A Fairer Welfare System

Due For a Rethink

Am sick at home in bed this morning reading the #tickertapeofbanality ; Tim Montgomerie highlights this scary piece by Wat Tyler at BOM.

Despite all the blustering and big stern words from The Cleggeron and the wailing and knashing of teeth from the Labourious party and it's cheerleaders in the BBC (though it pleased me to hear Evan Davies tear one such idiot a new one this morning on radio 4 with regards to zippy's mooted graduate tax scheme; might've saved himself being first against the wall) the cost of servicing everything the public sector does is increasing by even more unsustainable levels; the figure given being a whopping 6% on the coalition's watch.

Noone expected them to make changes overnight, but I get the distinct impression that settings go their means of dealing with impending budgetary collapse (the type companies have been undergoing where they find they can't meet payroll; when you know your in trouble) is little different to dealing with Labour's plans, albeit just a little faster.

The reason this is a bad thing and why it proves without a shadow of a doubt that the Cleggeron are no less backbiting, no less concerned by infringements on our liberty and property (just look at the communitarian ideas espoused by Cameron in his "Big Society" wheeze; rob "unused", "idle" bank accounts to pay for porkbarrel politics meted out by yet more unelected quangos and wooden tops with spreadsheets in local government) than anything Labour could have imagined.

Which is why I am putting my idea on welfare reform forward again for the coalitions scrutiny; they appear to be only paying lip service to the concept of restoring civil liberties, with Clegg seemingly quite happy to accept minor, inconsequential changes whilst vetoing in advance the larger ones like the smoking ban and 1972 European Communities Act. They are also completely ignoring ideas for real reform offered by the self-same people who will have to endure it.

So my idea is here and is essentially comprised of the following principles:

1. That the state guarantees a working tax allowance that removes those under the relative poverty line completely from the tax system; based on the following graph and info provided that the median salary for a man/women (averaged) is £478.5/week or £24882 per annum; my fagpacket calculations roughly equates this to an allowable untaxed income of ~£15000 (that's right; your in "poverty" by the government standards if you are capable of buying only one playstation 3 a week with your earnings).
2. That you can transfer ownership of your tax free allowance in whole or in part to other parties at any "cost" agreed to (I.e.you can give to your partner/spouse for free and double their tax free allowance to to £30k, or "sell" it at an agreed value lower (or higher?) than it's perceived one to a specialist company who use it to increase someone's tax allowance further.
3. That the tax allowance is interchangeable and exchangeable for other forms of tax (preferably in a simplified tax system which doesn't double tax as much; a prime example being capital gains and income - your taxed when you earn it and when you sell the product of the remainder; this is unethical to me), so it can be exchanged for a reduction in business rates for example.
4. That whilst they don't work and/or have work that can be taxed (I.e. babysiting, household chores, pocket money), children and teenagers have an amount of tax allowance reflective of the amount of public funded used coincidentally (e.g. education and national insurance payments); let's say that after this amount the tax credit comes to £5000, controlled by a parent or guardian till their 16th birthday where they gain control of it's function.
5. There is no upper income limit; as can be seen here the current system of tax free allowances are atrophied and inherently punish success; if you earn over £100k a year it decreases your tax free allowance as you increase your salary and standing- as you will already be paying higher levels of tax this is quintessentially a slap in the face and exhibits a mindset that you keeping your money is predicated on the current governments ability tiger away with stealing it; truly unethical and wrong.

Through this system it would be incumbent on the holder of said tax credit to utilise it as they saw fit; if in work they could use it fully to maintain a minimum chunk of their pay on which to live, stay-at-home parents could donate theirs to their spouse, commanding a larger take home pay packet for one working family member whilst providing a stable home environment for families wanting to be there for their kids (something which only the richest able to "afford" one working parent are capable of at the moment). The unemployed could garner a living income from this, whilst utilising their free time to take up voluntary, unpaid work, further education and training whilst looking for work, incentivised by the reduced monetary value to them offered by the buyer of their credit to seek work to maximise it's use. The elderly could do likewise, using it to supplement their pensions through combinations of voluntary/monetized work and sale of their tax credit.

Too many credits in the market would, as with any commodity, depreciate the total price offered for them, in turn pushing the owners to utilise them through employment; a recession would likewise push more out of work, making the availability of tax credits cheaper leading to lower taxation on businesses able to buy them, enabling them to recapitalize and reconcile for growth, leading to jobs, growth and such like. The tax system would need to be simplified significantly; the Office of Tax Simplification's job would be made considerably simpler and more pertinent with the competing tax credit component reducing the tax take from this direction, realising the goal of not reducing tax revenues but the losses associated with chasing one of the most complex tax systems in the world. HMRC could be reduced massively as well, considering much of it's activity and cost is associate with dealing with red tape it itself has created.

So how much would such a scheme cost? Whilst it will have increased the 2001 census tells us the British populace was comprised of 18% young people (0-14); say that the 0-16 component is ~20% and the mist recent government statistics state the population being currently 61.792 million (taken from here; incidentally this states children 0-16 as 1:5 so 20% best) then the value of the tax credit (set at £5000) would be £62Bn and £742Bn for every adult given a tax credit value of £15000.

Note this is not money the state has to dole out in welfare or outlay to business; it is purely the non-taxable monies in the economy it doesn't have access to - with a GDP last year of £1.42 trillion this means that the taxable income of the UK becomes [1420-742] = £686Bn is now only available to taxation, resulting in a considerably lower amount of revenue available to fund the state activities - even at a flat taxation rate on all activity of 50% only £343Bn would become revenue-available, and any government would have to justify such a massive increase over the odds for such a high tax take; more likely when the more productive would insulate their earnings with tax credits whilst the poorer utilised theirs to spend more time at play that this would incentivise government to lower the income tax rate, probably at a flat rate of ~20%, to incentivise economic growth.

So how much revenue could be collected? Keeping VAT as is (a sales tax) on current trends* would net £78-97Bn (the top value if VAT receipts stay at current trends); that is if the rate of consumption doesn't change - highly unlikely if us simple plebs have more money available to spend rather than government doing it for us.

So on a reduced tax take the total estimate is ~£234.899Bn, accounting only for centrally mandated/collected sales tax replacing VAT and a flat 20% income tax rate above the allowed tax free sum. What can we do without?

According to the website UK Public Sector Spending the following is a breakdown of the current estimates for 2010 spending. I've struck through what can be done without under my scheme in a very rash manner, with a minor comment as to why, though most should be obvious:

[+] Total Spending (in £billions)
Central: 495.7
Local: 173.2
Total: 668.9

Pensions 117.2
Sickness and disability 33.5 - welfare payments in general would stop as they could be covered by the tax credit, the excess costs of sickness and disability easily met by increased revenues from charitable agencies and individual action.
— Old age 81.9 - this would remain but the amount would not rise with inflation and it would be closed to individuals not yet paying national insurance, being replaced with privately financed pensions and the ability to work shorter, tax free, supplementary hours. Eventually the monies needed would wind down to zero.
— Survivors 1.8 - as above.

Health Care 119.8 - I've deliberately not mentioned this; while there are plenty of libertarian solutions to healthcare I am primarily dealing with the issue of welfare and a fair tax system. National insurance would remain with no upper limits to contributions; simply put if you are utilising more than one batch of tax credit allowances you are more than likely supporting another as it stands. I would envision this changing once people started to take more responsibility and demanding mire accountable healthcare services an choice.

Education 85.6 - again not primary point to deal with here, so remains unchanged. This would also be paid for out of the local council tax take.
— Pre-primary and primary education 0.7
— Secondary education 14.4
— Post-secondary non-tertiary education
— Tertiary education 12.9
— Education not definable by level 56.2
— Subsidiary services to education 1.4

Defence 43.9
— Military defence 31.8
— Foreign military aid 4.1
— Foreign economic aid 5.6
— R&D Defence 0.5
— Defence n.e.c. 1.9

Welfare 109.1
— Family and children 22.2
— Unemployment 7.0
— Housing 4.5
— Social exclusion n.e.c. 23.9
— Social protection n.e.c. 51.5

- All of the costs associated with this portion of spending now met by tax credits.

Protection 34.7 - Policing and the Judicial services will pass to total local control, with democratic leadership (police chiefs and elected judges) to oversee local requirements.
— Police services 5.0
— Law courts 6.9
— Prisons 4.6
— Public order and safety n.e.c. 18.2

Transport 21.5 - paid out of road tax payments

General Government 24.7
— Executive and legislative organs 9.4
— General services 14.8
— General public services n.e.c. 0.5

Other Spending 84.1
— Basic research 0.1
— General economic, commercial and... 10.0
— Agriculture, forestry, fishing an 5.9
— Fuel and energy 1.8
— Mining, manufacturing and constru 0.4
— Communication 0.3
— Other industries 0.1
— R&D Economic affairs 3.5
— Economic affairs n.e.c. 1.2
— Waste management 8.4
— Pollution abatement 0.4
— Protection of biodiversity 0.4
— R&D Environmental protection 0.4
— Housing development 5.3
— Community development 0.8
— Water supply 1.0
— Housing and community 4.7
— Recreational and sporting service 8.0
— Cultural services 2.1
— Broadcasting and publishing services 3.8
— R&D Recreation, culture and religion 0.2
— Other Spending 25.3

- can we really justify such things as "cultural/religious awareness" spending and funding the beeb? It shouldn't be something coerced from our pockets, and all peoples should be bound by the rule of law, anything beyond that, be it honour killings to female genital
mutilation, should be taken to task, not coddled by a diversity awareness officer.

Interest 31.0
— Public debt transactions 31.0

[+] Public Net Debt 771.5

So adjusted for my figures about what would be covered and what wouldn't you reduce the deficit to £110.201, and we haven't even considered winding down the size of a vastly unnecessary and surplus HMRC and the myriad agencies built up to "deal" with poverty. None of this takes into account the potency of giving people more money, to make more informed decisions with it and creating the kind of growth we need to revive this country of ours.

Ultimately the push is for greater individual control of ones destiny and welfare; this I feel is the best way of going about it.

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