Tag: New Economics Foundation

The tax-free personal allowance, which rises to £12,500 in April, should be scrapped and replaced with a flat payment of £48 a week for every adult, according to radical proposals welcomed by shadow chancellor John McDonnell. The proposal, from the New Economics Foundation thinktank, is for a £48.08 “weekly national allowance,” amounting to £2,500.16 a year from the state, paid to every adult over the age of 18 earning less than £125,000 a year. The weekly payments would be fully funded by the abolition of the tax-free personal allowance, which has seen inflation-busting increases under the Conservatives over the past 10 years, but which NEF said had benefited richer households most. This is worth £2,500. Costing more than the whole of defence, local government and the Department for Transport combined and enriching the highest income households almost seven times faster than the poorest.” The leftwing thinktank, which has developed close links with Labour to become a key influencer of shadow Treasury thinking, estimates the current cost of the tax-free allowance is as much as £111.2bn. The policy is likely to face opposition from some voters, as it would also mean bringing down the threshold for higher-rate taxpayers from £50,000 to £37,500. McDonnell said: “This is just the kind of innovative thinking we need on how to fix the imbalances and problems of our tax system. The Treasury said the personal allowance has removed nearly 2 million people from income tax, and that income inequality in Britain is falling. In a statement, it said: “We’re raising the personal allowance one year early, which will mean that by April this year, 1.7 million income taxpayers will have been taken out of tax altogether since 2015-16. In 2019-20, the lowest income households will receive over £4 in public spending for every £1 they pay in tax on average, and the highest income households will contribute over £5 in tax for every £1 they receive in public spending on average.