Welfare and taxation
Francis Wintle
I do not wish to be uncharitable about this; nor, I hope, does the Government. The Budget promises further concessions to pensioners, some encouragement to the lower paid, and other welfare measures. It is logical as well as charitable for the Chancellor to promise such things, not only for their social and political value, but also because all or any of them would underwrite his stated policy for the future, namely the tax credit scheme, which must now form the strategy for all tax and welfare projects.
It is worth a brief look to see what this credit scheme really • is and where it will take us. In the first place, the Government has been very lucky to have Sir Arthur Cockfield to serve it such a dainty dish. The idea of a negative income tax is hardly new, but Sir Arthur produced something concrete rather than throwing up his hands, as many have done, declaring that the problems were insoluble.
In the second place, the Government is let off much embarrassment in that it is now less fashionable to talk about the poverty trap' and 'poverty surtax,' although these problems still exist.
Thirdly, it is lucky in the very favourable if rather cautious reception the scheme has had for the most part. One might have expected that people would be rather more suspicious of the bland tone of the proposals. Most of the criticism seemed, conveniently, to latch on to the issue of who should receive the family allowance — the proposals left this open.
And this objection aside, the press has swallowed this sugar coated pill with a single gulp.
You need not be a committed opponent of the present Govern ment to look twice at any proposal which claims that everyone (well almost every one) is going to be at least a little better off. On hearing that, every thinking man should reach for his slide rule. For instance, the scheme is supposed to tidy up the present system of high disincentives, and we hear a lot about a 30 per cent tax rate. Just to put the record straight, we should add to that 30 per cent rate the earnings-related NI contributions (the Green Paper conveniently does not include these in its tables) which will provide a constant extra disincentive for all except the better off earner, who cannot pay more than a certain maximum. And on top of that there will be for many who live in rented accommodation, as Frank Field and others have pointed out, a fair rent rebate with a marginal disincentive of 17 per cent, taking the marginal tax rate to comfortably over 50 per cent. The very poorest will have a 25 per cent marginal disincentive on their rent rebates rather than the 17 per cent for those a little better off, but that, apparently, is their misfortune.
In spite of these difficulties, may we at least assume that supplementary benefits and family income supplement will go? The credits given in the Green Paper are not large enough to support recipients with no income, or only a very small 'income, and the Government, which was clearly aware of this, has taken care to refer to a possible ' residual ' FIS and supplementary benefit. So it looks as if there may be some disappointment there as well.
It has been suggested that the scheme is redistributive. This is probably a fair description, but the redistribution has been handled with true Tory discretion. To redistribute wealth through a mechanism of this kind requires a heavy rate of taxation, and no scheme with a 30 per cent basic tax rate is going to redistribute very much. Although the basis of the scheme is a universal credit, Conservatives will proudly tell you that it is in fact highly selective, and that only the absolute minimum quantity of wealth actually changes hands. As I have suggested, some system of means tests with their attendant anomalies is going to be retained at the lower end of the income scale, and it will have to remain because the poor will still be too poor. And the poor will still be too poor because the scheme won't give them enough to live on... because — here is the sugar coating on the pill that makes it so palatable — the tax rate proposed is too low.
The Labour Party has been subdued about this scheme, as if it were embarrassed; although in fact the Tories have by no means stolen their thunder when you examine the situation. The Liberals have been more logical in advocating a radical scheme with higher taxation if necessary, but they have also had the sense to take the bull firmly by the horns and recommend minimum earnings provisions as well. While one half of the political spectrum finds a radical approach desirable already, the other half will in time discover that there is no other way out. If the tax credit scheme is supposed to obviate this necessity for a minimum earnings provision it will fail.
It is fairly clear that the tax credit proposals are designed to protect the Government from attack on the left flank, while the entire matter is hived off to a Select Committee. A further word is needed on the manner in which this is being done. The Government has made appeals before .(wholly disingenuous in my view) that difficult social problems such as pensions or disablement should be discussed in an air of political neutrality. I suggest that in this case too, the Government is at it again, and that this is a rather shabby practice.
The insidious idea is being fostered that this social mach ine of tax credits somehow by passes party politics — when in fact the way the machine is made to operate is a highly charged political issue of the first magnitude.
The Chancellor will prepare for the possible detailed intro duction of the scheme, on his terms, in future budgets, as he is perfectly entitled to do. In so doing he will cite the scheme as evidence of his progressive intentions. It answers for everything, yet commits the Government to remarkably little.
Is that too cynical? I do not wish to be cynical; but then nor, I hope, does the Government.
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