Don’t increase the steepness of the taper

One of the problems - one, note - this country faces is the marginal tax and benefits withdrawal rate faced as anyone works their way up out of poverty. As we’ve repeatedly said over the years the Laffer Curve is real. Also, that it applies to the poor as much as to the rich. Rates over 50% or so significantly dissuade people from attempting to earn more. The “taper” is the rate at which benefits are withdrawn and taxes beging to bite. There are bands of income where that taper rate is 60 and 70 and 80%. This, obviously, dissuades people from working their way up out of poverty. This, therefore, is contraindicated:

Middle-class families could face higher water bills under new plans to subsidise the costs of low income households.

Labour ministers will be urged to introduce a nationwide scheme that would see poorer families given huge discounts on their charges.

The recommendation on creating a national social tariff will be presented to Sir Keir Starmer in a Government-ordered review of the water industry on Monday.

No, really, just no. Adding to the steepness of that taper is just not something we want to be doing.

Moving to a volume based system, yes, that’s fine. A low cost allowance - sufficient to run a basic household say - followed by increasing per unit charges as consumption rises, sure, why not? One of us lives under just such a system and it works just fine. Everyone has drinking, bathing, washing water at reasonable cost and those who water their gardens are significantly encouraged not to.

But relating such a system to the income of the household is the wrong way to do it - it increases the steepness of the taper, see? Just adds yet more deadweight to that climb up out of poverty by earning more. No.

Tim Worstall