April 27, 2006

tax credits must go

Once again the government over paid it's tax credits and is now demanding money back because of it's mistake. The sum this year is £2.2bn, a huge amount of money. This is especially when put into the context as Wat Tyler at Burning Our Money has done:
tax credits overall "only" account for £15.8bn pa, that means they're bogging up 15% of them, despite spending zillions on new IT systems (described by the PAC as "fragile").
There must be a better system than this, and there is. The flat tax with a large personal allowance (say £12000) removes the low paid from tax entirely, removes all the disincentives to work that the current over complicated tax credit and benefit system creates, removes many tax avoidence mechanisms, and is massively simpler so is harder to mess up and requires less staff (and so cost) to administer.


Blogger tomdg said...

I had some experience of the stupidity of the tax credit system when I moved jobs just after the start of the tax year. Since I hadn't got a new job yet or a successful claim for benefits, they estimated my annual income as what I'd already earned and nothing else - about two weeks' wages. Surprise surprise, they gave me a huge wadge of money, then when I got a job a few weeks later asked for most of it back. Technically they didn't even make a mistake, they applied a stupid formula correctly.

I can think of so many reasons to abolish these stupid tax credits:

(1) The way they are calculated is stupid (see above).

(2) With the world as populated as it is, do we really want to subsodise people having children?

(3) They're dishonest. A tax credit should mean paying less tax. In this case, the credit often doesn't go to the person who earns the money and pays the tax. (Ours goes into a joint account so it makes no difference, but it's stupid nonetheless).

(4) The admin costs must be immense and are a complete waste.

(5) We have to fill out a ****ing 500-page form (I exaggerate only slightly) EVERY ****ING YEAR. And it's a pig of a form, they want to know absolutely everything whether relevant or not. We're bright people and it takes us hours to fill it all in and puzzle out what they're asking. Most people must find it completely perplexing and completely frustrating, so it's no wonder if so many of them are done wrong. (I actually am surprised by your 15% figure, I'd have thought it would be way more than that - maybe it doesn't include amounts they're repaying due to valid calculations and changes of circumstance).

Yes, they ought to scrap the lot. My choice for a replacement would be a national income scheme and a two-level tax rate with limited variation. You could then abolish all other benefits (except possibly housing benefit), tax allowances, NI, means testing, and the minimum wage. Think how much administration that would save.

We'd just have to find a way to implement the national income scheme without the ID card / death camp tattoo system. But that should be a lot easier and cheaper than what we do already.

7:31 am  

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