Monday, 26 October 2015

We need to talk about tax credits

Today the House of Lords’ will debate the Government’s reforms to tax credits, and there is a chance the Lords’ will try to block these. Not only would that be wrong constitutionally, it would also be wrong in principle. Tax credits need reforming. Changes need to be made so that hardworking people can have confidence that every penny of their pay cheque is theirs.

The tax credit system is broken. I first became aware of tax credits as a child watching my Mum, a single parent, fret over an overpayment letter from the tax man. A lot has been written about how government’s changes to tax credits could affect people. Very little has been written about how doing nothing could affect them though. Anyone who has had the experience of being told they got too much tax credits last year, and so they need to pay money back, knows tax credits are not perfect. Nobody on tax credits can ever be completely confident that their pay cheque is accurate. There is always the chance that money you have been given, money you might already have spent, will be demanded back from you.

My experiences have made me believe that instead of taxing people, and giving them a little of their money back as tax credits, the best thing to do would be to tax less in the first place. This would free the British people of a system so open to the possibility of error. Your pay would be your pay, and there would be no more letters through the door saying your tax credits were miscalculated. People could feel secure about what they actually had to spend, and budget secure that no money would be later clawed back from them.

This forms part of the Government’s long-term economic plan. We are moving from high taxes and high welfare, to low taxes and low welfare. The Government is not only making changes to tax credits. It has also cut income tax every year for the past five years. 27 million people have already had their income taxes come down, and even better the income tax reductions will continue. In a few years time none of us will be paying any tax on the first £12,500 we earn.[1] Under the Government’s new system, not only we will have greater security about our pay, the tax man will be taking less of it in the first place.

The fear people feel about the changes we are making is understandable. Some elements or right wing twitter reacted unfortunately after it emerged that Michelle Dorrell, who raised the issue of tax credits on Question Time recently, may not actually be affected by the changes[2]. However, I think people need to understand the fear of those who base their family budgets on tax credits: The change represents a new situation that you have not experienced, so you do not know if you can manage. You are too busy trying to put food on the table, get the kids to school and get to work on time, to grapple with numbers being thrown by so-and-so think tank against such and such analyst. Until the new situation is in place the prospect of change will be unnerving, because you know more or less how the current system works but not how the new one will. As centre-right people active on social media our job is to explain not to attack.

The British people are exchanging a lifetime of uncertainty for one spring’s. Having lived in a single parent family that used tax credits to get by, I recognise how the prospect of changes to them will feel. The whole thing is not made any easier by negative claims about how the changes might affect people, which ignore how Conservatives’ reducing income tax, creating a National Living Wage and offering 30 hours free child will all help. Still, what you need to keep in mind is that once this is done it is done. You won’t have some good years in which the tax man doesn’t try to claw back money from you, and some bad years in which unexpectedly he does. You won’t need to worry about the ‘what if’ of it happening. That will all be gone. Instead, you will know from your pay slip exactly how much money you have to plan for the future. Plus, you will be able to make those plans knowing that under the Conservatives’ income tax will continue to come down every year.

[1] David Cameron, Speech to Conservative Party Conference, 1 October 2014, link
[2] Telegraph, 16 October 2015, link

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