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In theory, it makes perfect sense to merge NI and Income tax. It would make the tax system simpler, and would close down a route by which taxes have been raised on the quiet in the past – increasing Income Tax tends to generate much more heat and light that hiking NI. However, the real world is a just a little bit more complicated. Here are three reasons why merging NI and Income Tax is more difficult – and politically risky – than it sounds:
- It will mean tax hikes for pensioners, unless there is a carve-out to compensate them for losses.
- Some people with more than one part-time job (usually low paid) will also lose out. NI is paid per employment rather than on total income. It will be more difficult to identify and compensate these losers.
- It would require another major government IT project, involving tens of millions of UK taxpayers. No need to worry about any risks there then.
So if I were Chancellor, I’d want to align NI and Income Tax thresholds before proceeding down this route. And I’d think about rebadging NI, branding it explicitly as a tax. Two small simple steps that could help pave the way for one big radical one.
Yesterday’s welcome announcement on schools funding takes me back – to when I first got involved with the Liberal Democrats nearly 15 years ago, working as a researcher to the then Truro and St Austell MP Matthew Taylor. (How did it suddenly get to be that long ago?!)
I wrote a report for him on a “Fair deal for Cornwall” – outlining all the ways which Cornwall doesn’t get it’s fair share of funding, and how much we missed out by.
Education was one of the starkest examples, where every Cornish pupil got hundreds of pounds less in funding every year than the national average.The fact that we were one of the poorest areas in the country didn’t seem to factor into the equation when it came to allocating money. If I remember correctly, the county was about £20m a year lower funded than the average.
Funding each year was – and still is – based on what areas received in the past, rather than on the basis of actual need. Meaning funding inequalities get reinforced every year rather than resolved, and pupils with similar needs can end up funded vastly differently. The system ends up being perpetuated because successive government have been too nervous at the turbulence (ie losers) that changing the funding system could generate. So the issue gets parked, rather than addressed.
The Pupil Premium was designed by the Liberal Democrats to be a significant first step in sorting this out. It gives money to schools based on the number of deprived pupils they teach – and in 14-15 schools in Cornwall stand to benefit to the tune of around £18 million.
Yesterday’s announcement on schools funding will give the county another £3.5m, by allocating a small chunk of schools funding on the basis of actually need rather than what they got in the past. It’s an important precedent, and a sign that perhaps we are finally moving towards the wider funding reform that we need and deserve. More resource means a better education for our young people, and the best chance of improving Cornwall’s long term economic prospects.