Taxing poverty is wrong — lift low earners out of National Insurance

16 January 2014 

Whoever wins the next general election can raise living standards by cutting National Insurance for low and middle income earners, a new report from CentreForum argues.

The think tank says that lifting people out of National Insurance is the most progressive form of direct tax cut, as it will provide the most help for low earners and ease living cost pressures for the "squeezed middle".

The report shuns Labour's plan to revive the 10p income tax band. And it says that future increases in the income tax personal allowance — the flagship policy of the Liberal Democrats in coalition with the Conservatives — should come second to National Insurance cuts.

By April, the coalition government will have raised the personal allowance from £6,475 to £10,000 in four years. But Lib Dems are now hinting it should be lifted further towards £12,500 — roughly the annual full time equivalent of the National Minimum Wage.

The report acknowledges that personal allowance increases are fairer, in distributional terms, than reducing the basic rate of income tax or Labour's 10p tax band proposal.

But it says more must be done to target the benefits of the policy on the low paid. It cautions that poorer households will see little benefit from future personal allowance increases because of corresponding reductions in Universal Credit.

Moreover, eligibility for workplace pension auto-enrolment is linked to the personal allowance threshold. This means further increases could harm low paid workers' pension saving, the report warns.

CentreForum also rejects the notion of linking the personal allowance to the National Minimum Wage, suggesting there are more appropriate thresholds that better relate to living standards. A sensible alternative, it says, would be to take the absolute poverty line — which is just over £10,000 — out of all income tax and National Insurance.* 

It argues that raising employee, employer and self-employed National Insurance thresholds to the same level as the income tax personal allowance, and then to the poverty line, would simplify the tax system and cost less than linking the personal allowance to the minimum wage.

Cutting employer National Insurance could even allow for an increase in the minimum wage of up to £600 a year, it adds.

Adam Corlett, Economics Researcher at CentreForum and report author, said:

"It's crucial to get these expensive tax cuts right, and they should be focused as far as possible on poorer workers. The policy case for favouring National Insurance cuts is clear and could take the absolute poverty line out of all direct tax."

* In 2014/15 the absolute poverty line for one adult will be around £10,050

NOTES TO EDITOR

The CentreForum report 'Making allowances: tax cuts for the squeezed middle' by Adam Corlett can be accessed via this link.

CentreForum calculates that raising all National Insurance thresholds to £10,000 will cost £8.8 billion a year. This is less expensive than raising the income tax personal allowance from £10,000 to the National Minimum Wage (currently £12,338) which will cost over £11 billion.

However, the National Insurance policy will carry a smaller price tag if specifically targeted at low income workers. CentreForum's proposal will cost around £2.5 billion (excluding employer National Insurance) as it involves increasing National Insurance rates so that the benefits are tapered away from higher earners.

People on low incomes — around 1.5 million of them — would gain from National Insurance cuts but not at all from further personal allowance increases or the introduction of a 10p band. (Note that raising the National Insurance thresholds would not affect state pension and other benefit entitlements.)

In contrast to the personal allowance of £10,000, National Insurance begins at just below £8,000 and one form of self-employed National Insurance starts at under £6,000. Those on incomes of up to £13,000 currently pay more in employee National Insurance than income tax.

Mental health stigma persists in Britain's workplaces, MP warns

29 December 2013

Paul Burstow MP, Chair of the CentreForum Mental Health Commission, urges action on "jobs gap" affecting people with mental health problems
New survey data adds weight to government findings on persistence of mental health stigma in the workplace

Workplace stigma remains a significant worry for people with mental health problems, new research shows.

Survey data collected by the CentreForum Mental Health Commission paints a troubling picture of mental health service users' experience of employment.

  • 63% of respondents said they had been treated unfairly in finding a job.
  • 65% said they were concerned about what people at work may think, say or do if their mental health condition became known.
  • 75% said they had stopped themselves from applying for work for fear of how potential employers might respond to their mental health condition.
  • 84% said they had stopped or delayed receiving professional care for a mental health problem over concern it would harm their chances when applying for jobs. Nearly half (49%) had done this a lot.
  • 61% reported they had stopped themselves applying for education or training courses.

These findings add weight to government research published in early December. The government's first 'mental health dashboard' stressed that stigma around mental health problems has yet to be booted out of the workplace, and the consequences are severe.

It found that the cost of mental health to business is just over £1,000 per employee, or almost £26 billion across the UK economy, each year. But it added that more effective management of mental health at work could save around 30% of these costs.

Paul Burstow MP, Chair of the CentreForum Mental Health Commission and former Care Services Minister, said:

"People living with severe and enduring mental illness get a raw deal. A 20 year gap in life expectancy is the result of NHS neglect of their physical health needs. Just as worrying is their experience of employment with many more people wanting to work than do. This jobs gap can be tackled with practical help."

In response to its survey findings, the CentreForum Mental Health Commission makes three cost neutral recommendations:

  • Central government departments and agencies should be required to meet the best employer practice in regards to mental health. They should be required to join the Time for Change campaign and the Mindful Employer scheme forthwith. Some have already signed up, but all should be compelled to do so.
  • Commitments already in place to require front line contractors to sign up to mental health schemes should be extended to all employers seeking to deliver contracted services tendered by government.
  • Government should place added pressure on local authorities to introduce similar requirements on existing and prospective employers within the formal tendering processes they adopt.

NOTES TO EDITOR

* CentreForum's Call for Evidence factsheet can be accessed here.

** Mindful Employer was developed by employers in Exeter and launched in 2004. It is run by Workways, a service of Devon Partnership NHS Trust. For more information, visit www.mindfulemployer.net

Immigration policy a nightmare for UK business, says think tank

23 December 2013

Current immigration policy is choking business growth for zero political gain, a new report from CentreForum warns.

In the first of three publications aimed at setting a 'liberal' immigration agenda for 2015, the think tank urges the next government to focus on the quality, not quantity, of skilled workers coming to Britain from outside the European Union.

The report joins calls to scrap the Conservative led policy of reducing net migration to "the tens of thousands each year". It says this policy is impossible to fulfil, aggravates distrust in the immigration system and makes it harder for businesses to employ the "brightest and the best". Migrant groups that the government finds it easiest to restrict are those that cause the public least concern, it adds.

In a bid to identify how non-EU migration can be better managed, CentreForum undertook research with business, trade associations and unions. Set out in the report are a number of ideas for cutting red tape, promoting jobs, exports and growth, and making the immigration system more customer friendly.

However, one of the main complaints respondents raised was the "permanent revolution" in immigration policy. The report therefore urges a moratorium on immigration changes, at least until after the 2015 election, so that the system can bed down and businesses can get used to current rules.

In addition, the report pushes for changes in the way immigration statistics are gathered to get a clearer picture of arrivals and departures. It says the use of the International Passenger Survey to estimate numbers of migrants is particularly hopeless, and the government must improve data collection to generate accurate and comprehensive migration statistics.

It argues that students and migrants on intra company transfers, who are not seeking indefinite leave to remain in the UK, should be removed from the figures.

Tom Papworth, report author and Associate Director, Economic Policy, at CentreForum said:

"The government's immigration policy is at odds with its ambition to grow the economy, create jobs and shrink the deficit. It needs to focus on quality, rather than quantity. It has a duty to collect accurate, reliable statistics. And it needs to reverse the poor customer service and bad policy design that is harming UK competitiveness."

"Having done so, the government needs to stop and allow businesses to catch their breath. The permanent revolution in immigration policy is a nightmare for businesses seeking to comply with the rules."

NOTES TO EDITOR

The report 'The business case for immigration reform' by Tom Papworth is available via this link.

FE colleges failing disadvantaged learners

11 December 2013

Further education colleges must do more to help underachieving school leavers pass GCSE English and maths, according to a new report from CentreForum.

‘Smarter accountability in Further Education’ suggests that colleges are uniquely placed to be “engines of social mobility” as many of their learners come from disadvantaged backgrounds and have left school with poor literacy and numeracy skills. Yet it finds that colleges are not currently fulfilling this role.

The report warns that the new requirement for 16-18 year olds to continue studying English and maths if they achieve less than C grade risks being a “tick box exercise”. This is because the government has excluded literacy and numeracy from the top line performance measures for post-16 education, it says.

The report argues that, while their remit is unavoidably wide, colleges’ attention must be fixed on individuals who have fallen behind in English and maths. It says that helping these individuals catch up by the time they leave college will strengthen their chances of getting a job.

To that end, the report urges the government to rethink its approach to accountability in further education and make English and maths GCSE results a key performance measure for colleges. It calls on Ofsted to be much tougher on colleges that fall short on improving learners’ literacy and numeracy skills. Colleges that operate in areas with a high NEET* rate should be not be considered as 'good' or 'outstanding' by Ofsted, the report says.

The report also calls for stronger links to be established between colleges and the business community, and for businesses to step in when a college is shown to be underperforming. It points to earlier CentreForum research which stressed the importance of bringing industry into the classroom to equip learners with the skills needed for employment.

Sam Cannicott, report author and CentreForum research associate, said:

“The government is right to expect young people without good GCSEs in English and maths to continue studying these subjects. But the new accountability measures fall short. It is the top line measures that will drive colleges' behaviour, yet literacy and numeracy provision is excluded from them. There is a now a risk that the new requirement could turn out to be little more than a tick box exercise.”

“For many young people, colleges provide the last opportunity to develop their English and maths skills to the levels expected by employers. For that reason, colleges have what is essentially a moral responsibility to focus on delivering excellent provision in these areas.”

*NEET (Not in education, employment or training)

NOTES

The CentreForum report ‘Smarter accountability in Further Education’ by Sam Cannicott is available here.

CentreForum is an independent public policy think tank and Prospect Magazine's UK Economic and Financial Think Tank of the Year 2013.

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