Would cutting income tax for young people stop the North's brain drain?

Poland has announced a dramatic tax policy:

Poles under the age of 26 who earn less than 85,528 Polish zloty ($22,547) a year will be exempt from the country's 18% income tax starting August 1. The allowance is generous, considering the average Polish salary stands at just below 60,000 zloty ($15,700) a year.

The aim of the policy is to try and stem the tide of young Poles that head for other countries - an estimated 1.7 million people left Poland in the past 15 years which, as the Polish PM observed, "It's as if the entire city of Warsaw left".

For those who have already left, especially the better educated (something like 750,000 graduates are in that 1.7 million figure), the incentive probably isn't good enough and they're likely to be earning more, even after tax, that they would in Poland even assuming there's a comparable job. But it might have two effects - to slow down the departure of young Poles in the future and to encourage new investment to exploit this pool of labour.

Which brings me to my question - could we use the same policy as a means of slowing down the "giant sucking sound" (to borrow from Ross Perot) of Northern graduates heading to London and the South-East? I'm not convinced it's a 'silver bullet' but it would add to the existing incentives of lower living costs especially for housing. It may even attract a few soft southern pansies like me up north! Worth a punt?

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Perhaps we should think about taxing the poor a little less?

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What do you mean you hadn’t noticed? Perhaps you were too busy campaigning for a ‘living wage’ or ranting about fuel poverty to notice that the policies beloved by left and centre fall hardest on the poor. Indeed, rather than babbling about that ‘living wage’ maybe we should mention that it is quite repulsive – truly hideous and ghastly – that anyone on minimum wage has part of that income taxed.

But I’m not here to talk about income tax – although I don’t think anyone earning less than average income should pay any – but about all the other imposts, duties and proposals that fall most heavily on the poor. Here’s a little list:

• Energy prices. All those jolly schemes to promote ‘green energy’ and save the planet are little more than a tax – the planet may need saving (although I think she’ll be fine and hunk dory for quite a few million years yet) but is it right that we do this with a regressive tax? Worse still a regressive tax that those with large roofs for solar panels or paddocks for windmills can avoid – and those are things that someone’s granny in a council flat doesn’t have.
• Tobacco duty. OK this is about making people healthy (or so we’re told by assorted nannying fussbuckets) but we also know that people from the C2DE categories (i.e. the less well off) are far more likely to smoke than those in the ABC1 categories. Raising the duty year after year above rates of inflation is a huge tax on the less well off – except for those who now smuggle the stuff, of course!
• Employers National Insurance. No this really isn’t a tax on the employer – they have a budget to employ people and the NI is in that budget. If employers didn’t pay national insurance then wages would be higher – we know that rises in employers NI reduced wages.
• PAYE. You’ve read all those stories about how rich folk with clever accountants reduce their tax bills? Ever wondered why you can’t do this? It’s called PAYE – lower paid people don’t fill in a tax return and the employer does the payments. All those allowances, fiddles and dodges that you’ve heard of – they only apply to people who fill in a tax return. I’ve no doubt that there are thousands – perhaps millions – of people paying too much tax. And they’re mostly the lower paid.
• Minimum pricing for alcohol. This is the most blatant – “we don’t approve of the poor drinking cheap cider” is effectively the message that it sends out. After all it would be simpler to just increase the duty on alcohol (something that us middling sorts consume more of that the poor) but the moralising ‘return of gin alley’ arguments dominate.

I’m pretty sure there’s more of these – even without me mentioning the de facto tax that is allowing inflation to run at two per cent plus. And – all with either the direct intention or the unfortunate side effect of falling more heavily on the less well off.

Perhaps we should think about taxing the poor a little less?

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Taxes and the "living wage"

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On Tuesday Bradford Council debated (if that's the right word for a time when we all rather agree with eachother) exploring a 'living wage' policy for the City. And we agreed to look into the matter through the Corporate Scrutiny Committee and subsequently a report back to council.

All this got me to thinking. Mostly about whether such a policy - especially if enforced through public procurement - complied with though tricky EU rules. I have my doubts but that is something we'll doubtless discover in due course.

Meanwhile, some cleaners in Whitehall hit on the idea of popping a letter onto the desks of ministers pointing out that they earned below the "living wage" for London:

Over 150 cleaners from across Whitehall signed – and personally delivered – letters to eight cabinet ministers including George Osborne, Theresa May, Nick Clegg, and Vince Cable, and the president of the supreme court, Lord Phillips, in an attempt to increase their pay from the national minimum wage of £6.08 to the London living wage – two pounds more.

A pretty effective campaign when you also tell the papers!

However, something else struck me at this point - even with the tax threshold raised to £10,000, people who are earning minimum wage pay income tax. Parliament sets the lowest rate at which people should be paid and then takes some of that away in income taxes.

It seems to me that rather than using moral pressure to get businesses to raise their costs (wages are, after all, a cost) we could improve lower earners standards of living simply by saying that people on minimum wage shouldn't pay income tax. Indeed, if people think that actually £8 and odd is the appropriate lowest rate (in London) then people on that minimum income shouldn't pay income taxes.

It seems to me that there is common cause here between us grumpy old free marketers and the massed hordes of lefties - gang up on big, corporate government and tell them to stop taxing poor people quite so much.

Now that's a thought...


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Poverty? Why am I not surprised....

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The Institute for Fiscal Studies has been looking at poverty and income:

Research by the IFS discovered that those at the bottom of the income spectrum had higher living standards than those with slightly better pay.

The findings suggest low spending is a better indication of poverty, instead of low income.

In fact, those with the lowest income had a high level of spending, suggesting they were only temporarily at the bottom of the income pile - drawing upon savings or other assets as a buffer against poverty - or that they are underreporting their earnings.

Yep, all those satellite TVs, iPhones and better cars than mine! They grow on trees!

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On abolishing income tax...

It was a dream I know but I retain a picture in my mind of ‘Surrallan’ (or Lord Sugar as is has grown into now) gruffly – for he is gruff – telling his aspirant apprentices; “your challenge for today is to abolish income tax.”

And what a challenge!

Income tax raised (net of tax credits) £134bn in 2009/10 – which is about a third of HMRC revenue. However, it is only about 20% of total government spending for the same year. So, were we to maintain borrowing at the levels of 2009/10, a 20% reduction in public spending would be sufficient to remove the need for an income tax? And there are several ways to reduce government spending:

We can ‘marketise’ the area of spending – in simpler terms shift all or most of the spending from fiat spending (where the government gives a grant and the service is free) to consumer discretionary spending. It is possible to require consumers to purchase the product – as we do, for example, with third party motor insurance – but most people would buy the product or service. We have successfully shifted most utilities to private provision – and there aren’t many people who don’t buy water and electricity are there? This model could apply to such services as refuse collection where the service (as is the case with utilities) is delivered directly to individual households.
We can deliver services more efficiently – we can all given a few minutes identify examples of ‘waste’ within public services (and I guess within a large private organisation). Much attention has been given to this activity since it does not constitute a “cut”, avoids restructures or legislative change and gives the impression of success – but as we has seen with “Gershon” savings the results are largely fictional! The problem is that ‘waste’ within the public sector reflects (along with high levels of total remuneration) what would, in a well-run private business, be profit. The best driver (other than a real market) of efficiency is outsourcing.
We can deliver services more effectively – this is similar to ‘marketisation’ (we could call it an ‘artificial market approach’) in that is uses consumer choice models to drive effectiveness in supply. This is more likely to achieve better outcomes – especially in terms of customer service – since the consumer is in control of the spending decision. We are seeing this model emerging (too slowly) in education and the NHS has blown hot and cold on this approach for a long while. Senior producers (doctors, headteachers, etc.) will resist such a model as it removes their ability to capture monopoly profit in the form of inflated earnings.
We can stop doing something – let’s indulge the campaigners and call these changes “cuts”. The problem with this is that, in most cases, public services are doing something because the decision-makers (in theory if not often in practice) have made a positive decision to undertake that activity. We have ‘diversity outreach workers’ and ‘five-a-day co-ordinators’ because politicians have voted the cash for these activities to take place – even if (as I sometimes feel) we really haven’t the faintest hope of really knowing what we’re voting for!

To eliminate income tax we need to identify – on top of the currently announced reductions needed to reduce the deficit – savings amounting to around 20% of revenue spending (so it wouldn’t include, for example, not replacing Trident). It strikes me that, using the four approaches outlines above this should be achievable. It should surely be possible for anyone on or below average earnings to no longer be robbed blind by a venal government!

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