Timmy elsewhereOctober 27, 2015 Tim WorstallTimmy Elsewhere35 CommentsOsborne, the Lords, Polly and tax credits previousBut aren’t they the ones that need an education?nextHow the Liverpool Care Pathway works 35 thoughts on “Timmy elsewhere” KJ October 27, 2015 at 10:40 am During a BBC Question Time event on 30 April David Cameron was asked whether he would cut tax credits. He responded: “No, I don’t want to do that. This report that’s out today is something I rejected at the time as Prime Minister and I reject it again today.” Micahel Gove, the government chief whip before the election, said of tax credits a week before the election: “We’re going to freeze them for two years, we are not going to cut them.” Alex October 27, 2015 at 10:43 am Is anyone surprised that the decision by the (£300 a day each courtesy of the tax payer) Lords is met with approval by the (£500 a day each courtesy of the tax payer) journalists at the BBC? KJ October 27, 2015 at 10:45 am Also the HofL have voted to delay the tax credit cuts for 3 years. Which, given that the new National Living Wage will not take full effect until 2020, is surely reasonable. Also the tax credit reforms bill is NOT part of the finance bill, although Osborne is now said to be considering altering that. Tim Newman October 27, 2015 at 10:59 am Isn’t this just applying a ratchet to government expenditure? Gordo introduces tax credits, Lords don’t mind. Osborne tries to remove them, Lords intervene. No wonder people are talking about a constitutional crisis, we’re heading in the direction of California where the majority needed to increase expenditure is not sufficient to raise taxes. john square October 27, 2015 at 11:28 am The differentiation in that article between HB as an anti-subsidy and WTC as a subsidy was really useful, and very relevant to something I’m working on at the moment. Thanks for that. Witchsmeller Pursuivant October 27, 2015 at 12:05 pm Firstly, the Lords will not and should not over turn a manifesto commitment. Something that the current government put into its election manifesto before the last election can be assumed to be something that the electorate actually voted for. Reforms to working tax credits were, at least as far as I recall, in the Conservative manifesto before spring’s election. Thus the Lords should not block this measure. The only mention of tax credits in the 2015 Conservative Manifesto is to do with denying them to EU migrants for four years; no mention of cutting them at all. And as KJ has pointed out, Cameron himself ruled out cuts to child tax credits prior to the election. So your constitutional argument is spurious, Tim. The Stigler October 27, 2015 at 12:18 pm I can’t see anything in the manifesto about this, not explicitly. But people did vote for an “austerity” government, rather than a “spunking more money in all directions” government. So, the money has to be cut from somewhere, and really, if you’re a family earning £40K, you aren’t poor by any real definition. Tax credits just mean you can shop in Waitrose instead of Sainsburys. DBC Reed October 27, 2015 at 12:20 pm Yes Tim and the Conservatives are wrong but this is not the half or it .The real culprit is the decades long insistence by British businesses that they cannot pay adequate wages even when this depletes effective demand for their own goods and services . Social Justice Warrior October 27, 2015 at 12:22 pm The Conservative Manifesto promised to “find £12 billion from welfare savings, on top of the £21 billion of savings delivered in this Parliament”. But it declined to say what they were going to cut, presumably because savings in general are popular but specific cuts are unpopular. Cameron, speaking about child tax credits, and Gove, speaking about tax credits generally, promised that they would not be cut. If they’d put the tax credit cuts in their manifesto, as honest politicians would have, they could claim constitutional protection for the resulting measures. But they chose to weasel and lie instead, because there are no honest and successful politicians. Rightly, that gives the Lords more power to interfere. Paul October 27, 2015 at 12:46 pm He responded: “No, I don’t want to do that. This report that’s out today is something I rejected at the time as Prime Minister and I reject it again today.” That’s not actually accurate ; well, it is , but it’s misleading. I don’t know whether @KJ is dishonest or just dumb copied it from some idiot leftie site. The question was “Will you put to bed rumours that you plan to cut child tax credit and restrict child benefit to two children?” The other pet leftie quote is about child tax credits as well ; actually I think Cameron is confused and thinks he’s talking about Child Benefit ; it’s the only way his statement makes sense. Witchsmeller Pursuivant October 27, 2015 at 12:54 pm Cameron was asked about child tax credits but replied mentioning Child Benefit. Either he was being a bit dim or deliberately obfuscating, depending upon your political standpoint I suppose. Paul October 27, 2015 at 12:55 pm The Conservatives should just have said they would pay for it with a tax on banker’s bonuses…. Witchsmeller Pursuivant October 27, 2015 at 12:56 pm This is the exchange between him and Dimbleby. DD: “Clearly there are some people who are worried that you have a plan to cut child credit and tax credits. Are you saying absolutely as a guarantee, it will never happen?” DC: “First of all, child tax credit, we increased by £450..” DD: “And it’s not going to fall?” DC: “It’s not going to fall. Child benefit, to me, is one of the most important benefits there is. It goes directly to the family, normally to the mother, £20 for the first child, £14 for the second. It is the key part of families’ budgets in this country. That’s not what we need to change.” bloke in spain October 27, 2015 at 1:21 pm “the decades long insistence by British businesses that they cannot pay adequate wages even when this depletes effective demand for their own goods and services .” Even for DBC that’s the most stupid bollocks. Increasing wages either: 1) Increases costs which result in increased prices. So the net result is zero. Or 2) The increased costs are not passed on in increased prices. in which case profits are reduced & there’s less incentive for businesses to do business. So less employment, greater competition for what jobs are available & you’re back where you started at low wages. Another zero. Mr Ecks October 27, 2015 at 1:46 pm I am no friend of the SJW squad on here. But Camoron has been a part of creating and continuing the shitty tax credits empire. Now if you are going to get rid of them and cut taxes to boost jobs –then do it. The Tax Credits system should not exist in the first place. But they should not take a system and make large cuts in it to the detriment of lots of (working not skiving) little people. Who will now be worse off with no way to get back by working what these cuts will cost them. At a time when this shower are set to piss 80 billion on the toy train set and are still printing green and driving prices up all the time. And esp when BluLabour (like ZaNu) are no more than well-heeled spongers themselves. AndrewC October 27, 2015 at 1:48 pm @BiS DBC is simply repeating the drivel the Murphoid himself repeated based on the fallacy that Henry Ford increased wages so all his workers could then buy Ford cars. That was totally debunked in the exchanges that followed until Murphy changed his mind about what he’d said meant (as is often the case). Any company relying for success on its own workers buying its own products is clearly heading for bankruptcy. Hugh October 27, 2015 at 2:00 pm The Bill wasn’t processed as a Finance Bill, so Lords had every right to vote it down. Either the Tories screwed up or You take the view Osbourne is being too clever by half ie he set this Bill up to fail to justify a huge increase in the number of Tory peers in Lords. I tend to see it as a screw up. Andrew M October 27, 2015 at 3:27 pm No mention of marginal tax rates on the poor? Half the point of tax credits was to move away from a situation where working five extra hours a week meant only actually earning 10p more, or whatever it was. The solution would be to cut both tax credits and benefits, thus maintaining the incentive to work. But that’s a bit beyond the pale even by Tory standards. Mr Ecks October 27, 2015 at 3:33 pm “The solution would be to cut both tax credits and benefits, thus maintaining the incentive to work. But that’s a bit beyond the pale even by Tory standards.” You can’t have endless taxation, regulation and inflation and at the same time cut the systems created to try and supress the problems caused by taxation, regulation and inflation. It boils down to “Do we want a real free market or not?”. The “not” is an ultimately deadly non-alternative but let us have either life or death. This dragged out struggle of markets to carry enormous statist/socialist dead weight is a zombiefied half-life that generates endless problems. All of which are deceitfully blamed on the market by leftists who are the real cause of all the trouble. Gareth October 27, 2015 at 3:39 pm Hugh, I don’t think it was a screw up. This apparent mess could allow the Conservatives to cut spending elsewhere, blaming those cuts on the Lords not letting tax credits be cut. Or at the very least blame the Lords for not slowing spending growth as much as previously promised. As well as that it does look like a shot across the Lords’ bow by the Government. When the Lords were debating the issue of numbers recently some Conservative peers were promoting a football squad sort of idea. That a party could have loads of peers but only a given number would be active.(Can’t remember how they planned to allocate numbers) IIRC they also suggested that could be be twinned with a moratorium on new peers until numbers had withered to something more manageable. I think it would cost the Conservatives a fair amount of support with the public if they tried to adjust the balance in the Lords by creating a shitload of new peers for themselves. Rob October 27, 2015 at 3:55 pm Say, even for a moment, that a company COULD pay its staff more and they then bought their products. Only one problem – tax. If you made cars costing £10,000, and you paid your staff an extra £10,000 to buy the car, they wouldn’t receive £10,000. They would receive £10,000 minus tax/NI. So now your company has to pay an extra amount so that the net increase can afford one of their cars, in effect paying not only your own money but 20-40% extra on top. Genius. DBC Reed October 27, 2015 at 4:56 pm Henry Ford did not raise wages so people could afford to buy his cars; I believe he raised wages to stop excessive staff turnover because people couldn’t stick working there for long .Only when other firms raised wages to compete for labour did he realise that his, and other people’s, employees could afford to buy his cheap-ish cars. Employers gain a benefit from increased demand when aggregated demand increases, not when one firm raises wages. anon October 27, 2015 at 5:30 pm “Andrew M October 27, 2015 at 3:27 pm No mention of marginal tax rates on the poor? Half the point of tax credits was to move away from a situation where working five extra hours a week meant only actually earning 10p more, or whatever it was.” Then it failed quite miserably as you can double your hours and not get much more Andrew M October 27, 2015 at 5:54 pm anon, Under the current system, the worst-case marginal tax rate is 73%: i.e. for every £1 extra you earn, you lose £0.73 in income tax, NI contributions, benefit withdrawals, and tax credit withdrawals. Under the new system it’ll be more like 93%. There’s plenty of devil in the detail, but overall the new plans will diminish the financial incentive to work. Dave October 27, 2015 at 6:43 pm “really, if you’re a family earning £40K, you aren’t poor by any real definition.” In London, that’s not going to go far after rent/mortgage payments on a, say, 3 bed semi in a very ordinary suburb. £40k before tax isn’t enough to have a normal, middle-class existence, it’s enough to just scrape by – you’re looking at £2-300 a week total budget after paying for housing, and that has to cover everything from bills and council tax to clothing and food. Fair enough, that’s not abject poverty, but it’s just about the level where tax credits seem appropriate to me. Outside the SE, of course, the picture is very different. Someone oop north, where you can get comparable housing for a quarter of the cost in London, will be doing quite nicely on £40k a year. diogenes October 27, 2015 at 9:10 pm The debate needs reframing. There is something wrong if you have to subsidise people on above median incomes. The whole tax benefits nexus is fucked and needs redrafting. I suggest cutting corporation tax to 5% and requiring companies to pay the tax reduction to employees. jgh October 27, 2015 at 9:41 pm The current system is certainly screwed, as there’s an hours barrier you must pass before how poor you are is even considered. As a single person, if you work less than 16 hours a week, you can get means-tested JobSeeker’s. To get Tax Credits you must be working 30 hours or more. So, if you work between 16 and 30 hours you get nothing as you’re working too much for JSA and working too little for WTC. What on earth sort of system gives extra money to somebody on £200/wk but nothing to somebody on £120/wk? And at the bottom end, JSA is screwed up as well. If you do part-time work your JSA gets reduced pound for pound after £5. So, for any amount of work you do from 0 to 16 hours your net income only rises by £5 a week. And, of course, your expenditure goes up as you’re having to pay the additional expenses of actually leaving the house and going to work. jgh October 27, 2015 at 9:44 pm “£40k before tax isn’t enough to have a normal, middle-class existence,” (shouts)But the whole point of benefits isn’t to support middle-class people, it’s to support POOR people.(/shouts) Andrew Carey October 27, 2015 at 10:44 pm “Under the current system, the worst-case marginal tax rate is 73%: i.e. for every £1 extra you earn, you lose £0.73 in income tax, NI contributions, benefit withdrawals, and tax credit withdrawals.” It’s already worse than that at the extremes right now. Suppose the cost of your labour is exactly equal to the value of it to your employer ( no profit or loss either way ). And you’re on housing benefit. You are offered the chance to take more work generating an extra 113.80 of value for your employer. You lose 13.80 for employers NI, 12 for employees NI, 20 for income tax, 41 for the tax credits taper rate and then 17.55 from your housing benefit. You’re out of range of council tax reduction at the income level of this scenario. So you’d get to keep 12.45 of every 113.80 of value you generate, or around 11%. And you’ll be more knackered when you get home. No wonder so many single parents have positioned themselves to work exactly 16 hours a week for close to NMW, as that’s where you maximise your utility ( free time and enough money for a trip every year or so ). Andrew Carey October 27, 2015 at 10:46 pm Oops, arithmetic fail – you get to keep 9.45 of every 113.80 Ironman October 27, 2015 at 11:29 pm There is nothing inherently stupid about somebody at or even above median wage getting benefits. There is something stupid with the same person paying Income tax and NI. There is a disincentive caused by means testing those benefits, especially if combined with IT & NIC. There is nothing, absolutely nothing silly about in-work benefits. Indeed they probably allow the market rate for wages to be found more quickly. There definitely is something silly about having in-work benefits at the same time as having a minimum wage or living wage whatever the he’ll you want to call it. And of course, as Tim’s post originally makes very clear indeed, those that shift seemlessly from decrying tax credits as subsidising low pay to arguing that they “make work pay” (as the TUC has done) deserve to be questioned very closely. So Tim wins the thread. diogenes October 28, 2015 at 1:03 am Ironman At one extreme, everyone is paid by the government. At the other extreme, everyone is paid by an employer. It is a question of where the line is drawn. I can understand trying to target tax reductions to working families rather than just raising tax thresholds, but we have worked ourselves, over the last 40 years, into an unintelligible morass. The gordian knot neds to be cut. Maybe a return to the child benefit coupons that I used to watch my mum take to the post office every week is the way ahead…Back to the Future…..counting down to DBCR and his desire to bring back the optician monopoly and the corn laws and slavery. jgh October 28, 2015 at 2:38 am diogenes I remember the eagerly-awaited envelope arriving with vouchers to take the the Education Department Supplies Office to get school uniform. (God, I feel old) Squander Two October 28, 2015 at 11:26 am Tax credits are absurd. If you want people on low wages to have less of their money taken by the state, tax them less. Taxing them more and then giving them some of their money back after the state takes its cut is a dreadful approach. And of course Osborne is taxing people less: he’s increased the personal allowance by over £4000 in 5 years, till it’s one of the highest in the world. And he increased the personal allowance first and is reducing the tax credits later, which is the humane way to do it. What pisses me off about this whole argument is that Osborne has made changes over 6 years and all the sums seem to be based on comparing this year to next year. I want to see comparisons which tell me what happens to example people’s finances over the 6 years. That would be honest. I honestly have no idea, and am no particular fan of the Tories, so would not be remotely surprised if the 6-year figures show that Osborne has utterly fucked people over who did not deserve it. But, being a cynic, I suspect that, if that were the case, the Guardian et al would be gleefully printing those figures. And they’re not. ukliberty October 28, 2015 at 8:36 pm It wasn’t a manifesto commitment or a finance ‘bill’ and the Lords are entitled to debate and delay statutory instruments. If the Gov was less interested in politicking and more interested in getting things done it would stop whingeing about the constitutional-crisis-that-aint and amend the Finance Bill or Reform Bill or create a short piece of primary legislation to the same effect. Leave a Reply Cancel replyYour email address will not be published. Required fields are marked *Comment Name * Email * Website Save my name, email, and website in this browser for the next time I comment.