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LITRG argues for a comprehensive review of travel expenses - a particularly difficult area for the low-paid due to tax, National Insurance, National Minimum Wage and means-tested benefits interactions.

National Minimum Wage consultation

Earlier this year, the government launched a consultation ‘National Minimum Wage Workers – Travel and Subsistence Expenses Schemes’.  

This seeks to introduce from 1 October 2010 a change in the National Minimum Wage (NMW) regulations to exclude travel and subsistence expenses paid by employers to lower-paid employees.  This change is broadly targeted at employers and agencies operating certain ‘schemes’. 

However, we are concerned that the consultation document fails to separate several key issues, and we have long argued that a comprehensive review of travel expenses is needed rather than piecemeal change. 

Due to differences in calculating income and allowances for tax, National Insurance, NMW and means-tested benefits, the current system can produce some arguably illogical results which make matters almost impossible for most workers to understand.  This can in turn mean that people make poor choices when offered ‘salary sacrifice’ arrangements by their employers, through failing to appreciate the consequences of their decision.  A lack of information from government contributes to this problem. 

The bigger picture

There are many considerations which the consultation does not take into account.

It does not look at the tax and National Insurance issues of travel and subsistence ‘schemes’, on which the government consulted in 2008.  But we argue that these cannot be ignored.

Agency workers might have little choice in where work is available in relation to where they live and incur high and fluctuating travel costs.  In our recent response to a DWP consultation on housing benefit reform, we noted that high travel costs can be a major disincentive to work.  The schemes now targeted in this consultation can, in some cases, alleviate part of this disincentive by linking employments thus allowing access to tax and National Insurance reliefs for what would otherwise be treated as ‘travel to work’ costs. 

Whilst we do not endorse exploitation of workers by employers who abuse the rules, we fear that the proposals noted in the current consultation could have an adverse effect on many low-paid workers if we envisage that employers’ response to the change in NMW regulations would be to revert to standard agency arrangements.  In so doing, low-paid existing scheme participants could lose employment rights, pay additional tax and national insurance, and lose out on tax credits.  There might also be knock-on effects to other means-tested benefits depending on how local authorities are currently interpreting the expenses paid under travel and subsistence schemes.  

At a time when encouraging people into work and keeping them there is high on all the main political parties’ agendas, we would not wish to see a change which could tip the balance for some in favour of moving back onto benefits. 

Forward thinking

Although not specifically mentioned in our consultation response, we think that in addition to addressing the existing problems noted above, government would be wise to think ahead a little.

The basic travel expenses rules for tax were set out in the Income Tax Act of 1853 and remain largely unchanged today.  Only comparatively recently was the tax relief for a man who keeps a horse in order to perform the duties of his employment abolished and tax rules do not cope easily with business people stranded by clouds of volcanic ash.   

As we have indicated earlier, travel expenses can be a deal-breaker for someone wanting to move off benefits into work.  Should the benefits system meet those expenses as a transitional measure and, if so, how would that impact on the tax rules?

Increasingly technology allows people to work from home or at other remote locations and the environmental agenda grows in importance.  So, without tax and benefits law having even caught up with the status quo, how long will it be before today’s working patterns are a thing of the past?

We would urge the government not to leave it another 150 years before we finally see the review we have requested. 

Useful links

National Minimum Wage Workers – Travel and Subsistence Expenses Schemes – the HM Government consultation document

LITRG’s full response to the consultation

Travel Expenses – to relieve or not to relieve? – LITRG’s 2008 article and consultation response

Cross-government collaboration needed to get people into work – LITRG’s earlier article