Wednesday, 23 April 2008
The cost of Gordon's U Turn
One bit of me is pleased that Gordon U turned and will give money back to the 10p tax payers. They need to keep that money – but what will his solution cost?
Taking with one hand through income tax and giving back to exactly the same people with the other through credits is a woeful waste of money.
A troll through HMRC’s last report shows the cost of collecting income tax is just 1.25p per £ but the cost of returning it ranges between 3.42p and 4.58p per £ - the higher figure being when you also build in the cost of preparing for new credits such as the one suggested.
Therefore for every pound Gordon taketh and giveth back he chucks down the bureaucratic drain around between 4.67p and 5.83p.
So the offer is I'll take your money throw 5% away and give it back in a while (without interest?).
Furthermore the wastage must be even higher since these are based on average figures, yet the cost of administering tax collection must be higher when dealing with a large number of lower income payers rather than a smaller number of higher income ones.
And is even more complicated since many younger people change jobs and working hours more often so all the credits will need frequent re-calculations.
To cap it all there is the concern that not everyone hit by the loss of the 10p band will be eligible for credit.
What a lot of questions.