Tax Credits, The Telegraph catches up with this blog!

Alas, no one else seems that bothered.

On the 27th of May I wrote this article after watching Frank Field MP for Birkenhead on Straight talk with Andrew Neil.

I said:

A single parent with two children working 16 hours per week will get about £480 per week, after tax credits. A married couple with two children (he didn't say it but I presume both are on the minimum wage) would have to work 116 hours to get the same money. He is not surprised at how many single parents there are, but how many married ones there are.

Today the Telegraph says:

The figures are stark and astonishing: because of the huge bias in favour of single parenthood that prevails in the tax credit system, a single mother with two children under the age of 11 who works 16 hours a week on the minimum wage, receives, largely thanks to tax credits, an income of £487.

A two-parent family, on the other hand, also with two children under 11, in which either one or both partners works for the minimum wage, would have to put in a total of 116 hours a week to take home the same income.

So there you have it. This government has built a system either by accident or design that hates families yet the same cretinous bunch of halfwits shout us down if we try and redress the balance.

The big question is though, why are other news outlets not covering this?

At this time the full report by Frank Field is not yet available online, but I will post a link when I locate it.

Update 11:24

Frank Field's website now carries this press release with this link to a report on the Reform website.

When will Frank Field come home?

I have for quite some time now had some admiration for Frank Field, MP for the formerly Conservative constituency of Birkenhead, and had indeed wondered if there was any chance he might defect to the Conservative party.

Thanks to an interview on BBC News 24's Straight Talk with Andrew Neil, I now know that he was originally a member of the Conservative party and child poverty campaigner.

What is more interesting also was that the Child poverty action group pointed out that under Harold Wilson's government between 1966 and 1970 poverty had got worse.

It seems clear to me that Frank is a very intelligent man. I would say he is a Conservative in the best traditions of the One Nation compassionate strand. However he is currently a Labour MP for Birkenhead.

What I found most interesting was some of his comments in the interview. I am currently reading his paper on New Deal. He will go on to publish papers on other areas of welfare and welfare reform. I suggest any one who cares about these things should read them.

Some remarkable observations were these:

From earnings of about £100 to £500 per week there is very little any one can do by their own hand to improve their standard of living. That is solely in the gift of the Chancellor.

Just go back and think about that. It is simply shocking.

A single parent with two children working 16 hours per week will get about £480 per week, after tax credits. A married couple with two children (he didn't say it but I presume both are on the minimum wage) would have to work 116 hours to get the same money. He is not surprised at how many single parents there are, but how many married ones there are.

On the Margaret Hodge affair, he was not surprised at what she said, he was surprised she was being attacked for telling the truth.

He pointed out that now the Bangladeshi community in Bermondsey was making exactly the same complaints that were being made 40 years ago by the white residents 40 years ago, that the welfare system favoured new immigrants.

You can find Frank Field's website here.

I do hope he rejoins the Conservative party. From my point of view, he would be most welcome.

Tax Credit Fiasco gets worse

According to a report issued by the Public Accounts committee of the House of Commons losses through fraud and overpayment. Apparently another £1.4 billion is likely to be written off.

What actually concerns me more though is the number of people who have no clue, because the system is opaque in the extreme, how much it is they are supposed to be getting. They could after all be getting more or less than their entitlement. If they are underpaid, then they have 3 months to claim the underpayment yet if they are overpaid the money can be claimed back for 6 years! That does not seem fair to me.

It does however get worse. When people have been overpaid, they get new payments stopped or worse still get money demanded with menaces. If you are on a tight budget the last thing you need is a debt collection firm on your back collecting money you did not know you had borrowed, who can effectively deduct money at source with out consulting you.

The net result is that many families are going through difficult times because of administrative errors, not knowing from one week to the next what their income is, whilst many on working tax credit are not claiming at all.

It is clear that at best the system needs a major shake up and simplification.

The BBC has this.

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!

The Budget, some analysis

Firstly this budget is mostly neutral. It was only ever going to be that way, because there is no money to give away.

Indisputably there are some useful things in it, but some bad ones as well.

Overall the budget seems to simplify things which is good. However it does beg the question why did Joseph Stalin, sorry, Macavity, no wrong again, Gordon Brown make it so much more complex over the last 10 years?

Big Corporation tax is down by 2p, good, it will hopefully help the economy. This in part is paid for by simplifying allowances for big business so is broadly neutral.

Corporation tax for small business is up 2p, and will rise again, ostensibly to stop tax fraud where people who are effectively fully employed try to make out they are a company.

This is offset by allowing a 100% allowance on certain types of investment to all companies of up to £50,000 per year. Gordon trotted out some numbers on the effective corporation tax for small businesses who take up the offer of the tax relief on investment.

There is a big problem here. Firstly 53% of all private sector jobs are in businesses this size, so that is a huge part of the economy that has just had a tax hike. Also, small businesses do not necessarily need or want to invest £50,000 per year in new equipment. Small business comprise a very diverse sector from small niche manufacturers who may be in that niche for using old fashioned methods, like hand made pottery manufactures, to others like small scale foundries supplying castings to the model engineer community, to window cleaners, florists, gardening contractors. There are many businesses which will not benefit at all or seldom benefit from the tax break, yet will be hit by the tax hike.

Small businesses are the engine of the economy. They employ more people than any other sector, and have the capacity to employ a lot more, if the environment is right. So that aspect of the budget is a very bad thing.

Green taxes are up a bit, but lower as a proportion of GDP than under the Conservatives.

Cigarettes up by 11p a packet, great news for tobacco smugglers, I expect they are ecstatic. Beer and wine up, but bizarrely spirits (mostly produced in Scotland) frozen for the 10th year running. Is Gordon Scottish?

There is a rationalisation of National Insurance and Income Tax rates so that they cut in and out at the same levels. Looks good from a simplification point of view, seems to benefit those around £35K per year and gets neutral at around £42K, so bar some losers in odd places, fair enough.

The basic rate of income tax has been cut by 2p. On the face of it very good news, but as ever the devil is in the detail. The 10p band is cut. It looks like a simplification and indeed is to some extent, but those currently on the 10p will now be paying 20p rather than nothing.

In short if you earn between £5,250 to £17,800 you pay more tax. That in principle is wrong, as I said here. There is more detail though, some of those affected will benefit from more tax credits.

Well, lets look at that a bit. Firstly there seems to be a combination of fraud and mistakes in the tax credit system running at a colossal scale, I have heard estimates that 50% of the payments are wrong. That is bad. Secondly whilst those who have children are better off with more tax credits, those with out suffer from two problems. The increase in their tax credits still leaves a lot of them worse off, then the fact that people without children just do not claim working tax credit even when they are entitled to. The take up rate is 20% (See this here, table 10). You do not have to look that far or that wide to see why. People just do not need the grief of dealing with tax credits unless they really have to.

In short, tax cuts for the rich, big companies, "working families", tax rises for the poor, but childless, and small businesses.

Hat tip to Neil for the take up rate on tax credit information.

OECD agrees Tax Credits are rubbish

Well, according to this report in today's Telegraph the OECD have issued a report on the tax and benefits system and how it affects people with children looking to get back in to work.

The position with family tax credits if you are a wage earner is this. Lets say you earn £20,000 per year and so get say £2,000 in tax credits (less than what you pay in tax and national insurance by a long way). If you then do some overtime or get a pay rise of say £1,000 then you pay tax at 22%, plus National Insurance at 11%. Total deductions 33%. So far so good. However then there is the tax credit claw back of 37% meaning that out of that £1,000 you are left with £300. Hardly worth it, is it?

I thought that stank until I read the details of the OECD report. Apparently if you are a stay at home partner going back to work you can lose a whopping 89.5%, which means out of the £1,000 extra earned example above, you would get £105, even less worth it! For £5,000 they would take home £525. Now that stinks.

But it gets worse. For a single parent moving into work, once you take account of the lose of benefits the effective tax rate is 101.3%. So if a single parent earned an extra £5,000 they would be £65 worse off than if they did nothing at all.

The telegraph report finishes with this:

Stuart Adam, a benefits expert from the Institute for Fiscal Studies, said: "Since 1997, the Government's tax and benefits reforms have acted to weaken work incentives on average. The single biggest thing driving this are the tax credits reforms."

Well, that is Gordon for you.

Hat tip to HDF on politicalbetting.com.

Tax credits fiasco The scary letter!

I got this letter from the tax credit office.

What can it mean?

I have seen two different entitlement letters in a single day saying that I owe them money on the one hand and they owe me money on the other. Easy to figure that one out. Just wait to see what turns up in the bank account. This letter I can't fathom out.

If you have any idea please post in the comments section.

If you want to find out what the other side looks like, find a blank sheet of A4 and turn it over.

Priceless.

To be fair to the hard working people at Preston they are all pleasant and I have not spoken to one who thinks Gordon Brown can find his arse with both hands, even with the benefit of a map.