By Guest
Jonty Olliff-Cooper leads the Progressive Conservatism Project at Demos.
Ending the folly of directly taxing people on very low wages would be the best single poverty fighting measure the next government could take.
In-work poverty is as prevalent as workless poverty, yet it receives far less media and political attention. In-work poverty’s ‘share’ of total child poverty is now 50 per cent. Prior to the recession, there was no sustained fall in in-work child poverty either over the entire period since Thatcher’s premiership, or over the active lifetime of the present government’s anti-poverty drive.
Britain has a high incidence of lowly paid work relative to the rest of Europe: an estimated 22.1 per cent here compared with 12.7 per cent in France. Yet at the moment even someone on the minimum wage has nearly £1000 taken in income tax. A single earner couple with two children would have to work almost 80 hours a week to avoid the official definition of poverty through their wages alone. This means that many people on the minimum wage cannot earn enough to lift themselves out of poverty, even if they work full time.
On their own, neither a living wage nor more tax credits provide a complete answer. A living wage will be hard to introduce in a recession, with a huge surplus of labour supply to demand. Moreover, ensuring a living wage and cutting taxes at the bottom are not mutually exclusive options.
Higher tax credits alone are not the answer either. Obviously, tax credits have had a major impact in reducing poverty for minimal cost to the Exchequer. But they are also complex, burdensome and demeaning. They take with one hand and give with another, creating a passive mindset. Money given back appears as a hand out, not our own money back again. We must find ways of reducing our reliance on them. Tax credits should be focussed on what they do best: providing targeted support to certain groups, rather than as a panacea for working poverty.
What is needed is a clear, simple, effective measure to make low-paid work pay, coupled with a proper strategy for building the macro-economy. That is why next month the Progressive Conservatism Project at Demos is publishing proposals to raise the income tax and national insurance thresholds to end waged poverty. Such a proposal would have nearly double the impact of Vince Cable’s proposal to raise the allowance to £10,000 and ensure that everyone who goes out to work will be able to support themselves to a minimum standard of social participation from their own wages.
Obviously such a big and bold reform does not come cheap – £32 billion if attempted in a single year. But this argument is about basic fairness for those who work, not a narrow definition of fiscal efficiency. Moreover, by tying the rise in the threshold to the growth in the economy (and hence to tax revenues coming into the Treasury), the threshold could reach the Joseph Rowntree’s Minimum Income Standard of £10,361 for a single person without children with zero effect on income tax revenues in a single Parliament, assuming a return to normal growth.
Some may dismiss such ideas as unrealistic. In our view, the opposite is the case: if “the legacy of nearly ten years of a committed anti-poverty policy is zero net progress on in-work poverty”, the unrealistic idea is that ‘more of the same’ can possibly be enough.
This post is part of Community Links and Church Action on Poverty‘s project looking at working age poverty, contributing to the European Year Against Poverty
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