Saturday, 3 November 2012

On National Insurance and Child Benefit

There's recently been coverage in the media of a thing called 'The Living Wage', that is a wage upon which people can live comfortably, a somewhat higher wage than the current minimum wage. By a quirk of statistics, the Living Wage is within a few pence of what the take home amount of the minimum wage if it wasn't taxed. That is, if people on minimum wage didn't pay income tax, they'd be taking home the living wage.

Fiscally, I'm a big fan of raising the income tax threshold to £16,000 or so, enough to take the minimum wage earners out of the tax system. And then, with feelings of generousity, I'd raise the threshold to the median wage, so the poorest half of the UK paid no income tax, and the rest pay the rest of it, at whatever rate balances the books.

However, I'm not the chancellor, and I have doubts. There's the whole concept of National Insurance, which I still believe is an insurance scheme and not just a different name for tax. I feel that all earners, no matter what their income, should be paying national insurance, like putting away a little bit each pay day, for when they fall ill, or become unemployed or otherwise fall on hard times.

And here we land at the problem with Child Benefit. Within twelve months, those earning £50,000 or more will not receive Child Benefit. Whether or not this is fair depends entirely on whether that money comes from taxes or national insurance.

If its from the National Insurance Fund then it ought to be a universal benefit, paid for all children regardless of their parents' income. Imagine if you paid for insurance on your car or your house, and then when disaster strikes, the insurance company turned round and said, no, you can afford to repair or replace without the insurance money so we're not paying up. In which case, I imagine you would do your damnedest to ensure that the insurance company never received a penny from you.

But if Child Benefit is paid from tax, then fair enough, deprive the rich of it benefit, as they are paying for everyone else's services anyway, its part of the package, part of the deal you sign up to when choosing how closely you comply with a country's tax regime*. The tax rates vary regularly anyway so any gains or losses are transient rather than long term.

It appears that Child Benefit is not paid from the National Insurance Fund, and is administered by HM Revenue and Customs and so is paid from tax.

In order to hold views such as this I try to indulge tax avoidance as little as possible, I don't give money to charity, I don't use GiftAid, and I don't keep my savings in an ISA.

*Its widely believed that only the rich can take advantage of tax regimes in different countries to maximise their wealth. I believe this is untrue as I've worked for minimum wage in factories where the vast majority are workers who've travelled thousands of miles from far off lands to work for minimum wage and then send a proportion of their earnings back home to ensure their families have a higher quality of life. This is the same package as Sir Philip Green's wife living in Monaco receiving the benefits of the Arcadia group in the UK.

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