TPA welcomes Iain Duncan Smith's proposals for radical reform of welfare and argues reforms can save money for taxpayers

July 30, 2010 1:12 PM

To
book an interview with a TPA spokesman call
07795 084 113

The TaxPayers' Alliance (TPA) today welcomed the 21st Century Welfare report
released this morning by the Department for Work and Pensions (DWP) which cites
TPA research and argues for a major simplification of the benefit system. 
The proposal in the recent major TPA report Welfare
Reform in Tough Fiscal Times
is cited as the illustrative example
of a "single benefit/negative income tax model".

The TPA has
made benefit reform a priority for their research and campaigning.  In the
TPA Manifesto
reforms to taxes and benefits were set out as one of the TPA's priorities for
this Parliament.  At the same time, the TPA has also been a key voice
arguing for cuts in spending to address the fiscal crisis and secure better
value for taxpayers, and therefore does not believe welfare reform should
increase spending.

Welfare
Reform in Tough Fiscal Times
pointed to five key failings of the current system,
which fails the poorest families:


1.   It is too
complicated
, with more than 50 different benefits (the take-up rate
for Working Tax Credit is only 57 per cent)

2.  
It is poorly administered,
with fraud and error costing £4.5
billion
each year

3.  
It’s unfair on couples
because some lose up to £1,336
by living together

4.  
Those who work and progress in work are financially penalised, the minimum wage of £5.80 an hour can
be worth as little as 26p


5.  
The number of people living in severe
poverty
has increased from 5 per cent to 6 per cent in the last
decade

Click here to read the full
TPA report


The report describes how
the ‘iron triangle
of benefit reform means it is generally only possible to fulfil two of these three objectives at
any one time: directly raise
the incomes
of the poor, increase
the employment
of the poor and reduce welfare spending
Employment is the most sustainable way out of poverty, and at a time when the
government is trying to save money, reducing welfare spending is essential.




This new paper proposes
a single negative
income tax
, shows how it could be administered and provides a
model of costs for various tax levels and taper rates (see table below).  High taper rates put people off work,
our preferred option is a 55
per cent taper
, whilst reducing
the poverty line to 50 per cent of median income
(costing £62
billion, a saving of
£1.7 billion
, even before getting more people into work). The
cost of the benefits that the proposed negative income tax would replace, under
the existing system, is £63.7
billion
.


The cost of the TPA’s Negative Income Tax
Proposal in 2007-08
(£ billions)




Matthew Sinclair,
Research Director at the TaxPayers’ Alliance, said:


"It is great news that Iain Duncan Smith has not backed down
from radical reforms, of the kind recently recommended by the TaxPayers'
Alliance,  to benefits that are costing taxpayers a fortune but failing
the poorest.  Continuing to trap people in the treacly complexity of a
welfare system that has suffered from too many sticking plasters over the years
just isn't acceptable, and a new approach is clearly needed to get people back
into work.  But with taxpayers struggling under a rising tax burden and
the public finances in a crisis thanks to sharp rises in spending over the last
decade, more money just isn't there to smooth the path.  It is vital that
the Government make the tough choices that would make it possible to reform
welfare and save money now.



To discuss TPA research
into welfare reform or to arrange broadcast interviews, please contact:


Matthew Sinclair,
Research Director of the TaxPayers' Alliance, on 07771 990 174 or at matthew.sinclair@taxpayersalliance.com


Or direct media enquiries to 07795
084 113



Notes to editors:

1. The
TaxPayers' Alliance (TPA) is Britain's independent, non-partisan campaign for
lower taxes and better services. Founded in 2004, it has over 55,000 supporters
nationwide.


2. The
recent major TPA report on welfare, cited in today's DWP paper, can be found
here
: http://www.taxpayersalliance.com/welfarereform.pdf

3. Severe
poverty
is defined as living on 40 per cent or less of median
income.


4. The TPA Manifesto, which lays out policies the
new Government should pursue in the first 3 months, 1 year and 5 years in
power, is online here: http://www.taxpayersalliance.com/tpamanifesto.pdf


5. The TPA report is
cited as the illustrative example of a "single benefit/negative income tax
model" on page 25 of the new Department for Work and Pensions report 
21st Century Welfare.

To
book an interview with a TPA spokesman call
07795 084 113

The TaxPayers' Alliance (TPA) today welcomed the 21st Century Welfare report
released this morning by the Department for Work and Pensions (DWP) which cites
TPA research and argues for a major simplification of the benefit system. 
The proposal in the recent major TPA report Welfare
Reform in Tough Fiscal Times
is cited as the illustrative example
of a "single benefit/negative income tax model".

The TPA has
made benefit reform a priority for their research and campaigning.  In the
TPA Manifesto
reforms to taxes and benefits were set out as one of the TPA's priorities for
this Parliament.  At the same time, the TPA has also been a key voice
arguing for cuts in spending to address the fiscal crisis and secure better
value for taxpayers, and therefore does not believe welfare reform should
increase spending.

Welfare
Reform in Tough Fiscal Times
pointed to five key failings of the current system,
which fails the poorest families:


1.   It is too
complicated
, with more than 50 different benefits (the take-up rate
for Working Tax Credit is only 57 per cent)

2.  
It is poorly administered,
with fraud and error costing £4.5
billion
each year

3.  
It’s unfair on couples
because some lose up to £1,336
by living together

4.  
Those who work and progress in work are financially penalised, the minimum wage of £5.80 an hour can
be worth as little as 26p


5.  
The number of people living in severe
poverty
has increased from 5 per cent to 6 per cent in the last
decade

Click here to read the full
TPA report


The report describes how
the ‘iron triangle
of benefit reform means it is generally only possible to fulfil two of these three objectives at
any one time: directly raise
the incomes
of the poor, increase
the employment
of the poor and reduce welfare spending
Employment is the most sustainable way out of poverty, and at a time when the
government is trying to save money, reducing welfare spending is essential.




This new paper proposes
a single negative
income tax
, shows how it could be administered and provides a
model of costs for various tax levels and taper rates (see table below).  High taper rates put people off work,
our preferred option is a 55
per cent taper
, whilst reducing
the poverty line to 50 per cent of median income
(costing £62
billion, a saving of
£1.7 billion
, even before getting more people into work). The
cost of the benefits that the proposed negative income tax would replace, under
the existing system, is £63.7
billion
.


The cost of the TPA’s Negative Income Tax
Proposal in 2007-08
(£ billions)




Matthew Sinclair,
Research Director at the TaxPayers’ Alliance, said:


"It is great news that Iain Duncan Smith has not backed down
from radical reforms, of the kind recently recommended by the TaxPayers'
Alliance,  to benefits that are costing taxpayers a fortune but failing
the poorest.  Continuing to trap people in the treacly complexity of a
welfare system that has suffered from too many sticking plasters over the years
just isn't acceptable, and a new approach is clearly needed to get people back
into work.  But with taxpayers struggling under a rising tax burden and
the public finances in a crisis thanks to sharp rises in spending over the last
decade, more money just isn't there to smooth the path.  It is vital that
the Government make the tough choices that would make it possible to reform
welfare and save money now.



To discuss TPA research
into welfare reform or to arrange broadcast interviews, please contact:


Matthew Sinclair,
Research Director of the TaxPayers' Alliance, on 07771 990 174 or at matthew.sinclair@taxpayersalliance.com


Or direct media enquiries to 07795
084 113



Notes to editors:

1. The
TaxPayers' Alliance (TPA) is Britain's independent, non-partisan campaign for
lower taxes and better services. Founded in 2004, it has over 55,000 supporters
nationwide.


2. The
recent major TPA report on welfare, cited in today's DWP paper, can be found
here
: http://www.taxpayersalliance.com/welfarereform.pdf

3. Severe
poverty
is defined as living on 40 per cent or less of median
income.


4. The TPA Manifesto, which lays out policies the
new Government should pursue in the first 3 months, 1 year and 5 years in
power, is online here: http://www.taxpayersalliance.com/tpamanifesto.pdf


5. The TPA report is
cited as the illustrative example of a "single benefit/negative income tax
model" on page 25 of the new Department for Work and Pensions report 
21st Century Welfare.

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