Nick Clegg’s “worker’s bonus” – what I said about it on BBC’s Daily Politics

by Stephen Tall on November 19, 2013

stephen-Tall-Daily-PoliticsI guested on BBC2′s Daily Politics on Monday to discuss Nick Clegg’s announcement that he wants the Coalition to offer a “worker’s bonus” in the next budget, taking the personal allowance up to £10,500 – beyond the £10,000 that was promised by the Lib Dems at the 2010 election.

The other two guests were ex-No. 10 Labour policy wonk Matthew Taylor, now chief executive of the RSA, and Conservative backbench MP Dominic Raab.

You can watch the 10-minute debate here (til 25th November).

Here’s my view in 6 sentences:

  1. I’m a fan of the party’s policy of raising the personal allowance, a tax-cut targeted at low-earners and which has taken two million of the lowest-paid out of tax altogether.
  2. I’m sympathetic to the party’s policy of raising this still further, to £12,500, the current earnings for someone working full-time on the minimum wage – if it’s a minimum wage (and some way off a living wage) the idea of the state clawing some of that back through tax is quite wrong.
  3. However, as I argued here in February, the party should first raise the threshold at which National Insurance Contributions are levied – this would help the million-plus low-paid earning between between £7,748 (the NIC threshold) and £9,440 (the personal allowance threshold) and be a more progressive measure.
  4. This increase in the NIC threshold should be focused as far as possible on helping the low-paid, perhaps by increasing Working Tax Credits (as the IFS has recommended here).
  5. That said, I understand why Nick Clegg has made the announcement he did – raising the personal allowance is the Coalition’s single most popular measure, one which both the Conservatives and Labour are now eager to adopt, and which Nick is determined should be owned by the Lib Dems.
  6. Though less progressive than an increase in the NIC threshold, it is easier to explain on the doorstep – and income tax is more unpopular than NICs.

I’m not sure I managed to get all these points in, but it was a lively exchange…

* Stephen Tall is Co-Editor of Liberal Democrat Voice, and editor of the 2013 publication, The Coalition and Beyond: Liberal Reforms for the Decade Ahead. He is also a Research Associate for the liberal think-tank CentreForum and writes at his own site, The Collected Stephen Tall.

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One comment

I agree that National Insurance needs to be addressed. There are a few things wrong with it:

1. The thresholds don’t align with Income Tax. So, currently some people who don’t pay Income Tax do pay National Insurance.

2. It’s calculated weekly. That makes it hard to align the thresholds, but worse that that: it means that seasonal workers, zero hours contract holders, people moving between casual jobs, and others with irregular earnings may pay more tax than if they earned the same money in a job with regular weekly pay. So, they have less security, and less take home pay.

Let’s be clear about this. The NI threshold isn’t £7,748 per annum, it’s £149 per week. So, you can earn £150 in a year, and pay some NI, if the work is all done in one week.

3. It’s regressive. If you include the employees contribution at 10%, and the employers contribution at 13.8%, and basic rate income tax at 20%, your marginal tax rate is 43.8%. Higher rate tax payers (40%) pay 2% NI, and there’s no employers contribution. So their marginal tax rate is actually lower at 42%, until they’re earning enough to pay 45% tax.

by Ian Eiloart on November 19, 2013 at 2:47 pm. Reply #

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