on a bad tax that continues to hit the poor hard.
Well, isn't this an early Christmas present?
We here at the ASI have been arguing for many years now that the most absurd part of our income tax system is that people working part time on the minimum wage are inside the income tax system. We've been arguing it so loudly that something is about to happen:
None of the four main UK parties are proposing a tax cut package that would predominantly benefit low earners, the Resolution Foundation thinktank said on Monday.A report analysing the impact of the main tax cuts being proposed by the Conservatives, Labour, the Liberal Democrats and the UK Independence party (Ukip) said they would not benefit nearly 5m low-paid employees who do not pay income tax.
Although it found the Labour and Lib Dem proposals were less regressive than the Conservative and Ukip ones, it said that the poorest 50% of households would only get a quarter of the overall benefits even under the fairer plans. The foundation said a more progressive approach would be to raise the national insurance threshold and to lift the work allowance within universal credit. Even though the government is running a deficit of nearly £100bn, all the main parties will be proposing tax cuts in their election manifestoes.
The Conservaties and the Lib Dems both want to raise the basic rate income tax threshold to £12,500. The Conservatives also want to lift the higher rate threshold to £50,000. Labour wants to introduce a 10p tax band. And Ukip wants to raise the basic rate threshold to £13,500, and to introduce a new 35p tax band for those earning between £47,000 and £61,000.
Three of those four proposals to raise that personal allowance come from us here. No, not directly (in one case, yes directly) necessarily but we can point to the Lib Dem we convinced and the path of the proposal through that party. And of course the Tories are just following on. Hurrah! etc.
That the idea, that if we want the working poor to have more money we should simply stop taxing them so much, has caught on is lovely. That it annoys the Resolution Foundation so much is just icing on the cake.
However, they do make one good point:
Kelly also said it would be fairer to prioritise raising the national insurance threshold, because this would benefit the 1.2m people who earn enough to pay national insurance but not enough to pay income tax (for which the threshold is higher).
Yep, raise that NI limit (including the employers' part) to again that full time, full year, minimum wage. Sure, it would be "expensive" if you take that horribly statist attitude that all money really belongs to the State and thus that not taxing it off people is a cost. But out here in the real world most people do get the basic idea. If there is some minimum amount that it is righteous and just (an idea we're not sure about ourselves) that the State insists people are paid then it is equally righteous and just that the State doesn't dip its fingers into those wallets getting that righteous and just minimum amount.
Or, as we've been saying for these long years now. If you want the working poor to have more money then stop taxing them so bloody much.
It's the minimum wage that's keeping youngsters out of work
The young are the new poor
The Independent - Cahal MilmoA study by the Joseph Rowntree Foundation has warned that young adults and employed people are now more likely than pensioners to be living in poverty in Britain because of the surge in insecure work and zero hours contracts.
The reason for this is the minimum wage, which also explains why we have nearly 1m youngsters out of work entirely.
While the minimum wage for young people does not seem high – £5.13 an hour for 18-20-year-olds, and £3.79 for under-18s – the fact is that many young people do not provide that much value to an employer. Indeed, when National Insurance and other costs are added, the value of an unskilled young person is often negative. Young people have to learn the habits of work, turning up on time each day, the skills needed in the job, and 'soft' skills such as how to get along in a team with colleagues, how to deal with customers, how to react when things go wrong, and so on. It may take many years of training and job experience to lean these skills.
That is why for centuries we have had apprenticeships in which young people earn very little but learn a trade. But minimum wages – plus the heavy burden of workplace regulation which makes it very difficult to let someone go once they have been hired, however inappropriate they turn out to be – make employers more reluctant to take on people with few or no skills and experience.
The result is that minimum wages hurt those they are supposed to help. Employers do not take on young people, or those without skills, or those nearing retirement, or people with poor social or language skills, or ex-prisoners, or people with mental health issues, because their business cannot carry the cost of giving them the support and training they need to become more productive than the cost of employing them.
How food banks trump the welfare state
On the face of it, the figures are damning. Food banks in Britain helped over 900,000 people last year, up around a third over the year before. It seems Britain has a real problem with food poverty. Our benefits system just isn’t coping. But, like so many media headlines, the truth is a lot more subtle. Nearly all food banks in Britain are run by a single Christian charity, the Trussell Trust. In the last few years it has found a niche, sharpened its act, and opened a lot more. So not surprisingly, care professionals have been sending more people along. It may not be that the underlying problem is getting worse, just that it is being better served.
Nor is it the government’s benefit reforms that explain the rise. Food banks were growing long before the measures were passed in 2013, and many of the reforms have not even been implemented yet. And by merging scores of benefits into a far simpler universal benefit, the reforms should hopefully help ensure that people do not in fact fall through the gaps in the over-complicated welfare net.
The underlying problem that food banks help solve is not food poverty, any more than it is shoe poverty, clothes poverty, electricity poverty or water poverty. It is the temporary crises that people sometimes get into when they are unemployed or on low pay. Around 60% of food bank users are once-only users. They hit a crisis and can’t afford the groceries; that is why care workers refer them.
Around 30% of them have problems because their benefits payment has not arrived in time, or they are being penalised for not showing up at interview, or they have simply filled in a form wrongly. And you can blame that on our over-complicated, bureaucratic, distant and unfeeling state benefits system. We spend £94bn a year on it, a seventh of all government spending (and the government spends a lot). If we devolved the process to local communities and voluntary groups, it would work much better.
No government can do much about the fact that food prices have risen nearly 35% since 2007. Well, actually, they could stop subsidising biofuels, which has diverted huge amounts of agricultural produce out of human mouths and into gasoline tanks. And they could do something about the fact that other essentials have been soaring in price too. Government-mandated to renewable energy adds about 15% to the fuel bills of businesses and private sector organisations, plus about 6% on the gas bills and 11% on the electricity bills of domestic customers. That is why poorer people run out of cash and economise by going hungry.
Nearly everyone in Britain is well fed – some too much so – because Britain is a peaceful, trading nation with an established rule of law. Our farmers are not afraid to plant crops in case they are stolen by thugs or invading armies. Our traders bring produce to us from all over the world. If you want to see chronic poverty, look at countries that do not have this thriving market system.
Because this market system makes us a rich country, we can afford to help people who run into problems. The biggest philanthropic sector on the planet is that of America, the world’s richest country. In fact, America, Canada, New Zealand all have large food bank movements. That is because they are rich, and because they have a strong sense of community too. In Britain, too much of that sense of community has been crowded out by our state bureaucracy.
It is actually good to see charities taking on these problems. The state is inevitably large and lumbering. Private charities are much better at tackling individual human issues, like families who run out of cash from time to time.
Of course, the state could help in a very simple way. A large number of people referred to food banks are actually not those on benefits, but people on minimum wages. The government has pledged to take everyone on minimum wage out of tax, and about time too – it is absurd to tax people who are on the breadline. And yet we are still charging them and their employers another, hidden tax, namely National Insurance Contributions. Again, it’s crazy. If you want to help people in poverty–and get people into the world’s best welfare programme, namely a paying job–you should be making work pay, which for many of the nation’s poorest, is appallingly not the case.