The Flat Tax Proposal
During August there was much discussion in the press about a ‘flat tax’ ( For instance, in The Daily Telegraph on the 19th August) a single-rate tax on all income. The idea has sometimes been likened to the Citizen’s Income proposal because there is clearly a similarity: simplicity, and therefore both efficiency and transparency. But there the similarities end. As we showed in the third edition of this newsletter for 2004, a Citizen’s Income will redistribute somewhat from rich to poor (and in the sample scheme outlined in that newsletter net income rose 26% for people in the lowest earnings decile and fell 4% for people in the highest earnings decile). With the flat tax proposals circulating during the summer net income would rise for people in the higher earnings deciles and would be likely to fall for people in the lower earnings deciles.
If there is a problem with marginal tax rates of 40% for high earners, there is even more of a problem with the 85% or more marginal tax rates experienced by people on low incomes (See April 2004 Tax Benefit Model Tables (Department for Work and Pensions, 2004): http://www.dwp.gov.uk/asd/asd1/TBMT_2004.pdf). Turning personal tax allowances into a Citizen’s Income would go some way towards solving this problem.
Subsidising low wages
In December 2004 the Joseph Rowntree Foundation held its centenary conference. The first keynote speaker was Professor Jonathan Bradshaw, who told the audience that the State provides more support for market earnings at half average earnings than any other EU country, and that in effect the taxpayer is providing a large subsidy to low-paying employers.
This is because tax credits are reduced as wages rise, making it worthwhile to the employer, and not very disadvantageous to the employee, for wages to be low.
A Citizen’s Income would, of course, have a different effect. Because it would not be withdrawn as wages rise it would not be at all in the employee’s interest for wages to remain low. The employee will always be advantaged by higher wages, so low-paying employers would be likely to see their employees going elsewhere, or improving their skills so that they could seek higher-paid employment, or going self-employed – because as self-employed earnings rose the self-employed would retain their Citizen’s Income. Low-payers would need to increase wages to the market rate, which would be good for competition, good for the economy, good for skills levels, and good for employees.
In 2000 a Royal Commission on Environmental Pollution recommended carbon taxation as a means of reducing the consumption of carbon fuels. (See: Royal Commission on Environmental Pollution, Twenty-second Report: Energy – the changing climate, Cm 4749, London: Stationery Office, 2000.) The possibility that such a tax could “provide revenue for improving social assistance schemes” (Meg Huby, ‘The Sustainable Use of Resources on a Global Scale’, Social Policy and Administration, 35 (5), December 2001, p.533) has of course been noted, and the Green Party would like to see both a carbon tax and a Citizen’s Income.
Recent debate on how to fund a Citizen’s Income has concentrated on reducing tax allowances and means-tested and National Insurance Benefits rather than on new forms of taxation. This tendency has probably been driven by the feeling that one radical reform is difficult enough for people to digest, and that two would be impossible. A Citizen’s Income, funded by income taxation, is a single radical reform, and carbon taxation is also a single radical reform. Combining the two reforms risks alienating politicians, civil servants, and the general public.
Another reason for the caution in advocating carbon taxation is that such taxes tend to penalise the poor. To increase the duty on petrol hurts poorer rural drivers more than it hurts wealthy urban drivers of 4x4s. However, such hesitancy will be reduced by a recent report, Green taxes and charges: Reducing their impact on low-income households by Paul Ekins and Simon Dresner (York: Joseph Rowntree Foundation, 2004). This reports on a research project undertaken by the Policy Studies Institute and funded by the Joseph Rowntree Foundation. The report concludes that a combination of fuel duty, congestion charging and a car purchase tax graduated on CO2 emissions would reduce the use of carbon fuels, provide additional revenues, and not penalise the poor more than the rich.
Department for Work and Pensions Welfare Reform Advisers Forum
The Department for Work and Pensions has brought together a panel of experts to form the Welfare Reform Advisers Forum to discuss and contribute to the debate on wider welfare reform.
The Forum comprises prominent specialists and thinkers who will meet to discuss the challenges of creating a welfare state appropriate for the 21st Century. Their advice will help inform the Secretary of State’s thinking on issues in social policy and welfare, and will give the Department a valuable external perspective on one of the key areas of its remit – including drawing on the network of professional and academic expertise available in Britain.
Members of the Welfare Reform Advisers Forum are:
- Suzanne Fitzpatrick (Director, Centre for Housing Policy, Joseph Rowntree Professor of Housing Policy, University of York)
- Lisa Harker (independent consultant, Chair of the Daycare Trust)
- John Hills (Professor of Social Policy, Director of the Centre for Analysis of Social Exclusion, LSE)
- Martin Knapp (Professor of Social Policy, Director of the Personal Social Services Research Unit, LSE)
- Nigel Mathers (Professor of Primary Medical Care at the University of Sheffield and Head of Policy and Research at the
- Royal College of GPs)
- David Miles (Chief Economist, Morgan Stanley)
- Geoff Mulgan (Director of the Young Foundation)
- Nick Pearce (Director IPPR)
- Alan Walker (Professor of Social Policy, University of Sheffield).
Administration of Tax Credits
In the 2004 budget the Chancellor announced that Her Majesty’s Revenue and Customs would be taking over the payment of Working Tax Credit. From November 2005 all new WTC claims are to be paid by HMRC directly into claimants’ bank accounts or by cash cheque. During the next few months HMRC will be writing to employers to ask them to stop paying Tax Credits through the PAYE system. By March 2006 all payments will be made by HMRC direct to the claimant.
Tax Credits for registered civil partnerships
The Civil Partnership Act comes into force on the 5th December 2005. From that date people in registered same-sex partnerships on Tax Credits will need to tell Her Majesty’s Revenue and Customs that they are part of a couple and they will need to make a new joint claim.
Pensions Policy Institute reports
The Pensions Policy Institute has issued a Mid-project Review report in which it states:
‘The PPI investigated whether the eligibility criterion for the state pension should be on a contributory basis or on a universal basis:
- Under a contributory system, eligibility for state pension is decided by how many National Insurance contributions you have paid or been credited. Partial pension can be paid for less than the full number of years. The work-based nature of the Basic State Pension means that low earners, part-time workers and carers are particularly susceptible to receiving less than the full BSP.
- In the universal system, eligibility is determined by how long you have lived in the UK.
‘The current contributory system could be modernised to better achieve its objectives. However, a universal system has always been considered a feasible alternative and has support as it is simple and inclusive.’
In another report the Pensions Policy Institute asks: ‘Will coverage of the Basic State Pension improve over time ?’ The answer would appear to be that only by reducing the number of years of contributions required to qualify for the pension will coverage increase appreciably. The Institute concludes: ‘Some concerns and uncertainties would remain. How low would the reduction in qualifying years need to go to make a significant difference to the level of coverage? And is it necessary to retain complex rules and administration to determine eligibility for the BSP if the aim is for virtually everyone to become eligible?’
Basic Income Studies
Basic Income Studies: An International Journal of Basic Income Research (BIS) is a new international journal devoted to the critical discussion of and research into universal basic income and related policy proposals. BIS is published twice a year by an international team of scholars, with support from Red Renta Basica, the Basic Income Earth Network and the U.S. Basic Income Guarantee Network.
The inaugural issue of BIS will appear in 2006 with articles by Joel Handler, Stuart White and Yannick Vanderborght and a retrospective on Robert van der Veen and Philippe Van Parijs’s seminal article on ‘A Capitalist Road to Communism’. The retrospective includes a reprint of the original article and a set of specially written comments by Gerald Cohen, Erik Olin Wright, Doris Schroeder, Catriona McKinnon, Harry Dahms, Gijs van Donselaar and Andrew Williams.
For more information, please visit the website at www.basicincomestudies.org or contact the editors, Jurgen De Wispelaere and Karl Widerquist, at firstname.lastname@example.org.
12th May 2005, Radio 4, Today: a discussion took place on the future of pensions in which David Blunkett, then Secretary of State for Work and Pensions, suggested that as people are living longer there need to be greater incentives to save for old age and equally there need to be incentives to earn amongst the working age population because the wealth they create supports our ageing population. Malcolm Rifkind MP also recognised the need to provide incentives for savings and suggested that the Basic State Pension needs to be linked to average earnings. Steven Webb, for the Liberal Democrats, asked for a simple state system because that will enable private and employers’ pensions to function more efficiently.
Tuesday 11th October 2005, the Simon Mayo Programme, Radio 5 Live: The context for this programme’s discussion of tax credits was the National Audit Office’s decision not to sign off the Government’s accounts because of the high proportion of errors made in the assessment of Tax Credit payments. Another element of the context is the considerable amount of recent discussion on the difficulties faced by families who have been overpaid and from whom Her Majesty’s Revenue and Customs then claims back the overpayment, causing them financial hardship. Philip Vince, the Citizen’s Income Trust’s Secretary, took part in the discussion, and made the point that a simpler system, based on a Citizen’s Income, would generate far fewer such effects.
- We hope soon to have all of our publications available for downloading from our website. The project is starting with BIRG Bulletins and Citizen’s Income Newsletters and we shall then move on to our other publications.
We would like to be able to undertake the following projects:
- We have recently undertaken a research project amongst MPs involving a questionnaire asking about options of reform of social security and taxation. We are now planning a similar project amongst members of the House of Lords. Other similar surveys might then follow (£900).
- A series of seminars in a variety of centres drawing in participants who are experts in a variety of the issues which will need to be considered if a Citizen’s Income is ever implemented (£14,000).
- A teaching pack for University teachers who wish to incorporate sessions and assignments on the economic, social science and philosophical aspects of the Citizen’s Income debate into existing modules or who wish to teach an entire module on the subject. The pack will include materials for teachers and students, and the materials will include powerpoint and other presentations and printed resources. Much of the material will be specially commissioned (£25,000).
- A Commission on a Citizen’s Income’s role in future reform of tax and benefits (£150,000).
These and future projects would be a lot easier to manage if the Trust again had a paid director, a part-time administrator and an office base (£65,000 per annum).
If you would like to support any of these projects financially then please contact the Director, Dr. Malcolm Torry.
The trustees of the Citizen’s Income Trust have agreed that, in the absence of any grant-making trust having the promotion of debate on the reform of tax and benefits amongst its grant-making criteria, we shall continue our work on the basis of voluntary labour and a limited budget. The Director, Dr. Malcolm Torry, offers half a day per week to the work of the Trust, and the trustees offer what time they can. In order to be effective we need some additional skilled voluntary labour, in particular to do the following tasks:
- Reading the press and keeping in touch with other media and responding (in consultation with the Director) where relevant
- Attending conferences and fostering relationships with think-tanks, political parties, etc.
- Monitoring relevant research and writing summaries, papers for conferences, etc.
Anyone interested in applying to work in a voluntary capacity for the Trust should contact the Director.
The Citizen’s Income Trust invites entries for its 2006 essay prize. Entrants should be studying at a UK university during the academic year 2005/6 at undergraduate or graduate level. Essays should be in the fields of philosophy, political science, social policy, economics, or other social sciences; should be of up to 5,000 words in length; and should contribute to the current debate on the desirability and feasibility of a Citizen’s Income: an unconditional, nonwithdrawable income payable to each individual as a right of citizenship. Provided that at least one entry is of sufficient quality the winner will be awarded a prize of £500 and the winning essay will be published in the Citizen’s Income Newsletter.
Rules: A hard copy of the essay, along with the entrant’s name and address, should be sent to: Dr. Malcolm Torry, Director, Citizen’s Income Trust, P.O. Box 26586, London SE3 7WY, and an electronic version (in Word or Rich Text Format) either by disc to the same address or by email attachment to email@example.com. Confirmation that the entrant is studying at a UK university needs to be sent, signed by a faculty member. The closing date is 1st May 2006. No trustees, employees, or former trustees or employees of the Citizen’s Income Trust, or their relatives, may enter. The judges’ decision is final, and no correspondence will be entered into.
© Citizen’s Income Trust 2013