The surprising way that a Flat Tax will benefit the Welsh NHS

Discussions about tax and the NHS usually focus on how to raise as much as possible of the former, to spend on the latter.

Discussions about Gwlad’s unique policy of Citizens’ Income and Flat Tax tend to concentrate on the former (i.e. the income), and ignore the latter (i.e. the tax) altogether. Yet the two are tightly bound together. As I’ve attempted to explain elsewhere, our intention is not, in fact, that individuals should end up paying significantly more or less net tax than they do already. Even so, we believe that even without altering the overall tax burden, this unique Citizens’ Income/Flat Tax combination will prompt changes in behaviour that will bring real benefits to the economy.

In this article I hope to explain how this relates directly to the NHS.

Beware the bear traps

The principle of taxation is supposed to be simple: the more you earn, the more you pay, so that richer people bear more of the burden of running the State than poor people do. In the UK as a whole, the top 1% of earners pay 28% of total income tax, and few people have much of a problem with that.

In fact the amount of tax paid by the wealthiest in society nowadays is much greater than it was in the 1970s, despite the percentage rates being much lower than they were then. Lower rates give less incentive for tax avoidance and promote investment and enterprise. In 1976, when under Jim Callaghan’s Old Labour government the top rate of income tax was 83%, the top 1% of earners only bore 11% of the burden. Truly, lower and flatter taxes are more ‘progressive’, and our tax system today is a huge improvement on that of the 1970s.

Even so, it has some weird anomalies. As has been pointed out recently on the BBC’s Money Box programme (item starts 13 minutes and 25 seconds into the link), and in the Financial Times, the complex interplay of tax rates and pensions relief can lead to people who earn over £110,000 a year facing huge unexpected tax bills as a result of only modest increases in income. In one documented case, someone whose salary totalled £110,003 found themselves paying £13,000 more in tax than they would have done if their income had been just £3 less – a marginal tax rate of over 400,000%.

So who cares? Surely this only affects a tiny number of the super-rich.

The law of unintended consequences

Far from it. A significant number of NHS GPs and hospital consultants fall into precisely this bracket. And it presents the NHS with a real problem, since these are highly skilled and experienced people whose skills the NHS needs if it’s going to function properly; yet the tax system means that they’re better off staying home – or playing golf – than putting in extra shifts which would help the NHS clear its waiting lists or handle surges in demand.

And while this problem affects people on salaries over £110,000 the most, similar things happen lower down the income scale as well. Take people on salaries between £50,000 and £60,000 – well above the average wage, but there are still a lot of them, even in Wales, often doing jobs in healthcare or education that are vital to the smooth running of our society. The combination of the 40% tax band, and the withdrawal of child benefit to higher earners, results in many people with incomes in this range paying a 60% effective tax rate on any salary increases they obtain – something which that champion of the working class, the Guardian, sees as a real problem for its downtrodden readership.

For many qualified professional women with children, who work part time, that makes it really not worthwhile to increase their hours and earn more money. They may as well stay home. This, too, is probably not what the government intends, but it is a direct result of an over-complicated tax system which is designed to appear progressive, while not actually being so.

But if you put a Flat Tax – where all income is taxed at the same rate regardless of its level – and a Citizens’ Income together, then these anomalies go away. NHS staff can work all the hours they choose to without the risk of finding themselves worse off; women who work part-time have every incentive to raise their incomes and living standards without seeing their benefits eroded.

Yet no other party in the UK – perhaps in the world, as far as I know – advocates this combination, apart from Gwlad. Wales has led the world before today in the rule of law and in universal education: now it has the opportunity to do so in fair taxation and incentives to work as well.

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