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B438 - Welfare Bill 2012

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    Introductory NoteThe land value tax base calculated in the Tax Act 2011 was a vast underestimation. The tax base is £559bn, rather than £346bn. For more detailed methodology see the costing notes - just so people don't think we've magicked money from nowhere.


    B438 - Welfare Bill 2012, TSR Libertarian



    Welfare and Tax Reform Act 2012

    An Act to introduce a simpler, better welfare system and more sensible, while still progressive, tax system to cause less deadweight efficiency losses while ensuring all citizen's have a decent standard of living.

    BE IT ENACTED by The Queen's most Excellent Majesty, by and with the advice and consent of the Commons in this present Parliament assembled, in accordance with the provisions of the Parliament Acts 1911 and 1949, and by the authority of the same, as follows:

    Part I: Welfare
    1 Other Direct Payments
    (1) All monetary payments from the state to an individual for reasons other than direct employment or government error other than outlined in this Act are ceased.
    (2) Free bus passes are no longer administered.

    2 Citizen's Income
    (1) The Citizen's Income is paid to all eligible, claiming households on a monthly basis.
    (2) All those legally resident within the United Kingdom are eligible for the Citizen's Income.
    (3) The amounts for the Citizen's Income depends on the composition of the household, and shall be at the rates as set out in Schedule 1.
    (4) These amounts are subject to an annual review.
    (5) One single form per household is required to claim Citizen's Income.

    3 Disability Costs
    (1) In the case of extra living costs due to disability or long-term illness, a person shall receive confirmation from a GP of their illness or disability.
    (2) Social Services shall carry out an assessment to quantify the extra living costs incurred due to disability or illness.
    (3) Social Services shall inform the Department for Social Security, and this shall be added to the Citizen's Income payment.
    (4) The received payment is dependent on an annual checkup with the GP.
    (5) Where the GP suspects that the condition has changed such that living costs change, they shall instruct Social Services to carry out an assessment to quantify the new living costs of the person in question.

    4 Housing Benefit
    (1) Housing benefit is a statutory responsibility of county councils.
    (2) It is administered and funded by local authorities.
    (3) Rates, eligibility criteria, and taper rates are decided by county councils.
    (4) Country councils' plans must meet the following minimum criteria:
    (a) Anyone with a household income of below £16,000 and savings of below £16,000 must be eligible for 100% of their rent up to the 20th percentile of rents for a dwelling with a number of bedrooms equal to the number of people in the dwelling.
    (b) For an individual renting a room, section 3(4)(a) will apply, and it is defined as a 1-bedroom dwelling.

    Part II: Tax
    5 Local Income Tax
    (1) County Councils have the power to levy a local income tax in order to pay for services provided by local government.
    (2) Central Government grants to Local Authorities are reduced by £75bn.

    6 Central Income Tax
    (1) In section 1(2) of Tax Act 2011 (Income Tax) for "fifteen pence in the pound" substitute "5 per cent".
    (2) In section 1(3) of Tax Act 2011 (Income Tax) for "twenty-five pence in the pound" substitute "15 per cent".
    (3) In section 1(4) of Tax Act 2011 (Income Tax) for "thirty-five pence in the pound" substitute "25 per cent".

    7 Ground Rent Tax
    (1) In section 6(1) of Tax Act 2011 (Ground Rent Tax), for "forty percent" substitute "54 per cent".

    8 VAT
    (1) In section 2(1) of VATA 1994 (rate of VAT), for "12.5 per cent" substitute "7 per cent".

    9 Abolition of Secondary NICs
    (1) The provisions for the collection of secondary National Insurance Contributions as set out in the Social Security Contributions and Benefits Act 1992 c.4 are hereby repealed.

    Part III: Miscellaneous
    10 Short Title
    (1) This Act may be cited as the Welfare Act 2012.

    Schedule 1: Rates Of Citizen's Income
    1st adult (16-64 years): £162.00 per week
    Subsequent adults (16-64 years): £92.00 per week
    1st pensioner (65+ years): £132.00 per week
    Subsequent pensioners (65+ years): £69.00 per week
    Child aged 12-15 years: £72.00 per week
    Child aged 5-11 years: £60.00 per week
    Child aged 3-4: £48.00 per week
    Child aged 0-2: £40.00 per week

    Notes + CostingThe figures given are based on the Joseph Rowntree Foundation research on the minimum income - we have excluded council tax (since we abolished it), rent (since we retain housing benefit at a local level) and we have adjusted slightly down for the reduction in prices based on the VAT reduction in real life from 20% to 7% (we have adjusted down by 5% based on the pass through rates of previous VAT rises and cuts to the price level).

    From Table 22 and population estimates from ONS we can see that the country is made of:

    Non-Retired Households
    3.88m households with 1 adult @ £162 p/w, annual cost: £32.7bn
    10.8m households with 2 adults @ £254 p/w, annual cost: £142.6bn
    3.15m households with 3 adults @ £346 p/w, annual cost: £56.7bn
    2.82m Children 12-15 @ £72 p/w, annual cost: £10.6bn
    4.98m Children 5-11 @ £60 p/w, annual cost: £15.5bn
    4.01m Children 0-4 @ £44 p/w, annual cost: £9.2bn.
    Total annual cost for non-retired households: £267.3bn

    I've taken the average cost for 0-2 and 3-4 since there's only data on 0-4.

    Retired:
    3.75m households with 1 pensioner @ £132 p/w, annual cost: £25.7bn
    3.22m households with 2 pensioners @ £201 p/w, annual cost: £33.7bn
    Total annual cost for retired households: £59.4bn

    You may find it odd that retired households have no children, but I've just taken the total figures for children and put them in the non-retired bit for costing. If a retired person/persons have children in the household, they will be eligible to claim for them.

    The total outpayments from the scheme will be £326.7bn.

    From here, we can see that current welfare + state pensions spending is £248.4bn, the cost of free bus passes is £1bn (here).

    This leaves a shortfall of £77.3bn which is made up with the changes in tax.

    Central Gov't (positive is exchequer yield):
    VAT 12.5% --> 7%: -£27.5bn
    Abolition of employer NICs: -£48bn
    Land Value Increase Tax Base: £85.2bn
    Land Value 40% --> 54%: £78.3bn
    Increased spending: -£77.3bn
    Income Tax Decrease: -£60.9bn
    Cuts to local gov't grants: £50bn [£75bn from this Bill, but we had a missing £25bn cost from Tax Act 2011 - so corrected for that, although, mind, the Tax Act's overall position on the budget was still an overly negative one compared to reality].
    Total: -£0.2bn

    Therefore the scheme is feasible.

    Local gov't (positive is council yield):
    Cuts to grants: -£75bn
    Local income tax: £75bn + £housing benefit (by design, such that councils balance their budgets)
    Local housing benefit cost: -£housing benefit
    Total: £0

    Income Tax Revenue Calculations - See table 2.5, 2011/12.
    Spoiler:
    Show
    £0-10K: 0% (£0)
    • 0% tax rate yields no revenue.

    £10-20K: 5% (£10.71bn)
    • From those earning £10-20K, total income £170.3bn.
    • Subtract personal allowance of those 11.61m taxpayers.
    • Tax base of £54.2bn from these taxpayers.
    • 15.997m taxpayers earning over £20K.
    • Each paying £800 in tax at this rate.
    • Total revenue = 5% * £54.2bn + (5% * £10,000 * 15.997m)
    • Total revenue = £10.71bn

    £20K-100K: 15% (£45.11bn)
    • From those earning £20-100K, total income £548bn.
    • Subtract all income liable for tax at lower rates of those 15.27mn taxpayers.
    • Tax base of £242.6bn from these taxpayers.
    • 727,000 taxpayers earning over £100K.
    • Each paying £20,000 in tax at this rate.
    • Total revenue = 15% * £242.6bn + (15% * £80,000 * 0.727m).
    • Total revenue = £45.11bn

    £100K+: 25% (£23.55bn)
    • From those earning £100K+, total income £166.9bn
    • Subtract all income liable for tax at lower incomes of those 727,000 taxpayers.
    • Tax base of £94.2bn at this rate.
    • Total revenue = 25% * £94.2bn
    • Total Revenue = £23.55bn

    Total: £79.37bn
    Previous Income Tax Revenue: £140.29bn (see Tax Act 2011)
    Shortfall: £60.92bn


    Ground Rent Tax Base: Ground Rent Tax rate is based upon The Land Value of Britain, 1985 -1990, by David Richards (E.S.S.R.A. paper, 1990) which gives a taxable ground rent value of £110 billion for 1989. Adjusting this for land value growth (using the figures from 2000 to 2005 relative to GDP and extrapolating from there) this gives a total taxable land value rental of £559bn in the UK (this and this for uprating).

    Note: Previously, I did not account for the difference in growth rates - that land values grew by 49% whilst nominal GDP by 28% in the period 2000-05, I merely then times the growth in nominal GDP by (1.49/1.28), instead, the extrapolation should take the form of 49% growth for each 28% growth in nominal GDP. Hence we massively underestimated before.
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    A very good bill. I'll read it properly tomorrow but at a glance it has my support.
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    J&T deserves a big pat on the back for this one.
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    Seems like quite a good Bill from what I can see. Adjusting the numbering so that the subsections of each Part starts with 1 would help for referring/ amending this Act later. Quick question, would there be any room for the provision of free bus passes to children who have to use buses to travel to school? This would mean that the cost of the essential travel to school to be taken up by the state. I'm wondering if the money from free buses for the elderly being stopped could be spent there. Just an idea.
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    The "take from the farmers, give to everyone else" Bill 2012. I'll give a fuller response once I've had some breakfast.
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    I agree with the entirety of part 1 bar the citizens income to all citizens (i just cannot see it incentivising work). I agree with the premise but it needs to be limited to those in work (to act as a bonus).

    I agree with 5, 7 and 9 however I would rather see a flat income tax rate for 6 and would rather see 8 remain the same (direct taxation is the priority).
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    (Original post by toronto353)
    Seems like quite a good Bill from what I can see. Adjusting the numbering so that the subsections of each Part starts with 1 would help for referring/ amending this Act later. Quick question, would there be any room for the provision of free bus passes to children who have to use buses to travel to school? This would mean that the cost of the essential travel to school to be taken up by the state. I'm wondering if the money from free buses for the elderly being stopped could be spent there. Just an idea.
    School bus funding is currently a local issue, and I don't see any benefit from changing that. After all it is the local councils who are working with local bus companies, not central government.
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    (I)(1)(2) Makes this an instant nay from me before I had even read the rest of it.
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    (Original post by JPKC)
    The "take from the farmers, give to everyone else" Bill 2012. I'll give a fuller response once I've had some breakfast.
    Do explain.
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    (Original post by Wednesday Bass)
    Do explain.
    I've had some breakfast now so here we go.

    Firstly, we need to actually debate the merits of a land value tax - I noticed that in the Tax Bill 2011 a lot of members simply nodded it through because, well, the Bill it came in looked nice and professional. I hope the same doesn't happen this time around.

    I've been trying to find some external justification for the gross land value (as stated in David Richards' somewhat obscure work) but to this point haven't been able to find anything online covering it - I'd appreciate some explanation for how the figure was realised.

    Assuming that it is watertight, there are still numerous problems with the implementation - firstly, the Bill here (and B408) assumes wrongly that all land in the UK is liable for taxation. The Government happens to own around 17%+ of all this land and cannot tax itself. Similarly, charities like the National Trust and RSPB have substantive holdings that shouldn't be taxed either - together the amount of untaxable land probably reaches around c.23%, and that ignores the Crown Estates and land owned by the Church.

    Secondly, could anyone who has so far nodded this by actually specifically tell me how much a farmer, with, say, 40,000 acres, would end up paying in tax for their land per annum?

    Land value taxes were first proposed at a time when the amount of land owned correlated with personal fortune, this is not the case today as wealth now is concentrated in areas like the City (in contrast to places like Downton Abbey 100 years ago). This undermines J&T's somewhat unfounded claim that this is a "hugely progressive" tax. How?

    Another problem of impracticality is that 40% of all land in the UK is not registered with an owner, it only comes to the attention of the Land Registry when it is part of a transaction - this obviously impedes the ability of the taxman to see who owns/owes what.

    I believe that we should have a ground rent tax, but I think that making it our prime source of revenue by such an extent is a step too far - I'd expect Lib Dem, Labour, Socialist, UKIP and Tory colleagues to consider the ramifications of destroying the redistributive nature of the tax system.

    As for the welfare section, I broadly agree with the principle of a basic income, but I'm not confident in the nuances of this proposal - for instance, why call it the Citizen's Income if legal residents can claim it? Seems a minor oversight. It's also odd that the figures for the CI have no explanatory notes - why make a distinction between retirees and adults? Why not just have employed people/unemployed people because ultimately that's what the difference comes down to. I think an adult's amount should remain static until their death.
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    I 3 seems underdeveloped. This would make me infinitely richer but I still think it would be better to have this be income dependent and to use all of the extra money to end private education but that is not likely to be something you are open to
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    No; why scrap free bus passes; surely that doesn't help anyone? (Might just be me misreading the bill, however).
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    (Original post by mevidek)
    No; why scrap free bus passes; surely that doesn't help anyone? (Might just be me misreading the bill, however).
    It helps the tax payer
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    (Original post by Keckers)
    It helps the tax payer
    But it doesn't help people who rely on bus passes.
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    (Original post by JPKC)
    The "take from the farmers, give to everyone else" Bill 2012. I'll give a fuller response once I've had some breakfast.
    Not quite. Although farms are large by area - they are not particularly valuable land.
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    (Original post by mevidek)
    No; why scrap free bus passes; surely that doesn't help anyone? (Might just be me misreading the bill, however).
    Why give someone a free bus pass when you could give them whatever it costs to buy a bus pass, but let them spend the money as they see fit?

    It's like being given a £10 voucher for your birthday instead of £10 cash when everyone knows that the cash would be more convenient.
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    (Original post by toronto353)
    Seems like quite a good Bill from what I can see. Adjusting the numbering so that the subsections of each Part starts with 1 would help for referring/ amending this Act later. Quick question, would there be any room for the provision of free bus passes to children who have to use buses to travel to school? This would mean that the cost of the essential travel to school to be taken up by the state. I'm wondering if the money from free buses for the elderly being stopped could be spent there. Just an idea.
    http://www.legislation.gov.uk/ukpga/...ntents/enacted - except numbering doesn't work like that.
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    (Original post by mevidek)
    No; why scrap free bus passes; surely that doesn't help anyone? (Might just be me misreading the bill, however).
    But the question you have to ask is why provide any particular group with free bus passes over another? I've argued above for students having free bus passes to get to school, but they don't have free bus passes. If there's a particular reason for doing so, then fine, but can you justify prioritising one group over another and if you are doing, what criteria are you using to do so?
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    (Original post by JPKC)
    Why give someone a free bus pass when you could give them whatever it costs to buy a bus pass, but let them spend the money as they see fit?
    Precisely this.

    (I'll respond more fully to your larger post soon, not ignoring it, just trawling through and responding by easiest first).

    (Original post by xXediXx)
    x
    Applies to your complaint also (JPKC's quoted post).
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    (Original post by jesusandtequila)
    http://www.legislation.gov.uk/ukpga/...ntents/enacted - except numbering doesn't work like that.
    Ah ok, just thought it would make it easier for this House.
Updated: May 2, 2012
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