New ASI paper "Free Market Welfare" features in City AM

City AM wrote an article on the findings of the ASI's latest paper, "Free Market Welfare", which champions a negative income tax system as an alternative to the current tax credits scheme.

The government should replace all major welfare payments with “nega­tive income tax”, an eyebrow-raising report from free market campaign group the Adam Smith Institute (ASI) has suggested.

The radical negative income tax would pay out to British citizens in decreasing amounts until they reach a certain wage, when they would begin paying tax.

Read the full article here. 

Britain’s welfare system is overcomplicated, wasteful and counterproductive. In Free Market Welfare: A case for a Negative Income Tax, Michael Story makes the case for merging most working-age benefits, including tax credits, into a Negative Income Tax – a single, tapered payment that tops up the wages of the working poor and guarantees that work always pays.

Sam Bowman discusses new ASI report "Free Market Welfare" on BBC Radio Wales

Deputy Director of the Adam Smith Institute, Sam Bowman, was interviewed for BBC Radio Wales on the government's proposed tax credit cuts, and argues that a negative income tax would be a better, simpler system of welfare.

In a report that we released today, we called on the government not to cut tax credits, but to simplify the system, and to simplify the benefits system in general into what some economists call a negative income tax.

Listen to the full interview here. (Starts 49:12)

Britain’s welfare system is overcomplicated, wasteful and counterproductive. In Free Market Welfare: A case for a Negative Income Tax, Michael Story makes the case for merging most working-age benefits, including tax credits, into a Negative Income Tax – a single, tapered payment that tops up the wages of the working poor and guarantees that work always pays.

ASI report "Free Market Welfare" has been featured by the Press Association

The Adam Smith Institute's latest paper "Free Market Welfare: The Case for a Negative Income Tax" has been featured by the Press Association, and in over 30 local papers.

Call for Negative Income Tax as Alternative to Tax Credits

The Government should replace tax credits and other means tested benefits with a Negative Income Tax payment that is gradually withdrawn as people's earnings increase, a new report by a think tank has suggested.

Britain’s welfare system is overcomplicated, wasteful and counterproductive. In Free Market Welfare, Michael Story makes the case for merging most working-age benefits into a Negative Income Tax – a single, tapered payment that tops up the wages of the working poor and guarantees that work always pays.

ASI features in The Observer and The Independent for opposition to tax credit cuts

The Adam Smith Institute was featured in both The Observer and The Independent for our opposition to the government's tax credit cuts. From The Independent:

In an article for independent.co.uk, Seema Malhotra, the shadow Chief Secretary to the Treasury, and Owen Smith, the shadow Work and Pensions Secretary, say: “It takes a master politician to unite the whole of the left of British politics with The Sun, The Spectator magazine, a sizable proportion of the new intake of Tory MPs, as well as the Bow Group and the Adam Smith Institute.  So credit where it’s due to the Chancellor, who has pulled off that seemingly impossible feat with his plans to cut tax credits.

Read the full article here.

And in The Observer, Deputy Director of the ASI Sam Bowman was quoted:

And thats why even right wing thinktanks the Adam Smith Institute and the Institute for Economic Affairs, hardly the skivers' friends, criticised the policy last week: it will undermine work incentives. Sam Bowman of the ASI said: "The government has long claimed to want to make work pay for everyone, but cutting tax credits would disincentivise work and hurt those at the bottom of society."

Read the full article here. 

 

 

Press Release: Reform tax credits with a Negative Income Tax, says new report

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@adamsmith.org | 07476 915072.

  • Instead of cutting tax credits, the government should replace major means-tested benefits - including tax credits and Jobseeker’s Allowance - with a single, individualised ‘Negative Income Tax’ payment that is withdrawn as earnings rise.
  • This would guarantee a minimum income floor and top up low-paid workers’ wages while still ensuring that everyone has a strong incentive to work.
  • The government should merge this into the tax system and abolish the Department for Work and Pensions to save up to £6bn in administrative costs.

The government should replace tax credits, Jobseeker’s Allowance, the Universal Credit, and most other major welfare payments with a single Negative Income Tax, according to a new report from the Adam Smith Institute, Free Market Welfare: The case for a Negative Income Tax. This Negative Income Tax (NIT) would act as a minimum income guarantee for all British citizens and be tapered away as people’s earnings rise through work.

Britain’s existing welfare programmes are costly to administer, complicated to navigate, and designed for a postwar-style labour market that no longer exists, the paper argues.

Under a Negative Income Tax, if a citizen earns nothing then the automatic NIT payment will be their entire income. As the individual earns more through work, the payment is gradually withdrawn until the citizen begins paying tax. The payment scheme is structured so that the claimant is always better off working more hours or taking higher wages than in their current position. These payments would be automatic for workers within the PAYE system.

The report says that the biggest welfare challenge future governments are likely to face is chronic in-work poverty, as globalisation and technological change lead to lower productivity and pay growth for some bottom and middle earners. This means that Britain’s current welfare system is outmoded and must be restructured to support low-wage workers throughout sustained periods of low-paid work, not just when they are out of employment altogether.

Systems like tax credits and the Universal Credit aim towards this goal, but are still too complex. Instead of a complicated web of different payments, the government should make just one, the report’s author Michael Story argues. Recipients would decide themselves how to spend their benefit, and as they earn more in wages, the benefit would be withdrawn at a rate that guarantees work always pays.

A simpler welfare mechanism like the Negative Income Tax could be integrated into the tax system, allowing the government to shut down the Department for Work and Pensions, take many of its 34,000 staff off the payrolls and save up to £6bn in administration costs.

The report’s author, Michael Story, said:

The UK’s current welfare system was built after the Second World War for a fundamentally different labour market, and it shows. It’s time to rethink the whole benefits structure, with emphasis on radical simplification, to give the UK workforce a steady footing for the new challenges of the 21st Century.

In-work poverty is the key problem facing Britons and its prevalence and importance will only increase. We cannot tackle it with our current tools: Universal Credit is complicated, incredibly costly to administer, and still not fully operational, and minimum wages can only go so high before they start to create unemployment. The solution is a simple, single payment, that still provides an incentive to work. The Negative Income Tax is an idea with a long, impressive pedigree and its time has come.

Sam Bowman, the Adam Smith Institute’s Deputy Director, added:

The government shouldn’t cut tax credits, it should reform them. Topping up the wages of low-paid workers is the best way to improve their standard of living. It makes labour markets more flexible and does not cause involuntary unemployment, as minimum wages do. But the current welfare system is not fit for purpose: it is complex, outdated and wasteful.

A Negative Income Tax that replaced most benefits and tax credits would radically simplify the welfare state and guarantee that everybody is better off in work. This was the promise of the Universal Credit but, as the report shows, the UC’s incrementalist approach has not delivered. We need a wholesale replacement of the existing system, and this report gives a compelling model of how to do it.

Notes to Editors:

Download ASI report Free Market Welfare: The case for a Negative Income Tax.

The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

The ASI features in the New Statesman for our opposition to the Conservative's planned tax credit cuts

The Adam Smith Institute featured in the New Statesman for our criticism of the tax credit changes that have been proposed by the Conservative Party.

The pressure on the Conservatives over the cuts, which will cost 3.2m families an average of £1,300 a year, has significantly increased this week. Tory backbenchers, such as Heidi Allen and London mayoral candidate Zac Goldsmith, Boris Johnson, work and pensions select commitee chair Frank Field, the Sun and the Adam Smith Institute are among those demanding that Osborne modify or abandon his plans.

Read the full article here.

ASI comments on tax credit changes feature in the IBTimes

The Adam Smith Institute featured in the IBTimes for its criticism of the Conservative Party's proposed tax credit reforms

Allen is not the only one to have taken on the government – there are at least 11 Tory MPs who are opposed to the cuts, along with several of the most right wing of thinktanks, including the Adam Smith Institute – but somehow her words hit home the hardest.

Read the full article here.