Flowchart: Free early education, Working Tax Credits/Childcare element, Employer Supported Childcare or Tax Free Childcare?

In my capacity as number-cruncher for the Citizen's Income Trust, I have spent this weekend trying to get the bottom of all the overlapping schemes which various government bodies administer. To simplify things in my mind I had to create a flowchart.

The joke is that whichever route you take and whichever of the three boxes at the bottom you land in, you end with with benefits/discounts worth about £90/week for every child aged 2 to 4 at a registered nursery or child minder. Only instead of bumping up the Free Early Education to £90/week and calling it a day, they split it up into smaller amounts, all with their own conditions attached.

Why do they make it so complicated? Don't answer that.

This House of Lords/Working Tax Credit thing...

... reminds me of something that happened three years ago.

From the BBC:

MPs have overturned a series of defeats inflicted on the government's welfare reform bill in the House of Lords.

The coalition won seven key votes in the Commons, rejecting amendments made by peers and reinstating their original proposals into the legislation. These include plans for a £26,000 annual limit on total household benefits, including child benefit.

Ministers say they will use a rule known as "financial privilege" to ensure Parliament approves the cap... The measure, which the government says it will also apply to Lords amendments on employment and support allowance (ESA), relates to the principle that the Lords cannot oppose tax and spending decisions agreed by the Commons.

So surely the same principle applies to the reductions in Working Tax Credits..?

The End of Working Tax Credits.

From the BBC:

... the income threshold for tax credits is to be reduced from £6,420 to £3,850. So, from April 2016, anyone earning more than £3,850 a year will have their Working Tax Credit reduced more steeply.

Sneaky!

Gordon Brown always used to boast that the Working Tax Credit was worth £x to the individual if he worked 30 hours a week, but that was always a lie - if you worked 30 hours, then your income was so far above the threshold of £6,420, most of that promised £x would be clawed back.

Boy George has just taken this twisted logic to extremes and extended it to the 16 hour credit as well (Gordon Brown and Boy George are very similar in many ways).

So here goes:

After April 2016, you work 16 hours a week, so you are notionally entitled to the basic amount of £1,960.

16 hours x 52 weeks x likely NMW £7.20 = £5,990

That is £2,140 over the £3,850 threshold, so your £1,960 is reduced by 41% of £2,140, i.e. down to £1,082. Under the old rules, you would have kept the full £1,960.

If you are on 30 hours a week, you are notionally entitled to the £810 extra WTC = £2,770

30 x 52 weeks x £7.20 = £11,232

£11,232 - £3,850 = £7,382. £7,382 x 415 = £3,027, so your notional entitlement of £2,770 will be reduced to zero. But you can bet that officially, the 30-hour credit will still exist.

If you earn a bit more than the NMW, about £10 an hour (which is still very low paid), then you get precisely nothing in WTC.

So as shit as the whole Tax Credits system was and is, this just increases overall marginal tax rates i.e. reduces the incentive to get a job. In other words, it makes it even shitter.

H/t @JMchools