Thursday, March 22, 2007

The Budget, The devil is in the detail

The problem with Gordon Brown's last budget is that the devil is in the detail.

We already know that the 2p cut in the headline rate of income tax is offset by the removal of the 10p band, leaving single people who don't or can't claim Working tax Credit worse off until they earn over £18K per year.

We know that big business has had a cut in corporation tax, but small business has had a hike.

What I did not realise until I read this on Iain Dale's blog is that the 2p cut in income tax does not really apply to people in tax credits, because the claw back has gone up by 2p from 37p to 39p to compensate. Obviously those who get more tax credits may well be a bit better off, but this is clearly going to take some getting to the bottom of!

This is real smoke and mirrors stuff!


Elliott said...

The devil is indeed in the detail. It would be easy not to notice, for instance, that defence spending has been frozen. Even including the "additional £400m" mentioned in the Budget speech. The total "departmental spending limit" for defence remains at £40.8bn for fiscal 2007/08 (including the £400m reserve), which is the estimated outturn for 2006/07. (Detailed arithmetic plus link to Treasury numbers here.)

Allowing for inflation of 2%, this means a cut in real terms of £816m. Not what was announced. And not the kind of thing we should be expecting from the man who aspires to lead the troops he's penalising.

Benedict White said...

Many thanks Elliot. good work!

I will be doing some work on the tax credit side of things but interesting numbers!

Anonymous said...

Oh, ffs, the 10p sleight of hand was bad enough, but this! One supposes that the change would be justified on the basis that the tax credits "system" was built on the edifice of the old WFTC system which used to deal with post-tax income, rather than pre-tax income as at present.

When they switched methods they had to adjust the clawback rates to give the same benefit rates. So it is consistent with the earlier system - a tax cut is treated like any other increase in income and is [partly] taken away.

It's a bit of a kick in the teeth though, particularly given that they probably haven't adjusted any of the rates the other way to account for the doubling of the 10p rate.

Conflict of interest: I recently reduced my hours to spend more time with my five year-old daughter [I'm a single dad]. This reduced my civil service income to about £16.5k pa - just below the level at which the tax changes are neutral, though the clawback change now makes it worse.

I'm never going to understand any increase/decrease in my tax credits to know whether it is due to my changing circumstances or a change in the rates. I have to treat the tax credits as something like a black hole. Very mysterious and impenetrable.

Benedict White said...

Timothy, Basically you are right, there is no adjustment to take account of the loss of the 10p band, but then the levels apparently go up.

I will be doing some worked examples over the weekend, please feel free to email me if you would like me to do yours.

I will make them anonymous.

I suspect that by the time the swings and roundabouts are looked at the give away is nothing of the sort.

If you are the same Timothy as on PB why are you so negative about us Conservatives?

Anonymous said...

It amuses me when I get mistaken as a Tory on PB just because I concentrate my criticism on New Labour and make dispassionate comments about Cameron's strategy.

My negativity towards the Tories is born from being born in 1980, so becoming politically aware around the time of the poll tax. The Guardian-reading parents also helped...

Benedict White said...

Timothy, I know what you mean about people making assumptions about a persons politics!

I here what you say about the poll tax. So did the party. That is why we scrapped it! That said the rates as was needed to be fixed.

Guardian reading parents? That's tantamount to child abuse surely? ;)

I was born in 1968 and have been politically aware since I was about 4 for one reason or another. That said my experiences of the 1980's and some one asking why I was still a Conservative after that got me to write this: