Families on middle or low incomes could lose more than £2,000 a year under government plans to slash child tax credits, it emerged today... More than five million families get the credit (1), Labour's flagship benefit intended to help working people pay for childcare and other costs... Those on annual incomes of £25,000 get £2,850 a year for one child (2)...
Mr Balls... said the Government was preparing the ground for a “savage Budget raid on the tax credits of millions of families on middle and modest incomes. Families with children where both parents go out to work, but earn a modest income, will be among the biggest losers.(3)”
1) I somehow doubt that this is true (see below) but let's go with it. 'Families' implies 'households with children'. According to Table 2.2 of Social Trends 39 - 2009 edition there are 5.25 million couple households with dependent children and another 1.75 million lone parent households with dependent children. So why not say 'most of them'? (And if it is a nigh-universal benefit, why not make it universal, and save all the admin hassle and means testing? For higher earners, it would be like a small tax rebate, and I see no harm in that.)
2) The basic entitlement for a family with one child is £2,845 (Family element + one Child element from HMRC), but if your income is £25,000 you do not get £2,845. The amount is reduced by 39 pence for every £1 you earn above the First income threshold of £6,420, so if your income is over £13,728 you get precisely £nil (there may be other wrinkles to this, but you get the gist). If you had three children, your basic entitlement would be £7,445, which would be tapered to nil at a gross income of £25,509.
3) As it happens, the bulk of tax credits are paid out to lone parents who are not working, which makes a mockery of the claim that they are "intended to help working people". As to "childcare and other costs", see Exhibit Two. So not only are the Lib-Cons starting at the wrong end (there are very few savings to be made at the upper end), Ed Balls is lying through his teeth when he says it will affect low or middle earners.
Labour leadership frontrunner David Miliband... also suggested... that private schools should lose their £100 million-a-year subsidy from the state, as part of a wider deficit reduction programme.
Actually I agree that the corporation tax exemption (it's not really a subsidy, is it?) for private schools is daft - it only applies to schools which manage to fit into the new definition of 'charity', which means that the Charities Commission can boss them around; it only applies to the tiny amount of a school's income that is not paid out as salaries or other expenses (which are taxable in full), and of course it discriminates against 'the circling sharks of international edubusiness' - but most importantly, that £100 million works out at a paltry £150 per private pupil per year on average (and the tax break is hugely regressive - the richer the school, the more the tax break is worth), which is a heck of lot less than the amount that the taxpayers saves by not having to fund a state school place for them.
In any event, in the print edition, the article was directly below one about Michael Gove's 'free schools', which is a modest step towards education vouchers; these would be worth about thirty or forty times as much as the laughable £150 corporation tax break. Vouchers is the way forward, and to hell with the £150 per pupil tax exemption.
Further, we do not need to pontificate on how and whether vouchers would work, as we already have them for nursery places for children aged 3 to 5. It is a fairly simple, non-means tested system (there's nothing that can't be made simpler, of course), so we can bin the Childcare element of tax credits (which is enormously fiddly) and bin the Employer nursery vouchers nonsense (why have three or four separate subsidies when one will do the job?) and just hike the nursery vouchers accordingly, which then dovetails nicely with education vouchers generally.
Exhibit Three is a fine example of muddled thinking (it would be a tad harsh to call this lies or disinformation as her heart seems to be in the right place):
[Child Benefit] is a benefit that from the start should have been means-tested and gone only to those parents who really needed it. Now the Government simply cannot afford to hand out £50 a week to people like me, who have benefited from both the housing market and the longest economic boom in modern history. For anyone over 40, even our higher education came free.
Quite clearly, Child Benefit (being the best kind of benefit, non-contributory, non-means tested and non-taxable, with tiny administrative costs and practically zero fraud and error) is, from the point of view of the better off, a straightforward tax refund, which is fine by me.
In other words, Child Benefit (which 'costs' around £10 billion a year) is more or less the opposite of Child tax credits (which 'cost' around £15 billion a year, but the exact figure are hard to track down). The redistributive impact of Child Benefit is probably minimal - what it does is smooth your income over your lifetime and it doesn't really influence people's behaviour. Child tax credits OTOH are not only redistributive, they redistribute in a very bad way as they encourage women with low earnings prospects to become an unemployed 'single' (officially at least) mother instead.
The knee-jerk hair-shirt idea put about by 'the middle classes' that they don't need Child benefit has some superficial appeal; but so does the idea that instead of giving our columnist £50 a week in Child benefit we were to give her and her husband extra personal allowances for their children which would save them about £50 a week in tax. The two ideas cancel each other out, and as Child benefit is administratively far simpler (we would end up with two parallel systems that achieve exactly the same thing, only there'd be loads of form filling when your income goes above or below whatever arbitrary cut-off point we choose), why not just stick with it?
Saturday, 19 June 2010