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.


Anonymous said...

The thing that worries me ( and no doubt others ) here Vicky is that on this question when ever I have heard Tory spokesmen asked " if when in Government would you bring back the 10p rate " they have avoided the question .
Whats you view , should there be a 10p rate or not .
I would have thought that was fairly easy.
Of course there should be this low rate .
It encourages people to go out and earn a living rather than be dependant on benefits .

Vicky Ford said...

The fact is that the question put alone is naive - Of course I want low taxes, and simple taxes - and to encourage people back to work but there are a number of options that must be considered. Tax reductions also need to be at a rate the economy can afford.

As for income tax for people at lower incomes its not just the 10p rate but considering at what level of income people start paying income tax.

This is why the conservative party announced a review of all the options available. I worked on the last review and I know it is a complex piece of work that should not be rushed. I think it is completely reasonable to wait for that review.