Encouraging work

Our government currently takes such a large chunk of people's earnings, particularly amongst the low-paid, that many are discouraged from working.

Mainstream politicians think that the way to deal with this is to target benefits ever more closely at deserving groups. But unless you let people keep their benefits as they earn more money, you have to take the benefits away. And if you take benefits away from people as they earn more money, it has the same effect as taxing them.

Means-tested benefit withdrawal is effectively a tax. And, under our current system, the effective tax-rate on any extra money that a low-paid worker can earn (the "marginal rate") is often so high that it isn't worth trying to earn more. The means-tested benefits so beloved of all the mainstream parties are the cause, not the solution of our vicious poverty traps, which blight not just our economy but our society by trapping people in poverty and dependency.

The only way to get rid of the poverty trap is to get rid of the means-testing. Counter-intuitively, the best way to encourage work is to eliminate targeted benefits.

We propose a radical system (a "Basic Income plus Flat Tax") to replace a large part of our welfare system, income tax and National Insurance, and a redistribution of the tax burden (off work and onto consumption), which between them would eliminate high effective rates of tax at all levels of earnings, removing our poverty traps and encouraging work and productivity.