ASI Budget wishlist: Tax credit cuts must be offset by tax cuts for the working poor

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: | 07476 915072. In advance of the Budget next Wednesday, the Adam Smith Institute has outlined four announcements it would like to hear from the Chancellor:

Raise the employee National Insurance Contributions threshold

National Insurance Contributions kick in at £8,060 per year, or after just 24 hours worked per week on the National Minimum Wage. Raising the Income Tax personal allowance will do less to help the poorest workers than raising the NIC threshold, and raising the threshold will help to make work pay, particularly if the government goes ahead with its cuts to tax credits.

According to CentreForum, the cost of raising the NICs threshold to £10,000/year would be £8.8bn per annum.

Scrap the triple-lock and freeze the state pension

The pensions triple-lock means that the state pension will rise by at least 2.5% this year even though prices are not rising at all. This is unsustainable in the long-run and wasteful in the short-run. As long as cuts are being made across the board, pensioners should at least have their income frozen in real terms. Doing this would save over £2bn per annum.

Build more houses to cut housing benefit

Housing benefit spending is only so high because the cost of housing in general is so high. Building new homes of any kind will reduce the general level of housing costs, both for buyers and renters, and the government could allow this simply by rolling the Green Belt back around England’s cities.

The size of the reduction to the £25bn Housing Benefit bill would be dependent on the number of new homes built, but the government should aim to reduce the Housing Benefit bill by at least 20% over the course of this parliament, netting savings of £5bn per annum.

Revalue council tax and business rates and aim to merge them

Business rates have not been revalued since 2010 and council tax has not been revalued since it was first introduced in 1993. This means that tenants in places that are poorer than they were in 1993 and 2010 are paying relatively more than tenants in places that are richer than they were then. As well as being unfair, this is inefficient, and hurts the North in particular, with businesses there paying rates far higher than their property deserves.

As with the old Stamp Duty slab system, the council tax band system is out of date and should be replaced with a fluid penny in the pound system like rates. For both, revaluations should be done on an annual basis, revenue-neutrally. The two systems should eventually be merged at the same rate, so that the tax system does not distort where businesses and houses are located. If Zoopla can value property prices on a rolling basis, so can HM Government.

Deputy Director of the Adam Smith Institute Sam Bowman said:

There is a big danger that the cuts in next week’s Budget will be dictated more by what is good politics than what is good policy. In-work benefits are being cut without any offsetting cuts in taxes for the working poor while pensions will rise well above inflation, at a significant cost to the public purse.

The measures we have outlined would still reduce the deficit but do so in a more equitable way, so that the cuts do not fall disproportionately on the working poor.

Notes to Editors:

For further comments or to arrange an interview, contact Kate Andrews, Head of Communications, at | 07476 915072.

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.