The UK needs a Negative Income Tax

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The current welfare system isn’t working. The Conservative government has set out to reform the system, most recently by attempting to cut tax credits. Naturally, this caused a huge backlash from the left. Labour party leader Jeremy Corbyn argued the plan will leave many working families worse off. Surprisingly, criticisms of the plan also came from the right. The decision caused a split within the tory party. Conservative MP Heidi Allen, notably stood in parliament and made a strong case against the plans. In addition, right wing newspaper The Sun, called plans to cut tax credits ‘Bonkers’, and the Adam Smith Institute argued that cutting tax credits undermines incentives to work, which is contrary to the governments narrative of making work pay.

The Adam Smith Institute produced a report titled: Free Market Welfare: The case for a Negative Income Taxarguing that, rather than cutting tax credits, the government should replace tax credits, Jobseeker’s Allowance, the Universal Credit, and most other major welfare payments with a single Negative Income Tax.

The Negative Income Tax isn’t a new idea. The idea was famously put forward by well-renowned economist Milton Friedman, over fifty years ago. However, perhaps now is the best time to consider adopting the plan.

What is it?

The Negative Income Tax (NIT) is a tax system which guarantees a minimum income for all. If someone is earning below a certain level, that person receives a credit from the government, guaranteeing them a minimum income. The great thing about NIT is that it bridges the gap between the left and the right. NIT provides a minimum income to individuals or families – satisfying the left, in a business friendly, free market way – which satisfies the right. Not only does the system lower the tax burden for all, reduce administration costs and balance the budget, it also radically simplifies the overly complex tax code, and bloated welfare bureaucracy.

Here’s an example of how it would work if the tax rate is a flat 25%, and if individuals receive £10,000 credit:

  • A person who earns £0 would pay £0 tax and would receive a £10,000 credit, making a total of £10,000
  • A person on minimum wage, who works 40 hours a week. would earn £13,520 per year. 25% is owed in taxes, so £2,380. They would receive a £10,000 credit, making a total of £21,140.
  • A person who earns £40,000 per year would owe £10,000 tax and would receive a £10,000 credit, making a total of £40,000. At this point they have broke even. Anyone earning above £40,000 would become real taxpayers.
  • A person who earns £100,000 would owe £25,000 tax, receive £10,000 credit, making a total of £85,000.
  • A person who earns £1,000,000 would owe £250,000 tax, receive £10,000 credit, making a total of £760,000.

Note, these figures have just been used as an example and for ease of maths, I am not advocating these numbers to be used.

As we can see, no one would earn less than a certain amount, in this case £10,000 a year, which would go a long way to solving the problem of homelessness and poverty. Rather than having different benefits and different welfare programs for different things, NIT replaces all these with a single payment. As Friedman once said: “Nobody spends somebody else’s money as wisely as he spends his own”, thus individuals have the freedom to determine how the minimum income they receive is spent.

In addition, instead of destroying incentives to work, like a lot of current welfare programs do, NIT always provides an incentive to work and earn more. NIT could also replace the need for a national living wage, and even national minimum wage, which economists have long argued destroys jobs and makes it harder for young people and low skilled workers to get work.

Jeremy Corbyn: A libertarian view

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With staunchly left-wing candidate, Jeremy Corbyn increasing his lead in the polls, it looks likely that he will become the next leader of the Labour party. Not many would have predicted Corbyn’s rise to the top of the Labour party; just over a month ago bookmakers had Corbyn at 100-1 to win the leadership election, however he is now the strong favourite to take the role. The initial reaction of a typical libertarian is to face-palm and cry out “Socialism does NOT work!” However, upon further analysis, he does share some similarities with libertarians. and a Jeremy Corbyn leadership of the Labour Party may not actually be a bad thing.

Firstly, unlike the vast majority of politicians, he seems to be a decent and honest man who has a strong set of principles.  Regardless of whether you agree with his principles or not, it is refreshing to see a politician with a strong set of beliefs that he passionately believes in, and who speaks like a human being, not like a politician that has a strict team of campaign advisors rehearsing every sentence. Unlike most politicians, Corbyn does not shape his policies by toeing the party line, or by wetting his finger to see which way the wind of public opinion is blowing. He believes in his ideology, and the establishment hate him for it. The powers that be within the Labour party are desperate for Corbyn to not become leader. According to Tony Blair, the Labour party faces “annihilation” if Corbyn wins leadership; similarly Alastair Campbell has called upon voters to choose “anyone but Corbyn.” There is a resistance to Corbyn by the status quo, which libertarians can emphasise with.

Secondly, putting aside Corbyn’s disastrous economic policy, there is some common ground with libertarians. Corbyn follows a relatively non-interventionist foreign policy – he was passionately opposed to the Iraq war, and is against the idea of Britain doing whatever the U.S. asks it to. However, Corbyn does seem a little bit too friendly towards Hamas, unlike Libertarians who remain neutral towards both sides. Corbyn is also a Eurosceptic and has refused to rule out campaigning to take the UK out of the EU. Most libertarians see the EU as corporatist and undemocratic, and the left are finally beginning to agree. Corbyn has also pledged to cut taxes for small businesses, and has rallied against corporatism – the unity between the state and corporations.

Lastly, one of the most exciting prospects of a Corbyn Labour leadership, in my opinion, is the potential of a mainstream public debate over Socialism vs. Capitalism. Rather than the blandness of ‘he said, she said’ party politics that we usually see today, we would have an actual philosophical debate over the flaws and merits of both systems. See for example this Oxford university debate between Corbyn and Daniel Hannan about whether or not Socialism works:

In Defence of Uber

Taxi service Uber is coming under increasing pressure and resistance from politicians, taxi companies and the media. Critics complain that the company is ‘unsafe’, ‘unfair’ and ‘unregulated’. However, the most likely reason why there is resistance to Uber, is because Uber is providing a better service than the cab companies, and at lower prices. The reason why Uber came to be in the first place was because there was a demand for something new. For too long, taxi companies were too expensive and provided a mediocre service as a consequence of the lack of competition and mountains of regulation. When Uber came along, it was fresh and ideal for the modern world. It had inventive and resourceful features, such as the use of the smartphones GPS system, along with extremely short waiting times, that caught the imagination of the consumer, allowing the company to gain worldwide success. With the push of a button, an Uber taxi can arrive at your location within a couple of minutes. In response to the criticisms leveled at Uber, founder Travis Kalanick explained: “When new technology comes into an industry that has pretty much been the same for fifty or sixty years, you are going to come up against resistance, usually from incumbents that are in that industry.”

Public figures such as Hilary Clinton and Russell Brand, have come out in opposition to Uber. What is most confusing about the critics on the left, is that we often hear them complaining about the problems with monopolies; yet at the same time, they will advocate the restriction of new companies from entering the market. Government interventions in the form of regulations and licencing have the effect of increasing prices and barriers to entry, which is why cab companies have been able to get away with high prices and poor service for so long.

In addition, the criticism that Uber is unregulated is true in the case of government regulations, however it is untrue to claim that Uber doesn’t have any regulations at all. The regulation comes from the market. If the service is good and customers are satisfied then the company will prevail. On the other hand, if it does not, Uber will lose business. That is what the free market is all about. The success or failure of a company depends upon the consumer.

I do have sympathy for the taxi companies that are losing out, and the drivers who are losing their jobs however. There is some truth in the claim that competition is ‘unfair’, but people are looking at it the wrong way. In order for these cab companies to survive, the playing field ought to be leveled. However it would be a mistake to do so by increasing regulations on Uber and essentially outlawing competition. On the contrary government regulations need to be relaxed in order for the cabs to have a fighting chance. With cab companies free from the excessive regulations of government, they will be free to legitimately compete with Uber in the free market. When that happens it is we, the consumer that will benefit the most.