I have already noted one inconvenient truth that the government has tried to hide on income distribution this morning. Polly Toynbee has addressed another in the Guardian and that relates to universal credit, on which she says:
A hard blow to the boast 9that universal credit makes work pay] is delivered this week in figures on universal credit from the Joseph Rowntree Foundation. Here's the real shocker: families who work full-time can easily find themselves with less money in hand than if they work part-time. Everyone is better off moving into work — as they generally were under Gordon Brown's tax credits — but if a family with young children works more than 10 hours they will generally earn virtually nothing extra, and some will end up with less. This is because universal credit is withdrawn at a steep rate as people earn more.
Take a typical single parent with two children: if she works a day and a half on the minimum wage, it's worth her while and she takes home, with the credit, £268. But if she decides to work three days a week she only earns £6 more. If she goes full-time, she is actually worse off, falling back with £2 less. This, explains economist Donald Hirsch, author of the JRF report, is because as she earns more the withdrawal of universal credit, taxation and childcare costs are so steep.
With two-parent families the disincentive story is the same. In a family with two young children, if one partner works there is no incentive in universal credit for the second partner to take a job. Don't glaze over, look at these figures: if one parent is working full-time on the minimum wage taking home £346 a week, when the other gets a full-time job, their income generally only improves by £29 for her five days at work. (And she earns less full-time than if she worked three days).
As she concludes:
The Spectator's editor, Fraser Nelson, points out, as Duncan Smith often does, that the present benefit system can take 98% away from claimants as they earn more, in some rare cases. Universal credit is intended to solve that, he writes, bemoaning the "glacial pace" of its roll-out. "It has never been more urgently needed."
What he doesn't say is that universal credit will withdraw 65p from every pound its recipients earn. High earners protested they wouldn't get out of bed when top tax was 50%, so the chancellor obligingly cut it to 45%. While hard-working, honest people on universal credit leave home at dawn, blinds would certainly stay down in Mayfair mansions if they had to pay a 65% tax rate.
This is the reality of the government's offering. Not only do the poorest in our society pay more tax as a proportion of their income, they pay higher marginal rates.
Howard Reed and I wrote about how to tackle this for the Class think tank, here. We have shown that this is not needed: we could have a genuinely fair and progressive tax and benefits system. What we need is political will and something else, which is a belief that most people really do want to work. It is innate in us. Right wingers and economists deny this but they are wrong. And it they who have created this poisonous environment in which we live as a result. That is what we have to change.
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This article is spot on, including on shirking. A few years ago, doing community work on an estate considered full of shirkers, I found that most of the people playing the system were doing so with good reason – most commonly because they needed to minimise time away from home because they were caring for relatives with sickness, mental illness or disability arising from poverty. So quite a lot of cash working when the chance comes so as not to disrupt benefits. Even the shirkers work, but unless the problems being faced are recognised all benefit tightening or make work pay strategies will have consequences that either increase social/health problems or simply shift expenditure. The real underlying problem is low pay and lack of high value work. And that brings us back to finance scam globalisation.
“The real underlying problem is low pay and lack of high value work.”
Well, that’s one way of looking at it but then I remember I had to get a job when I left College and bit by bit I worked myself up the ‘income chain’…..and I’m not special….
Sorry – that’s a fallacy of composition error
You cannot extrapolate yourself from one time to another person now
Unless the absurd cost of keeping a roof over your head is tackled then the urinating in the wind will continue on this one. If we had a tax system that valued the marginal value of every extra pound in terms of fuel, food and rent then we would have a vastly higher threshold and super tax levels of 95% I imagine. perhaps we need Silvio Gesell’s old idea of money that decays in value so the super rich have to circulate it as well!
Gesell also prescribed land nationalisation. He was early in understanding the importance of both money and land in the economy. Keynes didn’t ‘get’ land, perhaps his family landholdings blinded him.
“we would have a vastly higher threshold…”
Vastly higher tax threshold…but then who pays for things like the NHS, defence and the police and schools and the 5-a-day advisors and the Climate Change Managers and all the other jobs that people seem to want done…..?
I do not agree with a vastly higher tax threshold
I would lower it – but provide a universal income
A DWP worker explained to me that one aspect of UC is as follows: any claimant who works part time and earns less than what they would get on minimum wage if they worked full time (ie about £260 per week) will be expected to increase their income by increasing their hours or finding another job. They will be called into interview by DWP staff on a regular basis and asked to show evidence of how they are trying to achieve this, or they risk losing their benefits.
This will trap many people, including a large number of low ranking Civil Servants, mainly women, who work part time. The most Kafkaesque element of this is that many DWP officers involved in this process are themselves part time workers and earn less than the full time equivalent minimum wage; therefore DWP staff will be interviewing each other, asking what they are doing to find work outside of DWP!
http://www.mindfulmoney.co.uk/wp/shaun-richards/in-a-country-of-foodbankspoverty-traps-and-mp-salary-rises-is-inequality-really-falling/
“Not only do the lowest paid pay most tax”
You know that not to be true.
The lowest paid may pay more tax than they should. The wealthiest perhaps should pay more tax. Those are debates to be had.
But you know that the lowest paid, quite simply, do not pay the most tax as a proportion of their income. The ONS survey shows that the lowest quintile pay 36.6% of income as tax. You have acknowledged elsewhere on your site that my calculation shows that someone on a slary of £150k pays c40% of income in income tax and NIC before any other direct or indirect tax is even considered. Someone lucky enough to be on a salary of £1m will be paying c46% in tax & NIC before any other tax.
Someone on here advanced the “only if they declare it argument” but that could equallly be advanced toward the bottom quintile “what if they’re all ‘on the fiddle’ and earning in the black economy”. I don’t buy either side of that argument, they’re both tabloid phantoms and cloud the issue.
Your argument regarding ‘fair’ taxation has enough merit that you surely don’t need to peddle blatant misinformation.
By quintile that is fact
I’m not sure what argument you are seeking to pursue
Of course that is not true of everyone in a quintile
But as presented the argument is true