Thursday 21 June 2012

Tories finally "recognise marriage in the tax system"

As I was explaining recently, the welfare system and the tax system are the same thing, or at least two halves of the same thing (being some sort of redistribution of income), there is no real or fundamental difference between a welfare benefit and a tax break. There is no point in e.g. stopping Winter Fuel payments to wealthier pensioners if the sole purpose is to fund an equal and opposite tax cut for wealthier pensioners.

The Tories got into government muttering something about "recognising marriage in the tax system", which most people understood to mean at least a transferable personal allowance, which would have particularly benefited single-earner couples with little or no investment income (i.e. married couple with young kids), so politically pretty good. Or at least, maybe a married couple's allowance, like they used to have (and which still exists for people born on or before 5 April 1935).

Fair enough, that idea has fallen by the wayside, but what they now propose is pretty much the opposite of what people were expecting:

Child benefit will effectively be withdrawn on a tapering scale for households where one earner has more than £50,000 income; if one earner has more than £60,000 income, it will be lost altogether. This will be done through an increase in income tax rather than by withdrawing the benefit.

1. Yup, they will continue to pay out the benefit to the mother and adjust the husband's PAYE code so that he pays +/- the same amount in extra tax as is paid to her: the bonus is that the marginal rate of tax/NIC on incomes between £50,000 and £60,000 will increase by 17% if you have two children etc.

2. The official reason given for withdrawing Child Benefit was to reduce government spending (heck knows what the real reason was), but as we see (welfare and tax being two sides of one coin), this hasn't actually reduced the "spending' side by one penny; it has actually increased the 'tax side' (although it comes to much the same thing).

3. And how much did they hope this would save? Originally they said that no higher rate taxpayer (or his or her spouse) would receive Child Benefit, which is maybe one-in-ten recipients and that this would save about £1 billion a year (i.e. one-tenth of £11 billion a year total Child Benefit). Now they've raised the threshold and introduced the taper, with all sorts of fraud, error and admin, the saving (i.e. the extra tax raised) will be half that much, £500 million a year or something.

4. Hmmm, let me think. If the government wants to raise another £500 million a year tax from higher earners with children, isn't there a simpler way of going about this, without increasing marginal tax rates on earned income? Maybe have a couple of extra Council Tax bands for higher value homes and do a bit of rebanding or something? Surely, higher earners with children will either live in expensive houses, big houses or both? And if not, I'm sure that some of those single pensioners trapped in fuel poverty in big houses will be happy to swap places with them; the pensioners can cut their Council Tax and fuel bills; the higher earners with children get to live in the bigger houses? Win-win, that sort of thing?

12 comments:

Bayard said...

"(heck knows what the real reason was)"

As a sop to the Envious, is my guess. This whole thing has "Yes, Minister" written all over it: the initial, simple proposal from politicians becomes the complicated final result after the civil servants have been at it, reducing its effectiveness whilst ensuring there are yet more jobs for bureaucrats.

Sarton Bander said...

Just scrap child benefit (effectively ransoming your own kids).

chefdave said...

I agree with S.B, just scrap child benefit (i.e a tax bribe for the few) and redistribute it as a universal tax cut. If there are freebies to be dished out we should at least try to dish them out equitably and ignore the shrill voices of the V.Is.

Mark Wadsworth said...

B, yes, sop to the envious, probably.

SB, don't agree.

CD, how is child benefit a tax bribe for the few? We were all children once, and most women have kids and it is women with kids who get a bit of a rough deal on the whole jobs front, so child benefit just evens that out a little bit. Sure, it's their choice and everything, but without them we'd be doomed.

chefdave said...

MW, why should the childless subsidise the lifestyle choices of familes? If the shoe was on the other foot and we were getting a weekly rebate while families had to pay their own way they'd be the first to complain, yet the opposite scenario is supposedly 'just'. If families find themselves hard up, then tough. You should have cut your cloth according to your means (as I'm doing).

I'm not asking for the complete withdrawal of these benefits of course, I'd just like to see them distributed universally.

Mark Wadsworth said...

CD, child benefit is (or was) the best kind of benefit - universal, non-contributory, non-means tested, non-taxable. Fraud and error were not measurable - as it happens not everybody claimed it and running costs were 0.0001% or something.

And further, remaining childless is also a lifestyle choice, isn't it? And what if everybody thought like that? Who's going to pay for their pensions? Children are, on the whole, a public good, and everybody was a child once.

Bayard said...

" Who's going to pay for their pensions?"

It's easy to look on people who remain childless by choice as selfish bastards. They don't want to do the hard work of bringing up children, but still expect to enjoy an old age pension when they retire, paid for by other people's kids.

Anonymous said...

If they really want to raise money from wealthy people with kids (seems a daft thing to do to me) then the simplest thing would be to scrap child benefit completely and put it on the basic family element of the child tax credit. That credit is already means tested. After all, if you're going to have all this ridiculous means testing, might as well use an existing process.

chefdave said...

Bayard, it takes an extraordinary amount of twisted logic to describe those of us who don't claim benefits as "selfish bastards" whuile going to suggest that you view your kids as a future pension fund.

Realistically the selfish bastards are those who use the machinery of state to get others to susbsidise their lifestyle choices. If you want you to have kids then fine, but please don't ask me to pay for your diper bills.

Bayard said...

"Bayard, it takes an extraordinary amount of twisted logic to describe those of us who don't claim benefits as "selfish bastards"

Where did I say anything about benefits? If you bother to read what I said, you will see I was talking about childless people, not people who do or don't claim child benefit. Are you planning to claim the state pension? Have you a private pension invested in stocks and shares? Neither of those is going to be worth anything if we don't have enough workers in the future to add value and pay tax. Today those future workers are children and you are doing nothing to produce any whilst at the same time whingeing about your taxes going to going to help support those who are.
At the same time you totally fail to recognise the disconnect between taxation and spending: the government always taxes as much as it can get away with, regardless of expenditure, so you can be damn sure that any money saved on child benefit is not going to come off your tax bill, it will only be spent somewhere else, probable on some quangocrat's salary or given to a fakecharity.

chefdave said...

B, if the main reason you're having kids is to secure a future income stream in your old age then it's probably you who's the selfish bastard. You're not having children out of altruism are you? It's all me, me, me and my pension fund.

In fact this boomer logic has partly influenced my decision (so far) not to have kids. There's no future for them in a country populated by selfish idiots hell bent on impoverishing the next generation with pension fund debt and out of control welfare spending. No child should be born into such conditions.

Bayard said...

Did I say that was the main reason or even a reason to have kids? People are going to have kids for two reasons, as they have always done, because they want them or poor or no contraception. I doubt child benefit comes into their calculations. However, the fact that society needs children if it is to survive and pensions are to be paid means that those who don't put in the work to have kids are effectively hitching a free ride on those who are, if they intend to pay their old age pension out of anything but their own cash savings. This is not a question of morality, more one of economic fact.
As to the raw deal the young are getting at the moment, they are the only hope we have of getting rid of the current system, if they can be provided with some alternative, because statistics show that they aren't voting for the status quo.