Never happen but……

I have a dream proposal – replace all benefits with a single National Subsistence Allowance of £5,000 pa for every UK citizen. From birth, everyone would receive £400 a month and £200 on their birthday, no forms need to be filled, saving billions in administration overnight. That would fix the benefit system and by having a universal tax rate of 20pc (VAT, income, company and inheritance taxes) accountants would stop peddling avoidance schemes, tax havens would be deserted and revenues will rise.

But, of course, this is a dream, far flung from reality. History shows that life continually becomes more complicated because legislators can\’t resist legislating, so the best we can hope for is that we are not given any new rules to replace those that are on the way out.

Wouldn\’t it be nice if it did?

A cbi, a flat tax and millions of bureaucrats having to do something useful with their lives.

17 thoughts on “Never happen but……”

  1. Nice idea in theory; what happens to people who break their backs (&c) and require well over gbp5k’s worth of assistance a year to stay alive, though?

  2. At a stroke it would price “British” youth back into employment and remove much of the poverty trap. Have NI at 10% but no income tax until 1x the benefit (no fiddling by politicians)Set it at the current state pension (nearer 6k a year) and index it to the rolling average 3 year nominal GDP growth rate (i.e keep benefits as a constatnt proportion of GDP). Make the first 16 years an education voucher, make half of father’s benefit due to first family, half the residual to the next familiy etc.

  3. “From birth, everyone would receive £400 a month and £200 on their birthday”

    Aren’t we trying to get away from paying people to have lots of kids?

  4. And besides,

    Population 63million times £5000 pa per citizen = £315 billion per year

    Which is, I think, about twice the current welfare spend.

  5. Bill 3: good point, it does rather incentivise Waynetta Slob. Tim/others, got a solution to this? Alongside the ‘people who’ll die unless we spend more than gbp5k on non-medical care’ problem, it’s pretty key.

    Bill 4: this, on the other hand, doesn’t matter. Remember, this benefit also replaces tax allowances (and admin costs of benefits fall to near-zero, while admin costs of tax fall significantly).

  6. We once ran the figures on a similar proposal in NZ, a universal payment of $10,000 a year, replacing all social welfare spending would:
    a) Imply average income tax rates of 50 percent (not top marginal tax rates, average).
    b) Still be about a 1/3 lower than the payment to single retirees at the time. Never mind the “broke his back &c” problem John B mentions.

    We decided it wasn’t practical.

  7. I don’t see why having a flat rate of 20% would stop accountants peddling avoidance schemes or make tax havens deserted?

    I also can’t see why there’d be no form filling. Who’d get the under-18s £5k a year? How do you prove your a citizen? Where’s the money get paid to?

  8. john b // Aug 1, 2011 at 9:11 am

    “Bill 4: this, on the other hand, doesn’t matter. Remember, this benefit also replaces tax allowances (and admin costs of benefits fall to near-zero, while admin costs of tax fall significantly).”

    Basic tax free allowance for 2011/12 tax year will be £7,475 pa. Ok, there are a few higher levels for old folks and disabled, etc so let’s take that £8000 as an average.

    There are, I understand, around 25 million tax payers, so each of those would pay (in addition to what they’re already paying) 20% tax on his or her first 8k of income which makes £1600 each which comes to about £40 billion per year.

    So we’d be spending an extra £160 or so billion p.a. in benefits, and getting back £40 billion or so more in tax making the Treasury £120 billion per year worse off (around about the cost of running the NHS). I suspect that any savings in admin are not going to come to that much.

  9. It’s been a while since I read it, but I think this is broadly the point that Charles Murray’s In Our Hands makes.
    Interesting book, too.

  10. Matthew2: Basically, the entire tax avoidance idea is because in the current system, dollars are not taxed equally. The tax rate depends on WHO nominally earns it, when they earned it, where they earned it, how many other dollars they earned that year, what they have bought this year, whether they rent or own their home, and a ton of other things. So we see, in turn, fantastically complex schemes to try and change the timing of earnings (ie, tax-deferred retirement schemes), or to change the return the earnings get listed on (partnerships, LLCs, dividends, director fees).

    See, the accountancy industry doesn’t make the big bucks figuring out how not to pay tax at all (which is actually pretty hard), but on how to reduce it by making sure every dollar of earnings gets the most advantageous rate applied to it.

    But what if every dollar was ALWAYS taxed at the same rate? What if we had a single tax (income or consumption; it doesn’t much matter), a single rate, and there were no exemptions, no sliding scales, no deductions? The vast bulk of the tax accountancy industry would vanish at a stroke; there would be no way TO reduce the rate paid. And with a simpler system, it would be a lot easier to make sure people didn’t completely avoid it either. (Just look at VAT – it’s bloody HARD to avoid.)

    Anyhow, the basic point is: As long as there are different rates for income owned by corporations or partnerships, or for income earned in a year you made $10k or $100k, then there will be accountants around to help make sure all your income is taxed at the lower rates. If all rates are the same, the accountants (mostly) go away.

  11. I get some of this but don’t see why VAT and income tax need to be the same rate. Or how this affects tax havens though. For a start won’t it require no personal allowances etc etc?

    ———-

    I’m not sure £5k would be enough to incentivise the problem Bill says, but it might. Another issue is would it be paid if you live overseas?

  12. Under 16 the CBI should be an education voucher – the obligation of society is to ensure they are educated, not to buy them video games. The £12k that the parents get should be enough to feed and clothe them. There should be (only) two deductions; first a 10per cent precept of all CBI to pay for local services which solves a lot of local govt funding issues (the local authorities also get 10% of the value of the education voucher to help run a LEA) This is then automatically indexed, no games to be played by politicians. Second, the mother has claim over half the father’s CBI which can be deducted at source. If he already has another family she gets half of the half. At a stroke the attraction of serial fathers collapses, while the costs of being one fall in part on the feckless father rather than the rest of us. The £350 bn cost is not “new”, it is largely a change in the system of distribution and needs to be looked at in context of the total bill for local govt, pensions, education and welfare. It actually represents around about 25% of nominal GDP a level at which it could be pegged then indexed to nominal GDP growth (aagian no political meddling). The big issue of course is the EU, the only way for this to work is for it to only be applicable to UK citizens (which would of course require a strict citizenship test). In terms of execution (wishful thinking I know) the trick would be to run it alongside existing system allowing 3 year transition option. Then when the old system goes the losers who would otherwise be championed by the usual suspects would be hugely outweighed by the losers were the new system to be scrapped. There are many other wrinkles; the CBI of prisoners goes to help fund the prison, proportion of CBI goes to fund elderly residential care, fixed proprtion of CBI of residents goes in council house rent, tax allowance for everyone set at 2x CBI, ie not until you earn the same again does income tax apply i.e around £12k. I would then suggest NI at 10% – no cap and a basic rate of tax of 10% (i.e total 20%) up until a thresho;d of, say 5x CBI where it goes to 20% (30% total) and 10x CBI where it goes to 30% (40%) total.

  13. Not entirely incidentally, why is it a good idea to pay someone £5,000 (or any other arbitrary amount) a year of my tax so he can sit on his backside all day? And if more than some particular proportion of the populace did it, where would the money come from?

  14. While I liked most of Mark T’s suggestions it’s a long way from the simple to administrate system we had at the beginning.

  15. Matthew…thank you, but by comparison with the current system it’s incredibly simple and transaprent to administer! No means test, a couple of allowable deductions that solve important problems (local govt and serial parenting), clear ,non interfereable, indexation, an abolition of the poverty trap (largely) and,most importantly, no room for politicians to rob their enemies to reward their friends…

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