Ian Cowie, really:
Regular readers will be familiar with the mathematics because I have been banging on about this since the Budget of March, 2007. Here’s one example of how the poverty trap works. Anyone entitled to claim tax credits – and that includes nearly half of all pensioners – whose annual income exceeds about £7,000 (believe it or not, neither HM Revenue & Customs nor the Department for Work and Pensions could tell me the precise figure when I called to check) has some of their state benefits withdrawn through a means test.
To be precise, claimants lose 39p of tax credit for every £1 of income above that limit. Then, like anyone earning more than £6,475 a year – the current personal allowance – they must pay National Insurance Contributions (NICs) at 11per cent.
Plus, to put the tin lid on it, like everybody whose income exceeds their personal allowance, they must now pay 20 per cent income tax instead of the 10pc they paid on the first £2,230 earned in the last fiscal year before Mr Brown cut off the bottom rung of the tax ladder. So, total deductions from the top slice of their earnings are 39per cent, plus 11 per cent, plus 20 per cent – or a total of 70per cent.
This is appalling.
The national insurance threshold is not the same as the personal tax allowance. So the NI payments kick in a little earlier.
For a personal finance editor not to know this really is terrible.
But there\’s more of course! This is hardly news either, these high marginal tax and benefit withdrawal rates. Recent budgets have all included a table of how many people face such rates: not just 70%, but 80 and 90% as well.
You really would (or perhaps should) expect a reporter on a beat to know such basic things about their beat.
Especially since he\’s using an example of pensioners…who don\’t pay NI.