RTI, UC, and 42March 11, 2013
If you’re earning, you don’t pay tax on the first £8105 of your wages – around £155 a week.
The aspiration is that this will go up to £10,000 – around £192 a week.
If you’re employed on the minimum wage (which is £6.19 an hour – allowing for a 37 hour week) you’ll earn 228.29 a week and pay tax on £73 of it.
If you’re unemployed, you’ll get JSA of “up to” £71 a week
And if you’re on the state pension, you’ll get “up to” £107.45 a week.
OK then – let’s look at what happens if you are unemployed and you are offered a few days work – something seasonal, say, like fruit picking, or something short term and semi professional, like a data entry or translation job that only has a few days work attached, or perhaps you’re a semi-retired barmaid or a waitress and you occasionally cover for absence at the local pub or restaurant.
Let’s think about it from the employer’s viewpoint for a moment. Either they use an agency and let the agent handle all the recruitment and payroll business – all you need is a specific number of bodies who can carry out a specific task after all – or else you do it yourself. You pick someone you’ve used before, perhaps, or someone you know, and you pay them along with your other payroll and you process the payment at the end of the month along with everything else.
This year, along comes Real Time Information, RTI, where you are going to have to tell HMRC about the payment at the time you make it, even though you know your unscrupulous rivals are going to be tempted to bung their Friday night replacement barmaid a few quid in cash in a brown envelope and say no more about it.
Now there’s been a certain amount of kicking off about this in the accountancy and payroll press but then there always is when there’s a major change. Either it’ll work or it won’t, and if it doesn’t then there are existing systems that people can fall back on.
But look at it from the point of view of the employee.
What happens at the moment if you’re unemployed and you’re offered a few days work?
Well, you “sign off” and – apart from the few quid you get for your fruit picking – you get nothing until you’ve managed to “sign on” again. And it could be six weeks before your benefits come back on stream. So you don’t take the work, because you can’t afford it. A few days work might leave you penniless – literally penniless – for over a month. You don’t have savings. You don’t have mummy and daddy and a trust fund to fall back on. You might wind up homeless, or having to get food from a food bank and a loan from a loan shark. Or you work “cash in hand” and don’t mention it to anyone, and spend months or years worrying that you’re going to be penalised as a “benefit thief” and wind up on the front page of the Daily Mail.
There has to be a better way.
So let’s do a thought experiment. What would we WANT to happen, in an ideal world?
Personally, I’d like to see the tax threshold, pensions and benefits aligned. So if you were working we’d move away from you not paying tax on the first £10,000 to giving you £10,000 but taxing you on everything else. And if you were a pensioner, you’d also get £10,000 a year automatically.
And if you were out of work?
Well, you’d still get your £10,000 a year. Only it would be on a daily, not weekly, basis. £10,000 a year is £27.40 a day.
OK then. You’re unemployed. You sign on, and you’re paid £27.40 a day. (Why not? It’s going to be paid direct into your bank account anyway, and £27.40 a day is no harder to transfer than a £822 a month)
You pick up a day’s bar work. You fill in the box on the claim screen that says you’ve had a day’s work. The screen shows a smiley face and the words “congratulations!” And you still get £27.40, because, well, everyone does, and as well as that you also have your money from the day’s bar work, less the tax which was taken off under RTI before you were paid. But actually you wouldn’t NEED a claim screen, or to tell anyone you’d earned any money, because for tax and benefit purposes you’d be in exactly the same position as someone earning the minimum wage OR someone on an MP’s salary – you’d have your Citizen’s Income as a fall back, and you’d also have whatever earnings you could find, net of tax which was paid before it came to you.
So work pays – the money you get for working is yours to keep on top of the £10,000 a year that everyone gets anyway.
Yes, I’m talking about a citizen’s income. More specifically, replacing the tax free personal allowance with a Citizen’s Income. Abolish means testing, tax credits, benefit caps, universal credit, JSA, pensions, tax free allowances and just give everyone ten grand a year. And tax them on everything they earn above that.