Sunday, November 22, 2015

Brown's poison pills part 4: Tax Credits

Of all the dire legacies which Gordon Brown as Chancellor and then PM left behind, the Tax Credits mess is the most currently controversial, the most difficult and the hardest to resolve.

In theory tax credits would be a good idea if they made it possible to integrate tax and benefits in a way which ensured a seamless progress from receiving state help to paying tax in which the citizen always received an appropriate level of assistance, and which were withdrawn at a consistent and moderate rate as he or she grew better off so that there was always an incentive to earn more.

Unfortunately we are nowhere remotely near being able to implement that in practice and the existing Tax Credits system certainly does not achieve that.

So the problem we have is that people who are doing the right thing and trying to support themselves and their families are being made clients of the state through the tax credits system. Instead of being allowed to be independent they are made to pay tax, and then the government makes a performance of paying it back.

It is a classic example of the worst kind of political activism in which politicians try to make themselves look good in the eyes of the voters by handing their own money back to them as if it was a gift.

This was always going to be a particularly difficult landmine for whoever succeeded Gordon Brown as PM to defuse because the sheer sums of money involved make it very difficult to ignore given the challenge of getting the national finances straight, but the trouble is that the people who get hit if you cut tax credits are the very people - those who are working but on low incomes - who a sensible government would least want to hurt.

Clearly the issue of tax credits will have to be addressed but it has to be done in a way which does not harm the most vulnerable working people. The least worst solution may be to phase in a gradual reduction in tax credits which takes effect sufficiently slowly that the increase in tax thresholds and the impact of the higher minimum wage which the government is also pursuing offset the impact on working people with low incomes of reducing tax credits.

1 comment:

Jim said...

The thing with tax credits is that I can not decide if its insanity or Genius (I know there is a fine line between both, but still)

I mean if your goal is to secure a good economy, then of course its totally insane to have people pay you tax then apply for it back, and make a great song and dance about how you are Helping them. With "government moneey" rather than just use the Maggie EU Rebate line and say "all we are asking for is our own money back"

If your goal is to set a system which is incredibly difficult for anyone else to overcome and pretty much locks people into voting for you, to ensure they dont face sever financial hardship, then its absolute genius.