Why dropping personal tax and paying everyone £48 per week is our best bet at reducing poverty

The New Economics Foundation’s proposal would give those neglected by benefit cuts a weekly safety net, and the shadow chancellor is right to support it

The new report released today by the New Economics Foundation represents a big leap forward in terms of addressing long standing issues with our tax system.

It argues for the abolition of the personal tax allowance and its replacement by a “national allowance” of £48 weekly to everyone aged 18 or over with an income under £125,000 a year; and for the partial restoration of the value of child benefit – a rise of £4.20 a week for the first child, £2.70 for children after that.

Given the game-changing nature of the proposal, it’s not surprising shadow chancellor John McDonnell labelled it “just the kind of innovative thinking we need on how to fix the imbalances and problems of our tax system”.

But digging into the detail, the gains for people who need means-tested benefits are more ambiguous.

Very much at pains to distance itself from the basic income debate, which the report says has “unfortunately” dominated the big-picture policy proposals lately, it does put forward what many would describe as a “partial” basic income, and is without a doubt a response to those conversations.

Most of the current basic income schemes in the UK suggested by the Citizens Basic Income Trust, RSA and Compass also use the abolition of the personal tax allowance to part-fund their schemes.

Although the National Allowance would not go to every individual, it would give anyone under that £125,000 threshold a regular small income they could count on. This would certainly help carers, especially women, who are not also working in a job. Particularly because these are people who gain nothing from the tax allowance now, and whose contribution to society – some £1 trillion in unpaid hours – is completely unrecognised in economic terms.

The National Allowance would also help people affected by a far too neglected aspect of the benefit cuts – those whose disability or other benefits have been summarily axed either through the capricious sanctioning regime or by being deemed ineligible for Employment and Support Allowance after an assessment.

At the moment, claimants lose everything – as highlighted in the film I, Daniel Blake as well as a number of reported cases – for up to several months while challenging those decisions.

It will also come as a relief for people dealing with either tax credits or universal credit, which were designed with an income cliff-edge of on average only £20,000 a year, after which they are deemed to be overpaid and asked to pay the money back.

And self-employed people on universal credit, which demands a “minimum income floor” of the equivalent of 35 hours per week at minimum wage before qualifying for it, will also at least have some money they can count on each week.

The other, highly neglected group of people this would help are those who do not claim the benefits they are entitled to – some 60 per cent of unemployed people, a similar proportion of pensioners, and 20 per cent of disabled people.

Many people don’t claim until they have reached their credit limit, not just with financial institutions but also with family and friends, which puts those vital relationships in danger, and makes living on benefits much more difficult.

Where things get a bit less wonderful, however, is in the suggestion that the National Allowance should count as “earned income” for the calculation of benefits, which will reduce its value for the poorest at a withdrawal rate of 65 per cent.

Cuts to and the freeze on benefits have cost families up to £3000 a year, and while the National Allowance would go some way towards addressing those loses, it does not completely restore them.

Plus, unlike basic income where there is no withdrawal rate, this makes the National Allowance less transparent, and a less powerful incentive to work or start a small business.

The National Allowance proposal is definitely a step in the right direction however, and for that reason, I welcome it.

Barbara Jacobson is a welfare rights advisor for a small charity in central London, and a co-ordinator of Basic Income UK