Adam Smith Institute

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If I might make a suggestion?

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if-i-might-make-a-suggestion

Just throwing a few numbers around to see what happens. Who knows, we might even end up with a sensible suggestion.

Our first number is the fiscal boost, the expansion, that many are arguing for. £ 30 billion is a number I've seen floated. I'm not sure I'm all that much of a fan of  the idea but the internal logic of it says that  as long as the gap between Govt receipts and Govt expenditure grows by this much then we'll get that boost. We can keep spending where it is and cut taxes to get it for example.

The second number is the cost of raising everyone's personal allowance by £1,000. That's £6 billion annually.

The third is poverty as defined by the Joseph Rowntree report. £13,400 a year....but that is a pre-tax number. When you take off the tax and NI paid you get to a nett income of just north of £11,000 as being the poverty line.

The fourth is the minimum wage. At £5.73 an hour, a full time job (37 hours a week, 52 weeks a year) pays just north of £11,000 a year.

So, if we spent our notional £30 billion boost by raising everyone's personal allowance by £5,000, from the current £6k and a bit, then we'd have a tax free allowance of just north of £11,000. Those who worked full time on minimum wage would no longer be in poverty. Which sounds rather sensible to me as I've always though it most odd that the Government thinks it right to take a slice off the top of what they insist is the minimum value of the sweat from a worker's brow.

We'd also hugely reduce the disincentives, the marginal tax rates, that people face when they're in that twilight zone where benefits are withdrawn and income taxes imposed.

Yes, that does look sensible. Let's stop people being poor by stopping taking their money from them. And if we really do want to spend £30 billion to ameliorate the recession, what better way to do it?