It's not perfect—but the new NEF proposal to scrap the personal allowance and offer a £2,500 payment instead at least prioritises the poorest over middle-class earners. So will John McDonnell go for it?by Chaminda Jayanetti / March 14, 2019 / Leave a comment
Politics is about trade-offs—even for Jeremy Corbyn.
One of Labour’s biggest trade-offs at the last election was over welfare spending. By committing to running a balanced budget, making large spending pledges on tuition fees and the NHS, and protecting 95 per cent of people from income tax rises, Labour found itself with insufficient money to pledge to reverse years of savage welfare cuts.
Enter stage left this week the New Economics Foundation (NEF), one of the few think tanks with a close relationship with the Labour leadership. NEF this week published a radical tax plan that would straightforwardly take money from the better off and give it to the poorest.
The plan would work by scrapping the “personal allowance”—the level of earnings below which people pay no income tax. Since 2010, the government has relentlessly raised this allowance—from around £6,500 for most earners in 2010 to almost £12,500 this year—at an enormous cost to the public purse.
But because of the welfare cuts that were taking place at the same time, many people on lower incomes lost money overall—and those whose incomes were already below it were cut out completely. Meanwhile, people on higher incomes, up to £125,000 a year, got a tax cut they often didn’t need and sometimes barely noticed.
Like many terrible ideas, it’s very popular. But NEF proposes to do away with the personal allowance entirely and instead give everyone over 18 £2,500 a year, tax-free, be they in or out of work.
Why £2,500? Because that’s how much most taxpayers save through the personal allowance—in other words, NEF wants to take £2,500 away from them, and then give it straight back.
This may seem pointless. But because the new payment would go to everyone, it would benefit those currently earning below the threshold. People on the lowest incomes have seen no benefit from the rise in the personal allowance. They would each get £2,500 a year under the NEF plan.
That matters. Merely ending the benefit freeze—as Labour has committed to do—effectively “bakes in” a decade of welfare cuts, which have driven steep rises in homelessness and malnutrition; it doesn’t undo them. What is Corbynism for if not this?
By directly increasing the incomes of the poorest, NEF’s plan goes some way to addressing this—as some in…