So this week the PM has announced:
- Universal Child Benefit will be scrapped for people earning enough money to pay higher rate income tax because surely they don’t need it.
- Benefits out will be capped at £500 a week because, er, surely poor families can’t need it either. The people who write the Daily Mail won’t think they do, anyway.
Both these notions sound promising, perhaps, until you try to enact them. The scheme for doing the first, assuming it is OK to depart from the principle of Universality, will be wildly inequitable because of the Income Tax system. Household A have one earner of £44K a year. Household B have two partners each earning £42K = £84K. The £84K couple keep their benefit, and the £42K one loses it. Duh? this also puts a hefty premium for the middle classes on not staying home to look after their children, something else people thought this government didn’t want to penalise
Meanwhile in £500 a week Benefit land, presuming people aren’t on the fiddle, if you really do have 13 kids, you really do need £500 a week. Penalising the poor little rats because there are so many of them is positively Dickensian. They can’t help being born.
On the back of an old envelope from years ago is even more radical thinking, associated by some with Sir Brandon Rhys-Williams. He was Tory MP for Kensington (and an MEP) back in the eighties. On the back of his envelope, if I remember it right, he calculated a radical shake up that really was radical.
I don't remember every detail but I think the essence was that everybody, universally, got paid their tax allowance (in those days about £1500) in cash. You abolished all benefits, except child benefit (because children don't have tax codes) and a few given through the NHS for specific care purposes. You then radically simplified the tax system along Isle of Man / Jersey lines so that everybody paid income tax with no allowances, but at a lower rate. On eighties figures, once you abolished all loopholes but reduced the rate so it wasn’t worth cheating, things panned out such that to get the same tax take you would need a marginal rate of taxation around 18%.
This would suit everybody except those who make their livings by playing the system, or helping other people play the system. But transitioning to it would not be easy, and along the way, any government that tried it would pretty much annoy everybody. wonder how an approach like this would model, thirty years on?