Recently, the New Economics Foundation (NEF) claimed that if the Government replaced the personal allowance of income tax and replaced it with a weekly national allowance, up to 200,000 of the poorest families could be lifted out of poverty. They proposed a weekly cash payment of £48 in an attempt to shift £8bn currently spent on tax allowances for the top 35% income families to the remaining 65%.
A costly change to personal allowance, proposed at the Autumn budget, will see the threshold raised to £12,500. This change is estimated to cost £111.2 bn in the 2019/20 period alone. Instead, the NEF proposes that this money should be used to fund the Weekly National Allowance. This would mean a sum of £2,500 paid to everyone outside the richest 1%.
This change would benefit all families, the poorest 10% of people would see an increase in disposable income of £1,160 per year (£20 a week). Also, on average, every family type within the poorest 25% of households would see a rise in their income. This combats the increase in personal allowance as the top 10% richest families will have their tax liabilities reduced by almost £6,500 whereas the poorest 10% will only see a reduction of £600.
Quote from Nigel Holland:
“This proposal seems great until you see the effects it has on other families. With the personal allowance scrapped, the threshold for higher rate of income tax would decrease from £50,000 to £35,000, putting a lot of middle class families out of pocket. Though more needs to be done to help the lowest earners, costing other people mass amounts of money is not the solution.”