Call for ‘weekly national allowance’ to replace income tax allowance

There are calls for the government to abolish the income tax personal allowance, which was confirmed as £12,500 in the Spring Statement, and replace it with a weekly cash payment of £48 to all adults earning under £12,500 in a bid to lift 200,000 families out of poverty

A report by the New Economics Foundation (NEF) suggests the proposed policy swap would shift £8bn currently spent on tax allowances for the 35% highest income families to the remaining 65% of families.

The proposal is cost neutral, NEF says. But the poorest 10% of households on average would see an increase in disposable income of £1,160 per year or around £20 per week, equal to a 15.8% increase.

The think tank says in total, the personal allowance is estimated to cost £111.2bn in 2019/20. The report proposes using this money to fund a weekly national allowance, made up of a new weekly payment worth £2500 per year and paid to everyone outside of the top 1% of earners, and a restoration of child benefit to its 2010/11 real terms value.

NEF calculates that on average, every major family type among the poorest 25% of households would see their income rise – whether a single or couple adult family, with or without children (including families with four or more children), in or out of work, or above or below the pension age.

The report’s modelling suggests that in comparison, the current personal allowance of income tax will reduce tax liabilities for the 10% richest families by almost £6500 in 2019/20 alone, compared with just £600 for the poorest 10%.

Alfie Stirling, head of economics at NEF, said: ‘The persistent increases to the personal allowance of income tax seen over the past decade represent one of the most expensive and regressive public spending initiatives of the 21st century so far.

‘Repurposing the funds from the personal allowance into a new weekly national allowance, paid to everyone outside of the richest 1%, would significantly improve upon the UK’s social security system at a time when the botched rollout of universal credit is otherwise causing acute financial hardship and misery.

‘With Brexit among a number of recessionary threats on the horizon, the weekly national allowance would not only help to shield families from the worst effects of recession, but would also aid future recovery by maintaining a minimum level of income and spending in the economy.’

Nothing Personal: Replacing the personal tax allowance with a Weekly National Allowance is here.

Report by Pat Sweet

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Comments

This raises a couple of questions to me:
1. This would certainly benefit those earning below £12,500, but it would be neutral for anyone earning exactly £12,500 as under this proposal they would be taxed on all their income from zero up. Then surely there would be a 'cliff edge' issue if their salary increases to slightly above this limit, as they would then be taxed on everything but lose their cash allowance.
2. Is it not already the case that those earning above £100,000 start to lose their personal allowance, and the very highest earners get no PA at all? In which case I don't see how they benefit disproportionately from an increase in the PA.

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