This is the problem

Once an entitlement is granted, it becomes politically very difficult to remove. So it is with tax credits, a form of “welfare” which actually pre-dates Gordon Brown by some years, but was cynically – and presumably deliberately – allowed to spiral out of control under his Chancellorship in pursuit of client state goals.

By the time Labour left office in 2010, an astonishing nine out of 10 families in Britain were entitled to have their incomes topped up through a tax credit system which farcically had even begun to reward some MPs. Qualifying incomes would be routinely raised just ahead of elections so as to drag as many as possible into reliance on the Chancellor’s hand-outs.

I think a reasonable starting point for any tax and benefit system would be that the bottom half don’t have to pay in from their incomes (although they will from their consumption) and the top half don’t get paid any benefits related to their income.

Gordo did rather overstep that, didn’t he?

39 thoughts on “This is the problem”

  1. It not only ensures the recipients will continue to vote for more such largesse, but it also requires a veritable army of administrators, all of whom must be supervised by a battalion of Diversity Outreach Coordinators and the like, who will vote in accordance with their desire to remain employed.

    A sturdy brick wall, a heavy machine gun, and several pallets of link ammo would make a start on this problem.

  2. Agreed. And yet the principle of in-work befits is sound. The alternative ( assuming g we don’t genuinely like to leave people starving) is to mess with the price of labour through the minimum wage, or living g wage, or National Living g Wage or whatever we’d like to call it today.

  3. @ Ironman
    Agreed. And the result of National Minimum Wage is to increase unemployment and poverty – the “Living Wage” which means that a single young adult living with his/her parents is paid enough to support a family or nothing at all is designed to create a resentful impoverished underclass.

  4. This was a deliberate strategy by the Blair/Brown regime, still pretty much unchallengeable as being among the worst 5 governments/regimes to hold office since the Norman Conquest.

    The explicit goal was to create three pillars upon which Britain could be made ‘Left wing forever’

    1/ A hugely expanded public sector workforce with particular focus on education – at all levels including tertiary and local government, primarily staffed by Labour supporters

    2/ Immigrants of whatever hue who would show their gratitude for being allowed in by voting Labour, and indeed in several instances increasing the vote through fraudulent means

    3/ Benefit recipients, including those on tax credits whose economic well being was intertwined with the benefits system

    The entire furore over tax credits shows how successful they were, and lest we forget, Cameron only has a majority of twelve, so the Brownite philosophy is very far from being defeated. As you say Tim, a big problem, and the solution will take far more than the quite timid approach of this government.

    ‘Socialist taxes’ along the lines of the Windfall levy on the privatised utilities to be levied on prominent redistribution advocates, the promotion of assisted migration to Venezuela, Cuba or North Korea for peoiple like Owen Jones and Richard Murphy, severe restrictions on Corbynites and Green Party members being able to hold down positions in education. All these options need to be considered…..

  5. “By the time Labour left office in 2010, an astonishing nine out of 10 families in Britain were entitled to have their incomes topped up through a tax credit system ”

    I am finding that very hard to believe. Anybody got a reference?

  6. This is why I’m starting to favour the more than rather than the less than approach. I’m becoming in favour of Podemos or a Corbynite reign.
    For you can’t get where you want to go, from here. bastards have got themselves so entrenched, impossible to move them. So give them their heads. It’ll all end up with a bloodletting as they fight amongst themselves during the inevitable collapse. Then we get to build something decent out of the wreckage.
    Very sad for middle class entitlement, of course. Cry me a tear.

  7. A government large enough to give you everything you want is large enough to take away everything you have.

    — Gerald Ford.

    And I suggested there was an intermediate stage: A government big enough to give you everything you want isn’t big enough to get you to give any of it back.

    — Mark Steyn

  8. I know there are loads of tax wonks round here, so could someone answer a question for me, please?

    The figures being bandied around of how much people are going to lose from the removal of tax credits: do they take into account the other changes such as the increase to the untaxed threshold?

  9. I think a reasonable starting point for any tax and benefit system would be that the bottom half don’t have to pay in from their incomes … and the top half don’t get paid any benefits related to their income.

    You know, I’m pretty sure that’s electoral gold. We all know why Labour would like to argue with it, but how could they and still look honest?

  10. @Ironman
    “Agreed. And yet the principle of in-work befits is sound. The alternative ( assuming g we don’t genuinely like to leave people starving) is to mess with the price of labour through the minimum wage, or living g wage, or National Living g Wage or whatever we’d like to call it today.”
    As we have employers NI the first thing we could do is abolish that.
    I don’t have any problem with in work benefits but it should only be for people who work 30+ hours a week, there is something wrong about someone on the minimum wage working 15 hours a week being better off than someone without children on a decent wage working 35 hours a week.

  11. @ anon
    There are several hundred thousand people working part-time because they can’t get a full-time job. As a taxpayer I am opposed to excluding them from the Tax Credit system.

  12. @ Squander Two
    Since a single person earning just below median wage is, in practical terms, rather beter off than a a family breadwinner earning a bit above, I should like to tweak the simple rule and make the personal allowance dependent on the number of dependants. Also make the winter fuel payment taxable.

  13. An important aspect which is never raised by the Left, is the dynamic nature of tax and benefits. People will react to changes in both. So, if benefits don’t apply if you work more than 30 hours a week, then there will be an incentive and a tendency to reduce your hours.

    The problem is, that trying to reverse such measures causes huge amounts of financial pain, even if they are just returning people to a previous position.

    The woman who complained on Question Time was able to spend more on rent as her income (ie benefits) increased. But to reverse that requires that sufficient people seek cheaper rents to reduce the level of rents overall. A much more difficult and painful proposition.

    And that is a lesson which the Corbynites just fail to take into account; their policies will make matters worse, not better, whatever their intentions.

  14. “john77
    October 21, 2015 at 10:08 am

    @ anon
    There are several hundred thousand people working part-time because they can’t get a full-time job. As a taxpayer I am opposed to excluding them from the Tax Credit system.

    How do you know that they can’t get a full time job? It could be that working 2x many hours makes very little difference for them (as a taxpayer that sounds wrong).
    If we had a local system of benefits it would be possible to set up workfare for people who can only get a part time job but I doubt the Government is competent enough to do that nationally.

  15. “john77
    October 21, 2015 at 10:14 am

    @ Squander Two
    Since a single person earning just below median wage is, in practical terms, rather beter off than a a family breadwinner earning a bit above, I should like to tweak the simple rule and make the personal allowance dependent on the number of dependants. Also make the winter fuel payment taxable.

    Good ideas in principle but I am not sure easy it would be. I wonder if making winter fuel taxable would cost or lose money.

  16. I think am much more important principle is that you should have fairly smooth marginal tax rates. No big cliffs, not massive step-ups. Another principle is that there is no difference between tax expenditures with tax rates.
    So the idea that you can have a barrier is inherently bad. We should always think about the marginal pound.

    Benefits phase-out as currently implemented is a massive marginal tax rate. The highest marginal tax rates are currently levied on families with children once they reach the 50k level. You face an extra 20-25% marginal rate if you have 2 children (on top of the 40% tax rate + employer NI).

    I don’t really see what’s wrong with all income levels receiving the same benefits. That’s what we do for education and NHS and I think that’s pretty reasonable (and somewhat easier to administer I think). Nobody complains that families with many children receive free education for all the children. How is it different to unlimited tax credit? Children tax benefit goes to the children (to be spent by the parent obviously), not to the person. All children receive education and benefits this way (costing easily 10k for each child I would imagine). Adding a cash benefit to the in kind benefits seems not so crazy to me. Obviously wealthy people will need to pay higher marginal taxes to finance this, but I think smooth marginal taxes are much better than the huge spikes we have nowadays.

  17. Government micromanaging people’s success. The solution is to get government out of the charity business. Everyone should be equal before the law and the state.

    If “the bottom half don’t have to pay in from their incomes” then the upper half shouldn’t either.

  18. I also disagree with the premise entirely. It’s just not true that benefits are especially hard to remove. I don’t really think there is much difference between raising taxes and removing benefits in terms of acceptance. People are not that stupid. They know the value of what they receive and pay in taxes.

    It’s certainly true that it’s hard for the government to raise taxes for everybody as it’s hardly going to be popular, but I don’t think benefits are that special…

  19. @ anon
    Because the gatherers of employment/unemployment data ask part-timers whether they are working part-time from choice or whether they wanted a full-time job and are working part-time only because they coundn’t get one.

  20. I am not sure that Warner’s graphs show the story he is setting out. For the last 5 years, expenditure on tax credits seems to have been a steady £30bn. It is the forecasts that have been increasing and getting completely out of step with reality.

    “From an expected original cost of £1.5bn a year, the tax credit bill had grown to £28.9bn annually by the time Labour left office, and would by next financial year have been an eye-popping £40bn had nothing been done address it. ”

    Actually, I predict that next financial year would turn out around £29bn. Why should I believe a forecast that has proven so unreliable in the last 3 years?

  21. Bloke in Costa Rica

    I think the whole tax credits flap is hopelessly overblown, by the usual suspects (BBC and lefty pressure groups). Paying people with their own money is a stupid idea and it was only ever favoured by Brown to get more people on the government tit. If the wheels don’t come off the UK economy then by 2020 it will be a distant memory.

  22. BiCR agreed. I am surprised that no one seems to have suggested raising the tax threshold by £2000. That should cover it.

  23. I am surprised that no one seems to have suggested raising the tax threshold by £2000.

    Hopefully that’s going to be Osborne’s soundbite big reveal next time he tinkers with the economy’s controls.

  24. @”Because the gatherers of employment/unemployment data ask part-timers whether they are working part-time from choice or whether they wanted a full-time job and are working part-time only because they coundn’t get one.”
    Do you believe that? If so I have some great investment opportunities for you.
    Who would say to a government official? “Tax credits are great I only have to work part time whilst others work full time. George here is a great way to save money”.
    They might as well write an article in the mail saying “Thanks suckers”.
    Seriously I have no idea which percentage of people on tax credits could work more and neither does anyone else.
    The only way to be sure is to have in a small area workfare for people who work less than 30 hours a week and see what percentage take it.
    I know that there are lots of anecdotes both ways but there is no real data.

  25. I think Luis earlier in the thread asked about whether 9/10ths of parenting was taking place on welfare in 2010. I’ll take the definition of welfare as claiming any means-tested benefits ( excluding child benefit which was universal until January 2013, free education and health care).
    Certainly in 2010 the tax credits threshold for a new-born was around 67k of household income and that brought
    9/10ths of parents into welfare, though many at that level would not have bothered. By the time this article
    appeared on the bbc two and a half years later a minimum of 2/3rds of children were being raised on welfare.
    The earlier link to Osborne’s summer budget statement also reveals that by 2020 roughly half of all parenting will still qualify for child tax credits. Adding that to those who qualify for a little housing benefit where the thresholds are higher than tax credits now due to extraordinary rents in London boroughs, it means that by the time this Parliament is over, raising children on welfare will STILL be the default position. Saving up and raising children yourself ( apart from universal benefits like free child-care, prescriptions, education etc ) will still be the minority position.

    Oh, for a non-socialist government. Alas, we can only imbibe and dream.

  26. bottom half don’t have to pay in from their incomes (although they will from their consumption) and the top half don’t get paid any benefits related to their income.

    A little less than half, I think. There should be a gap between benefits and income taxes (including NI) and a smooth taper-out and taper-in , in between you keep all you earn and as much as you can save.
    And there is no excuse for having children you can’t afford, let ’em starve.,

  27. And yet the principle of in-work befits is sound.

    ‘In-work benefits’ are a subsidy to companies who now don’t have to pay the true market rate for their employees, because they’re being paid by the taxpayers. How can that be ‘sound’?

  28. ‘In-work benefits’ are a subsidy to companies who now don’t have to pay the true market rate for their employees, because they’re being paid by the taxpayers.

    This claim is often made, but I doubt it’s true. If you strip away the benefits, would the workers stop turning up, die away, and force the companies to pay more? No. The workers would just live in more squalid conditions. But the company wouldn’t care.

  29. > I am surprised that no one seems to have suggested raising the tax threshold by £2000.

    Osborne has already increased it by over £4000 since 2010.

    This seems so reasonable to me: increase the allowance and decrease tax credits. People probably end up with similar amounts of money (I’ve not done any sums here and am happy to be corrected), but via a different system. PLUS he increased the allowance FIRST, so there’d be no painful period of losing the tax credits and waiting for their replacement to kick in.

    Hence my question earlier: The headline figures we’re seeing of how much people are losing out: do they take the increase to the allowance into account or not? I’m guessing not, but don’t know.

  30. Edward Grant is right. The system actually subsidises business to pay poverty wages. A right wing government is instead forcing business to pay a living wage by Government diktat.Commies!
    As always the enemy within is British business which insists it is impossible to make a profit by paying wages to British workers sufficient to provide spending power to ensure the UK economy works at full capacity.( Although Germany can pay its own workers in their similar economy).
    After Nixon closed the gold window , early seventies, global inflation took off and the Brit unions (and Opec) demanded they were not paid in a depreciating currency.Brit Business launched a massive civil insurrection against the workers to stop their wages keeping pace with inflation. And we continue to live under the same Iron Heel conditions where UK business whines endlessly that capitalism red in tooth and claw is too unpleasant for them and they can only survive with government action to keep down wages.
    Governments have to ensure that the population does not starve through tax credits or minimum wages.

  31. > As always the enemy within is British business which insists it is impossible to make a profit by paying wages to British workers sufficient to provide spending power to ensure the UK economy works at full capacity.

    This is nonsense. There is no monolithic entity “British business”. There are thousands of British businesses who pay staff different amounts for different work. I work for a British business who pay me quite well and make a profit.

    There certainly are British firms who pay some of their staff low wages and claim they wouldn’t be able to make profit if they paid them more. I, being a cynic, have no doubt that some of them are simply lying bastards. Others are telling the truth: the type of work they do is not profitable at higher wages. Force them to push wages up and they’ll stop doing the work. I hardly think their pointing this out to the government makes them “the enemy within”.

  32. This claim is often made, but I doubt it’s true. If you strip away the benefits, would the workers stop turning up, die away, and force the companies to pay more?

    Well, then. Stop the benefits, since they’re clearly not needed.

  33. > Well, then. Stop the benefits, since they’re clearly not needed.

    Tim didn’t say they weren’t needed. In fact, he implied that they were. He just said they’re not a subsidy to employers.

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