...a blog by Richard Flowers

Wednesday, August 04, 2010

Day 3503: Oh God! Have I Turned into a Tory?


So, here we are, ninety days into the Coalition and life in Government doesn't seem like it's as much FUN as I expected.

Sure if you're actually IN Government I bet it's LOADS of fun, with all those actual levers of power to pull, but for those of us SUPPORTING a Party that's at least kind-of in power, there's a whole load of uncomfortable accommodating to get used to.

Plus we have to put up with being the butt of all the JOKES on "Mock My Week Up" and the "Not Now Show". Yes, play the World's smallest violin.

The problem isn't so much putting up with the jokes – it's not like they've become any less FEEBLE since the "party conference in a taxi" days – it's more finding yourself suddenly shouting at the radio: "no, you idiot, the Government HAS to do this because…" (a sentence that increasingly finishes with a combination of the words: "Hard Labour", "money" and "wasted all the"), and realising with a bit of a SHOCK that you are DEFENDING the Government. Worse still, you actually AGREE with what the Government is proposing!

Case in point:

For a while now, I have been arguing that we should make tax and benefits SIMPLER.

Only blow me if Master Gideon isn't saying we should simply the tax system and if Mr Iain Drunken Swerve isn't saying we should simplify the benefit system.

Oh crumbs, have I turned to the DARK SIDE?!

I think that this is a simple question of FAIRNESS: people should be able to UNDERSTAND what they are being asked to contribute or what they are getting. Firstly, I think that that give people more control over their government if they can see what is being raised. Secondly, I believe that if people can understand their tax more then they are less likely to try and avoid it.

It is well known that UNIVERSAL benefits have a much higher take-up rate: because there is less STIGMA attached (it's something everyone is owed) or perhaps because there are fewer forms to fill in and hoops to jump through. This means that the BEST benefits for reaching those most in need are the ones everyone can get: pension and child benefit.

The DOWN SIDE of a UNIVERSAL benefit, of course, is that there is perceived to be a lot of "waste" spending money on people who "don't really need it".

(Actually, there's a whole road you can go down about "who DECIDES who needs what",; and about how some needs can be disguised by apparent wealth in a partner or family when it's not being shared about; and about inclusivity of treatment if we ARE supposed to be "all in it together" then telling the better off they don't get anything out and have to put everything in is going to alienate your all-important tax base, who in the end have to PAY for the benefits for other people – i.e. you don't want to convince them to vote for something much FURTHER to the right.)

It seems to me that the simplest you can make the system is one called a "Citizen's Income" linked to a "flat tax".

How it works is this: everyone over the age of sixteen gets an "income" from the state just for living here. Then everything you earn, however you receive it whether in cash or shares or moonbeams, is all taxed at a single tax rate. You get NO personal allowances and NO tax credits, but equally you get no withdrawal of the Citizen's Income: you are ALWAYS better off if you do even just a bit of work than if you do none.

You could suggest a system that was something like £100 a week in Citizen's Income, about the level of the current state pension (or 50% more than a lot of benefits), and a tax rate of somewhere in the thirties, let's say 35% for neatness.

Unfortunately I've tried bashing Daddy Richard's calculator and it's just not that easy to make the maths add up.

Hold on to your Carol Vorderman's; here we go:

If there are sixty-two million people in Great Britain, and let's guess that 16% are 16 or under (that's about right), then £100 a week each for everyone costs: (62m x 84% x 100 x 52) two hundred and seventy-one billion pounds.

If the average salary is twenty-five thousand pounds (pdf), and twenty-eight million people (pdf) are in employment, then the total "earnings" of the country is: (25 x 1000 x 28 x 1,000,000) seven hundred billion quid.

So you'd need a tax rate of 39% just to break even.

But what you've got to remember is that the Government DOESN'T just break even on the tax and benefits, it pays for stuff like the NHS and schools and the army out that tax too.

Estimating a bit here, from last year's red book (pdf), let's say the Government CURRENTLY hopes to get in something two hundred and fifty billion from taxes on earnings (income tax and national insurance). It then spends say a hundred and forty billion of that on benefits (which it wouldn't have to do) and a further seventeen billion on tax credits (which would go) leaving it with net money coming in of about ninety-three billion pounds, so that's money you'd still have to raise or else cut something truly eye-watering.

Ninety-three is a bit more than 13% of seven hundred, so you're looking at a "flat tax" tax rate of (39 + 13) more than 52%.


Actually, there IS a bit of a fix for that: those taxes on earnings include the EMPLOYERS' share of National Insurance (that thing that the Conservatories always call the "jobs tax"). Well, if you DON'T abolish the Employer's National Insurance when you create the flat tax, then you can use that to trim the flat rate down a little, to maybe somewhere nearer 45%.

But that's still quite a HARSH tax rate if you are trying to encourage people that work is worthwhile. Almost every other penny they earn goes to the taxman. And it doesn't give you a lot of room for adding a Local Income Tax on top, either.

And I agree, £100 a week DOESN'T sound a lot to live on, either, particularly when you include the cost of housing (although it would be a bit easier for couples who get two lots of £100). Just think about the GRIEF that the Coalition are getting for limiting housing benefit to £400 a week, and then ponder what it might be like to tell people it will be abolished altogether!

Ouch again!

In pure cash terms, almost everyone IN WORK who earns LESS than the National Average would be better off; almost everyone who earns MORE than the National Average would be WORSE off, and perhaps substantially, although ironically the very highest earners (currently paying 50% tax plus 2% NI and with their personal allowance withdrawn) would actually be better off again. A lot of people on benefits could be a good bit better off; but a lot of people could be worse off too – the system is just too complicated to know without a lot of time on the Treasury Master Computer Brain to work it out.

Here, though, is where I think I depart from Mr Drunken Swerve.

If SOME people do not want to work, if they think they can survive on £100 a week… I say good luck to 'em.

My aim is to LIBERATE people. Primarily, I want to liberate them from the ELEPHANT TRAP BENEFIT TRAP that means that it is often worth more to remain stuck in dependency than to go out and better yourself.

What I DON'T want to do is replace one form of TYRANNY with another: to replace dependency on State handouts with some Puritan ideal of compulsory work.

Now, I realise there IS a risk involved in this: if TOO many people decide that work is too much trouble then the whole system will fall to bits. I have to rely on a good half of the population sticking with the British Work Ethic or it all goes kabloohey.

The way I see it, there will always be people who are not able to work: they might be ill or old or pregnant or caring for someone else or any number of things, and it's really not my BUSINESS to make some MORAL statement about whether they should or shouldn't be working.

This system would make sure that they are looked after. A bit.

Equally, there are always likely to be some people who are too lazy to be bothered or clever enough to work the system who want to skive off. And there ALWAYS WILL BE.

So let's not PRETEND that we can devise systems that can stop that. Particularly not systems that are going to have to be run by an underpaid, understaffed civil service. Making the system more COMPLICATED only helps the scammers – if the people OPERATING the system don't understand it (and at the moment it's so complicated that NO ONE understands it!) then how are they supposed to know when they are being conned?

You can't legislate laziness out of existence, nor can you be clever enough to put cleverest conmen off of cadging off the rest of us, at least not without SERIOUSLY penalising the people who really can't work and don't deserve to be punished for the p-taking of a very few others.

So, at the end of the day, I think I've convinced myself that I'm NOT turning into a Conservatory after all.

Which is a relief.

And which can only mean one thing: if I'm not becoming more Conservatory, then the Conservatories must be becoming more LIBERAL.

Maybe there's hope for this Coalition yet.

Now… what do I do with this nice RED LIGHT-SABRE that Mr Balloon has sent me?


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