Thursday, 5 September 2013

Observations on Universal Credit - and why Citizens Income with Flat Tax is better.

An extra 32 hours for £50? Really?

Universal Credit is an attempt to replace a number of benefits with one single benefit - simplifying the system so saving time and money.

As with all big state IT projects, the implementation is a shambles
http://www.bbc.co.uk/news/uk-politics-23963867

But if it pays of in the long run, that will be forgotten, I just saw the figures in that story and thought I'd do a little analysis...

Graph showing how universal credit would fall as earnings increased

Which looks to me to say:-

The unemployed 20 year old gets £500 a month.

If he works 48 hours a month (12/week) at minimum wage (£6.25 an hour) he earns £300 a month (more than his rent!).

But with UC he will have a total of £700 a month so his 48hrs work have made him £200 better off - thats an extra £4.17 for each hour worked.

If he works 80 hours a month (20/week) at minimum wage he earns £500 a month (almost double his rent!).

But with UC he will have a total of £750 a month so his *extra* 32 hours have rewarded him an extra £50 a month... or a measly £1.56 an hour(!).

Or :-

Monthly
HoursPayslip RatePayslip TotalUCMonthly TotalReward Per Hour WorkedReward per Extra Hour Worked
0n/a0£500£500n/an/a
48£6.25/hr£350£350£700£4.17£4.17
80£6.25/hr£500£250£750£3.13£1.56

An extra 32 hours for £50? Really?

How about this instead?

With a real 'citizens income' the figures would look something like this:-

Monthly
HoursPayslip Hourly RateTotalTax at 30%Take homeCIMonthly TotalReward Per Hour WorkedReward per Extra Hour Worked
0n/a---£500£500n/an/a
48£5.25£252£76£176£500£676£3.67£3.67
80£5.25£420£126£294£500£794£3.76£3.67

So a fixed citizens income and a flat rate tax means workers keep 70% of every single £ they earn.

To simplify even further why not just tax the employer the 30% of their total wage bill - make the wage £3.67 and not tax the employees at all? I'd like to see people try to dodge their taxes with that in place!!

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