I have been deluged with emails protesting about the reform of tax credits. I disagree. Gordon Brown designed a system where one office the in Treasury taxed working families, whilst another used a highly complex system to pay the money back again to 9 out of 10 of those families. It’s like Charles Dickens’ ‘Circumlocution Office’.
Wouldn’t it be cheaper and more effective not to have taxed them in the first place?
We inherited this system in 2010. We’ve cut the 9 out of 10 families eligible to 6 out of 10. The current modest reform is now designed to cut it to 5 in 10. From the furore you would have thought that we were proposing a massacre of the innocents. A woman even broke down on BBC Question Time, but it turns out, on examination, that she will be unaffected.
We have to ensure that it always pays to work. This system however, simply doesn’t do that: in its first year of operation it cost £4 billion, this year it will cost £30 billion yet the number of ‘working poor’ has risen by 20%. Instead, what it has done, is to subsidise low wages. Employers have been able to get away with paying less, in the knowledge that taxpayers will make up the difference.
It is a horribly complicated system that has clogged my mailbag for years with cases of thousands of pounds being demanded in repayments. The tax credit payable in the current year is calculated on the basis income received in the preceding tax year, with a requirement for recipients to notify the Tax Credit Office immediately of changes in their circumstances that will alter their current entitlement. Of course, they neglect or forget to do this, or don’t even realise that they were supposed to.
Alternatively, the tax credit office fails to make the necessary alteration to payments when properly notified – not untypical of the Circumlocution Office. Either way, the bill for repayment comes as a disaster for the families concerned.
If we are to prosper we have to end our addiction to welfare. The UK has 1% of the world’s population, 4% of its income, but pays out 7% of its welfare. The reforms will help us move from high tax, high welfare, and low wages to an economy based on lower taxes, lower welfare, and higher wages. It’s a clear choice.