The Guardian has noted this morning that:
The tax-free personal allowance, which rises to £12,500 in April, should be scrapped and replaced with a flat payment of £48 a week for every adult, according to radical proposals welcomed by shadow chancellor John McDonnell.
The proposal, from the New Economics Foundation thinktank, is for a £48.08 “weekly national allowance,” amounting to £2,500.16 a year from the state, paid to every worker over the age of 18 earning less than £125,000 a year. The cash would not replace benefits and would not depend on employment.
The policy idea has been welcomed by the shadow chancellor, John McDonnell, and the Green MP Caroline Lucas, and would mean that as many as 88% of all adults would see their post-tax income rise or stay the same, helping to lift 200,000 families across the country out of poverty.
I welcome the idea.
It is a step towards a universal basic income.
It reinforces the idea that we all count, not just those who pay tax.
It also makes clear that all income is taxable: there would be no excuses left for not declaring.
And it is heavily redistributive. In part it is so by replacing the absurd Tory version of the married allowance that is so deeply prejudicial to all but one chosen sector of society right now.
I would add that the cost will be much higher than the personal allowance that is replaced, even taking into account the saving in that at higher rate. There will be many more recipients of this payment than there will be losers of the personal allowance.
But maybe it is time to recognise we can and should afford to have everyone treated equally as a full member of the society of which we are a part.
I predict a long life for this demand.
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Absolutely agree with this. Increasing personal allowances has generally been sold to voters as a way of helping those on low incomes. Yet this is a fraud, as Guy Standing and others have increasingly pointed out. Raising personal allowances is actually a regressive move, as higher rate tax payers gain more than low earners from increasing the threshold.
My only quibble would be why stop at £125k income level, when you can easily recover this small amount through the tax system. A key principle of Basic Income is that it MUST be universal. The moment you start excluding any citizens (even the most wealthy) your are on a slippery slope. The next Tory government could decide to exclude prisoners, or drug takers, or those not actively looking for work.
Finally I would not stop at just taking out personal allowances. We should also look at equalising national insurance for the self-employed, and adding a #CarbonFee and #dividend which would index automatically every year. This is precisely what Macron should have done if he wanted a Carbon Tax that voters would support, because the majority of low earners would be financially better off.
At last the critical insight behind Basic Income is gaining ground, but we have to understand that we need it within the next 5-10 years, which means no more than two parliamentary terms. We need to move very qickly from proposals to real reforms.
I don’t see how the NEF can claim that 88% of people will be better off or will stay on the same income level. This can only be true if 12% of adults have incomes between 100k and 125k when the personal allowance is taken off you anyway.
The gainers are those with income between 0-12.5k which is around half of all adults. Very nice if you’re asset rich. I’d prefer a rise in the applicable mount of benefit claims by half the mount instead and a reduction in the taper rate to cover the rest. Also gaining will be the outsourcing companies as they always do when government has to expand. In this case HMRC would have to make compliance checks on all incomes above zero, rather than letting it go as not economically viable to investigate until income rises above the personal allowance.
We need to check all incomes
I would have a 100% tax return requirement
John –
That’s not right. It makes sense if 12% of people pay tax at the higher rate.
Removal of the Personal Allowance will hit at the highest rate of the taxpayer… currently that’s anyone earning more than £46,350. When PA is restricted or removed, it has the effect of increasing the highest rate first.
Under this proposal, the £48/wk UBI would compensate a basic rate taxpayer for their loss of personal allowances, but that levels out at the higher rate threshold. More tax is due on the lost PA element of their higher rate salary.
Long story short – this measure would have the effect of restricting the value of PA to basic rate for everybody, whilst the UBI would offer a larger amount in the pocket of anyone earning less than the current PA.
However, given that the national minimum wage (£7.83 for the over 25s) is more than the current PA when worked out at 40 hours per week, I think the number of people in work who would benefit from this (people on the NMW whose working hours per week drop their income to below the PA) is not large enough to justify the figures. The UBI element needs to be higher. OK, this will lessen the impact on higher rate taxpayers (which tops out at around an extra £200/month in income tax) but it will also be of greater benefit to the people it’s purporting to help.
I love the concept, I think the numbers need tweaking.
You are right on your last point
The proposal is too simplistic too assist its sell in
I have to say that I agree with my late father in that people need to be co-opted into things like this and not be given the opportunity to stand out side of them.
For a start the politics that can be made out of this are perverse.
Paying for unity or commonality in society is something really useful and positive. I’m really leased by McDonnell’s reaction.
I’m confused, is the rise in the tax free personal allowance cancelled and replaced with £48/week or is the tax free personal allowance cancelled entirely?
The whole PA is cancelled and replaced with this
so how much tax would someone earning £12,500 per annum pay without the personal tax free allowance?
would it be something like £48.08p per week?
Yes
For those on low incomes, they will probably be eligible for local housing allowance (housing benefit) and council tax relief as well and it will be essential to ensure that the £48.08 per week is not deducted from those benefits. Currently any increase in income or pension etc is deducted pro-rata from these benefits.
I see a sneaky ambiguity in the wording. Paragraph 1 states that £48 would be paid to “all adults”. Paragraph 2 states that it would be paid to “every WORKER over the age of 18 earning less than £125,000 a year. The cash …….. would not depend on employment”.
So– does this mean that one has to be available for work? what I am getting at is that it would seem to me, (because of the substitution of the word “worker” for “adult”), that retired people are excluded! So, if this IS the case, a retired person with old age pension and (say) a small teacher’s pension, total gross income being £21,000, LOSES £50 per week, i.e. is £50 a week worse off!
Forgive my suspicions, but at 71 years of age I have become VERY cynical.
I believe it should be payable to everyone…
In the first paragraph it is said that “ the cash would not replace benefits” but would it be taken into account when calculating benefits ?
Child benefit for example does not replace benefits paid to people on income support or Jobseeker’s Allowance or universal credit but it is taken into account the result being that those benefits are reduced by the exact amount of child benefit that is paid which in effect means that the very poorest families in UK with children do not actually benefit in any way from child benefit at all.Only those who are not on means tested benefits profit from child benefit.
Child benefit should be abolished and the money used to give increased tax allowances as it used to be.
Universal basic income is a good idea but it tells us something about the greedy people around us when it is suggested that the only way we can help the poorest in our society is by also giving the same amounts of money to the rich and make no mistake about it those earning up to £120,000 are at the rich end of the scale ,the thought of giving someone that earns £80,000 or £100,000 a year ,another £48 as a gift from the taxpayer just so they don’t moan about it being paid to the poor is mindblowingly a sad reflection of the greedy selfish me me me society we live in here in UK.
This country can easily afford to make sweeping changes that pay people at the lower end of the income scale a decent income and it would be good preparation for the modern world changes taking place that will enforce unemployment on increasing numbers across the globe as automation takes hold.
The age old trick of percentage increases in income should be abolished too 1% of £66 a week in benefits gives you an increase of 66pence a week.
1% increase a week of £120,000 yearly salary gives you an increase of £23.07 a week .
And so the gap widens year after year and you want to give those at the higher end of this another £48 a week.
Think again.
I am sorry, but what is it about universal that you do not get?
The whole point is UBI stops the massive cliff edge tax rates that benefits create now
And only universal benefits do that