What you are about to read may sound complicated, rather than simple, but this is because the concept is new to you. It is in fact very simple, especially compared to the complicated system currently in place. Central to the proposal is that Benefits are to be paid through the tax system, and the tax system modified so that if you earn above your tax threshold, you pay tax, but if you earn less, you are paid tax.
This sytem will eliminate thresholds so that, whenever you earn a little more -
there will no longer be any risk that your benefits will be taken away, and
the more you have to spend.
We will use a modern equivalent of the well-known P45. But for the sake of explanation, let's just call it a P45. For those who don't know, a P45 is a form given to you when you leave a job, and you give it to your employer when to start a new job. It contains information about how much tax you should pay.
A tax threshold is a number. It tells the employer to start deducting tax if you earn above this threshold. For example if your tax threshold is £5000 a year (the code for this is 500) and you earn £20,000 that year, then you will pay tax on £15,000.
What we plan to do is this:
Everyone, including newborn babies is given a P45.
Everyone who is employed gives it to their employer.
Everyone who is not employed gives it to the Benefits Agency. If you are able to come off Benefit and go into employment, the Benefits Agency will give you your P45 back to give to your new employer.
This will have the effect of making it impossible/difficult to cheat the system by claiming benefit while working. Legal immigrants will be issued a P45 on arrival. Illegal immigrants will not be able to claim Benefits - there will be other mechanisms for dealing with them.
For the self-employed and those with more than one job, there are solutions, but let's not get complicated here.
I am now going to give some examples of how this will work, but you must understand that the figures are illustrative only, and to emphasise this, we shall use Monopoly money ($MM):
Earns $MM25,000 with a tax threshold of $MM5,000. He is taxed on $MM20,000 at 40%. He pays $MM8,000 and takes home $MM17,000. (Remember the CSSP will no longer charge National Insurance.)
He is earning nothing and the Benefits Agency holds his P45. His tax threshold is $MM5,000. He is taxed at 40%. As he is earning $MM5,000 less than the threshold, he will be paid tax at 40%. He will receive $MM2,000 annually, in weekly or monthly instalments. This would be a minimum payment. If he is eligible for Job Seekers' Allowance, this would be paid by increasing his threshold from $MM5,000 to a higher figure.
All Benefits will be paid this way. Sickness Benefit, Attendance Allowance, Old Age Pension etc will all be paid by increasing the tax threshold.
Child Allowance would be replaced by this system. The tax threshold can be made to vary for different ages, allowing the child to receive an appropriate amount while, at the other end of the age spectrum, the elderly are catered for too. This will also allow for the child's other income to be taken into account, so in effect there will be targeting and means testing, but without the bureaucracy.
Would hand their P45 the their Pension provider.
You might receive a tax threshold calculation from the Inland revenue that would look like this:
|
John Smith Standard tax threshold Age adjustment Sickness benefit Total |
$MM 5,000 $MM 1,000 $MM 2,000 $MM 8,000 |
It is in fact very simple, easy to understand and cheap to administer.