Category Archives: Child Tax Credits

£1600 cut from in work benefits? Never mind, save £10 on petrol.

Tory MP Shailesh Vara yesterday made the comments that cutting the lowest paid people’s income by £1600 doesn’t matter, because they will save £10 every time they fill up their cars. Not only is that factually completely incorrect, it’s irrelevant to people too poor to own a car anyway. Mwhahaha.

In fact that was just the highlight of his ignorance. He was attempting to contrast the cuts in in-work benefits with the positive changes that the Tories have brought in. But how does this stack up for someone on minimum wage today?

People will save because of the raising of person allowances

In the Autumn Budget, George Osborne raised the personal allowance from £10600 to £10800, so another £200 will be tax free. This saves people £40 a year as long as they are in full time employment (40 hours a week). If you work 30 hours a week, it has no impact as you don’t pay tax anyway. Of course it could be argued that the change was just in line with inflation, but that would be churlish.

The new national living wage will increase incomes

From April (after the benefits cuts), the minimum wage will go up from £6.70 to £7.20. For someone working full time, that is an extra £1040 before tax. After tax, it’s £707 a year

Doubling free childcare

David Cameron committed to increase free childcare for 3 and 4 year olds from 15 hours to 30 hours as long as all adults in the household are in work. This hasn’t materialized yet, and nurseries have claimed that they won’t be able to support it at the rates the government would pay them, so whether this is any help in reality to the small amount of households it covers remains to be seen.

Tax free childcare from 2017

From 2017, if both parents are working, the government will top up every 80p that you spend on childcare by another 20p. This replaces a scheme where you can pay for childcare out of your pay packet before deductions. Unfortunately the new scheme is actually worse for most people – including basic rate taxpayers, so this one is a net negative.

£10 saved when filling the cars

When Labour were in power, they put in place a tax escalator on fuel of 2p a year. This was to help the environment, which thankfully we have stopped doing. Mwhahaha. In the last budget, George Osborne suspended the tax escalator, meaning that this year motorists save 2p per litre COMPARED TO A TAX THAT NEVER HAPPENED. So this isn’t a saving in your pocket – just the government saying they might have taken more money from you but decided not to. Also, most people who are impacted by the universal credits cuts can’t afford a car, so the savings are zero. And for those who do somehow have a car, the increase avoided is £1 per tank at best – perhaps £50 a year.

So, the “savings” that Mr. Vara touts as offsetting the £1600 cut in benefits are very much less than the amount lost. In fact, depending on personal circumstances, the money saving measures that he is so proud of could actually be costing people even more money. Mwhahaha.

93% tax rate proposed by Osborne – for the poorest

George Osborne is out to prove just how much he despises the lowest paid with his new rate of marginal tax for people transitioning from benefits to work that ranges from 75% to 100%. Why haven’t you heard about the new tax bands? Well, it’s because tax in this country is ridiculously complicated, with income tax only making up about half of the deductions from your pay packet. There’s also national insurance, reductions in child benefit from 50k, loss of personal allowance from 100k, and more, meaning that the effective tax rate is much higher. This is known as the marginal tax rate, and it tells if your pay went up by £1, how much of it would you end up with in your pocket. The Telegraph recently calculated that we have 12 marginal tax bands;

Currently the highest tax rate is for people earning between £50k and £60k who also have 4 children – they pay 70% tax. That’s high compared to the 47% rate that the highest earners pay, but it’s not as much as the minimum 75% marginal tax rate that George Osborne wants to tax people who are on minimum wage.

So what is being proposed? If you are not employed, you get benefits from the state – income support, housing benefit. If you are employed and paid well, you do not get any benefits. Rather than there being an instant jump between the two where if you earn just £1 you lose all benefits, benefits are withdrawn in line with how much you earn. If for every pound you earned, you lost a pound in benefits, your marginal rate of tax would be 100% – i.e. you are not any better off for having earned that money. That tends to disincentive people from working, so we have a system known as welfare-to-work where people only lose a fraction of their benefits – for example losing 50p in benefits and income tax for every £1 you earn would put you on a 50% marginal tax rate. That’s still pretty high, but it’s not high enough for George Osborne. He wants to start the benefits cuts at 75p for every £1 earned, taking it higher if you receive more benefits. The Telegraph give an example of someone who works 35 hours a week on minimum wage. For every £1 extra that they earn, the government will take 20p income tax and 12p national insurance, and will take 48p in tax credit reductions, and 13p in housing benefit reductions. That leaves the person with 7p in their pocket for every £1 they earn. By contrast, every pound extra that George Osborne earns will net him 58p – nearly ten times as much as someone on minimum wage. Mwhahaha.

Osborne re-writing history

History is written by the winners, and re-writing history is exactly what the Tories are setting about doing. George Osborne has been questioned by the Treasury Select Committee today about his proposed changes to child tax credits. And the fact defying statement that he made was that we can’t complain because he told everyone that he would cut child tax credit in the run up to the election.

When asked about the cuts, Mr. Osborne claimed that during the general election the Tories had “provided a huge amount of information about these changes, more so than any other government, more so than certainly any Labour Chancellor”. However, during the general election when pressed about where the cuts would be, the Tories said time and time again that they had not decided yet where the £12bn cuts would come from;

When the Liberal Democrats leaked documents saying that there were plans to cut child tax credits, Mr. Osborne was quoted as saying “This is a three-year-old document of policy options that was commissioned by the Chief Secretary himself. We have not put into practice any of these options. We don’t support them. We didn’t support them. We don’t support them in the future”.

And when David Cameron was pressed on Child Tax Credit cuts, he repeatedly stated on television that he would not cut Child Tax Credit.

Yet despite all of the evidence that the Tories did not spell out where cuts would come from other than explicitly denying that Child Tax Credits would be cut, Mr. Osborne is now claiming to have not misled the public, and to have always been clear where the cuts would come from. Mwhahaha.

When pressed about the child tax credit cuts, he also told the select committee “People know what we’ve proposed and of course in the general election we made it very clear we needed to make £12 billion of savings from welfare, so it was also, you know, signalled in the general election campaign and, I seem to remember, heavily debated in the general election campaign”. So unless he is truly very very forgetful indeed, we have to assume that what he meant was that the general public should have seen through the lies told during the election campaign and assumed that he would cut the child tax credit anyway. And in that at least, he’s right – we should have.