In a landmark new report, the Centre for Policy Studies (CPS) is unveiling fully costed proposals to reshape the tax system around a simple principle: to make work pay.
‘Make Work Pay: A New Agenda for Fairer Taxes’ was launched last night at a reception with the Prime Minister, the Rt Hon Theresa May MP. It is written by Tom Clougherty, Head of Tax at the CPS, and the first in a new series of major policy initiatives from the think tank.
The central principle of ‘Make Work Pay’ is that work should always pay, however much you earn.
It proposes that the Government builds on the successful increase in the personal income tax allowance by raising National Insurance thresholds to create a universal working income, which would see the first £1,000 earned every month (ie £12,000 a year) be completely free of income tax andNational Insurance.
This would be a £459 tax cut for anyone earning more than £12,000 a year, and take 2.4 million low-paid workers out of taxes on earnings altogether.
The tax system should also ensure every worker, keeps at least 51p in every extra £1 they earn, which we term the ‘work guarantee'. This would be delivered by reform of various pinch points in the tax system – the marriage allowance, the high-income child benefit charge, and the 62p tax rate as the personal allowance is withdrawn for high earners.
The report also proposes cutting the Universal Credit taper rate from 63p to 50p. This would address the injustice that those moving from welfare into work often face much higher marginal tax rates than the wealthiest Britons.
Exclusive YouGov polling carried out on behalf of the CPS shows these policies are hugely popular:
The report also argues that while the personal allowance has been an economic success, voters have not given the Government due credit: 58% say they have not noticed its effects in their own finances. This may be why the polling also reveals scepticism about the Tories’ undoubted credentials as the party of low taxes – one of the many problems these proposals would solve.
The report estimates the total cost of its proposals at £13.5 billion. It argues that this can be funded by adopting an ISA-style model for pension saving – previously called for by the CPS – and other savings measures which could be accomplished without impacting frontline public services.
Robert Colvile, Director of the Centre for Policy Studies, said:
“This report is packed with worthwhile ideas, each of which would give millions of people more control of their lives and their finances.
“But as a package of measures, its effect would be more than just financial. It would embed within the tax system three principles that are overwhelmingly supported by the voters: that you should not be taxed before you have earned the necessary minimum; that work should always pay; and that you should always keep at least half of what you earn.
“I am proud the CPS has brought these proposals forward, and delighted that the public is so firmly behind them.”
Tom Clougherty, Head of Tax at the Centre for Policy Studies, said:
"The purpose of these reforms is to ensure that whatever your circumstances, and whatever your earnings, work will always pay.
"We've made great strides over the last eight years in taking millions of low-earners out of income tax, but now we need to go further and take them out of National Insurance as well.
"The British public deserve a tax system that encourages and rewards aspiration and hard work at every level. Our universal working income and work guarantee would help make that vision a reality."
For further information, or to book Centre for Policy Studies spokesmen, please contact the Centre for Policy Studies Press Office on 07876 161196 or email [email protected].
NOTES TO EDITORS