Tax credits cost £171Bn over 7 years
Discussion
Nothing like this to make my blood boil. I wonder if Sir William Beveridge is turning in his grave. I cannot imagine that he envisaged a Welfare State to " aid those who were in need of help, or in poverty" which cultivated such large scale dependency and such a huge redistribution of 'wealth'. £171bn of state handouts in working and child 'tax credits' in just 7/8 years.
http://www.bbc.co.uk/news/uk-politics-20873180
http://www.bbc.co.uk/news/uk-politics-20873180
The more people you have hooked on the State then the more control you have over them.
There was a time when Britons claimed they would never be slaves.
Need to change minimum wage and tax codes so as to have only the desperate in receipt of welfare.
Paying £171bln to low wage workers is not the issue. It's the repellant mechanism of deliberate slavery that is used. If the people need this money then let it be earned through their labour or tax rate. Not by forcing them into welfare.
There was a time when Britons claimed they would never be slaves.
Need to change minimum wage and tax codes so as to have only the desperate in receipt of welfare.
Paying £171bln to low wage workers is not the issue. It's the repellant mechanism of deliberate slavery that is used. If the people need this money then let it be earned through their labour or tax rate. Not by forcing them into welfare.
£24 billion per year then.
Don't forget that they replaced a lot of pre-existing tax reliefs and benefits. So, not altogether as simple as £171 billion as "handouts".
There is a lot wrong with the tax credfit system - and it was a really messy disaster when it first started with lots of erroneous amounts being paid out and then having to be written off when the recovery threatened to put people into bankruptcy.
It is being replaced by "Universal Credit" - which threatens to be a whole new mess of its own.
Don't forget that they replaced a lot of pre-existing tax reliefs and benefits. So, not altogether as simple as £171 billion as "handouts".
There is a lot wrong with the tax credfit system - and it was a really messy disaster when it first started with lots of erroneous amounts being paid out and then having to be written off when the recovery threatened to put people into bankruptcy.
It is being replaced by "Universal Credit" - which threatens to be a whole new mess of its own.
johnfm said:
Does this 'cost' estimate account for the amount that returns to the exchequer as VAT, duty etc?
No, but neither does it reflect the opportunity cost of £171bn not spent on infrastructure, or otherwise making the country a more attractive place to do business/create jobs.theaxe said:
johnfm said:
Does this 'cost' estimate account for the amount that returns to the exchequer as VAT, duty etc?
No, but neither does it reflect the opportunity cost of £171bn not spent on infrastructure, or otherwise making the country a more attractive place to do business/create jobs.The fact is that it is actually a pretty good mechanism for putting cash into the economy as fast as possible. Money given is spent quicker than money earnt. All that money pours almost instantly into the highstreet and into employment, growth and investment into other assets.
It is a moral and social issue rather than an economic one as economically it is a brilliant and efficient system to generate commerce and wealth. There isn't a better way to create a boom than handing out money to people who will hurl it back into the economy instantly. They spend it at the local crappy shops, those shop keepers and employees spend the profits in slightly less crappy shops and so on up the chain.
But the social side is that when people don't earn the money in their pocket you get a very rapid decline in social structure.
And the morality of debasing the input of the working man is clearly detrimental.
DonkeyApple said:
But it is always relevant to recognise that recipients of welfare are spenders and not savers. Almost every penny of welfare is cash directly back into the economy. It does create employment, commercial activity and opportunity for others.
The fact is that it is actually a pretty good mechanism for putting cash into the economy as fast as possible. Money given is spent quicker than money earnt. All that money pours almost instantly into the highstreet and into employment, growth and investment into other assets.
It is a moral and social issue rather than an economic one as economically it is a brilliant and efficient system to generate commerce and wealth. There isn't a better way to create a boom than handing out money to people who will hurl it back into the economy instantly. They spend it at the local crappy shops, those shop keepers and employees spend the profits in slightly less crappy shops and so on up the chain.
But the social side is that when people don't earn the money in their pocket you get a very rapid decline in social structure.
And the morality of debasing the input of the working man is clearly detrimental.
Good post The fact is that it is actually a pretty good mechanism for putting cash into the economy as fast as possible. Money given is spent quicker than money earnt. All that money pours almost instantly into the highstreet and into employment, growth and investment into other assets.
It is a moral and social issue rather than an economic one as economically it is a brilliant and efficient system to generate commerce and wealth. There isn't a better way to create a boom than handing out money to people who will hurl it back into the economy instantly. They spend it at the local crappy shops, those shop keepers and employees spend the profits in slightly less crappy shops and so on up the chain.
But the social side is that when people don't earn the money in their pocket you get a very rapid decline in social structure.
And the morality of debasing the input of the working man is clearly detrimental.
When Tax credits were introduced they partially were to replace some tax allowances which were then withdrawn.
I am not against the principle of tax credits. However, the manner in which they were introduced and the administration around them was chaotic and disastrous. And they were FAR too generous when first introduced.
However, the Coalition has severely restricted some of the tax credits already.
I am not against the principle of tax credits. However, the manner in which they were introduced and the administration around them was chaotic and disastrous. And they were FAR too generous when first introduced.
However, the Coalition has severely restricted some of the tax credits already.
Tax Credits have been an administrative nightmare right from the start. HMRC is good at collecting money (well, okayish) but it is rubbish at distributing it.
Still, it would help if IDS could get his sums right.
http://blogs.channel4.com/factcheck/factcheck-ids-...
FactCheck: is Britain a tax credit haven?
Iain Duncan Smith has had a long hard go at Labour for their welfare spending. Not for the first time, he says hard working taxpayers are paying for the big-spending ways of the last government.
This time, he’s got the tax credits system in his sights.
The current – though not for much longer – system was introduced by Labour as a way of bringing down child poverty.
Instead, the work and pensions secretary wrote in the Daily Telegraph today: “It tells a sorry story of dependency, wasted taxpayers’ money and fraud.”
The claim
“Tax credit payments rose by some 58 per cent ahead of the 2005 general election, and in the two years prior to the 2010 election, spending increased by about 20 per cent.”
The verdict
We asked the Revenue and Customs (HMRC), which administers work and child tax credits, how much has been paid out since the current system started under Labour in 2003 (before that it was the Working Families Tax Credit).
It said that in 2003-04, £16.4bn was paid, and the following year – the one that included the general election to which Mr Duncan Smith refers – £17.7bn. That’s an increase of 8 per cent, not 58.
And in 2008-9, the HMRC said, some £25.1bn was paid in tax credits. In the following year, it was £27.3bn. Which means that in the two years prior to the 2010 general election, spending on tax credits increased by 8.8 per cent, not 20.
We put that to the department for work and pensions. “It’s calculated on the basis of tax credits deflated by earnings. I can assure you it’s correct,” a spokeswoman said.
We’ve asked for the source of that information, and a detailed breakdown, but haven’t received it yet. Whatever it is, must be a pretty fat adjustment, from eight to 58 per cent.
Out of fairness, we’ll leave it in the middle of the FactCheckometer just now.
The claim
“Between 2003 and 2010, Labour spent a staggering £171 billion on tax credits, contributing to a 60 per cent rise in the welfare bill. Far too much of that money was wasted, with fraud and error under Labour costing over £10 billion.”
The verdict
Mr Duncan Smith’s got his sums wrong on this one.
The total amount spent on tax credits, from 2003-04 to 2010-11, was £175.636bn, according to HMRC. But because that includes the first year of the coalition government, we took the last year – 2010-11 – off, during which £28.542bn was spent.
That meant that under Labour, from when the scheme started to their last year in government, £147bn was spent, not £171bn.
We also asked HMRC how much had been lost through fraud and error in the tax credits system under Labour. It was actually £11.16bn, not £10bn, so Mr Duncan Smith’s only £1.16bn out there – which is better than his previous effort.
It’s also worth pointing out that of the £11.16bn lost to fraud and error under Labour, just £1.27bn of that was actually down to fraud. Or 0.7 per cent of the total amount spent on tax credits.
The claim
“It will come as no surprise therefore that fraudsters from around the world targeted this benefit for personal gain. ”
The verdict
Actually this did come as a surprise. Fraudsters from around the world coming to the UK exploit the tax credit system? Sounds serious.
But when we asked HMRC how many non-UK nationals were responsible for tax credit fraud, it said: “The tax credit system doesn’t record nationalities of claimants, so we don’t have those figures.”
Still, it would help if IDS could get his sums right.
http://blogs.channel4.com/factcheck/factcheck-ids-...
FactCheck: is Britain a tax credit haven?
Iain Duncan Smith has had a long hard go at Labour for their welfare spending. Not for the first time, he says hard working taxpayers are paying for the big-spending ways of the last government.
This time, he’s got the tax credits system in his sights.
The current – though not for much longer – system was introduced by Labour as a way of bringing down child poverty.
Instead, the work and pensions secretary wrote in the Daily Telegraph today: “It tells a sorry story of dependency, wasted taxpayers’ money and fraud.”
The claim
“Tax credit payments rose by some 58 per cent ahead of the 2005 general election, and in the two years prior to the 2010 election, spending increased by about 20 per cent.”
The verdict
We asked the Revenue and Customs (HMRC), which administers work and child tax credits, how much has been paid out since the current system started under Labour in 2003 (before that it was the Working Families Tax Credit).
It said that in 2003-04, £16.4bn was paid, and the following year – the one that included the general election to which Mr Duncan Smith refers – £17.7bn. That’s an increase of 8 per cent, not 58.
And in 2008-9, the HMRC said, some £25.1bn was paid in tax credits. In the following year, it was £27.3bn. Which means that in the two years prior to the 2010 general election, spending on tax credits increased by 8.8 per cent, not 20.
We put that to the department for work and pensions. “It’s calculated on the basis of tax credits deflated by earnings. I can assure you it’s correct,” a spokeswoman said.
We’ve asked for the source of that information, and a detailed breakdown, but haven’t received it yet. Whatever it is, must be a pretty fat adjustment, from eight to 58 per cent.
Out of fairness, we’ll leave it in the middle of the FactCheckometer just now.
The claim
“Between 2003 and 2010, Labour spent a staggering £171 billion on tax credits, contributing to a 60 per cent rise in the welfare bill. Far too much of that money was wasted, with fraud and error under Labour costing over £10 billion.”
The verdict
Mr Duncan Smith’s got his sums wrong on this one.
The total amount spent on tax credits, from 2003-04 to 2010-11, was £175.636bn, according to HMRC. But because that includes the first year of the coalition government, we took the last year – 2010-11 – off, during which £28.542bn was spent.
That meant that under Labour, from when the scheme started to their last year in government, £147bn was spent, not £171bn.
We also asked HMRC how much had been lost through fraud and error in the tax credits system under Labour. It was actually £11.16bn, not £10bn, so Mr Duncan Smith’s only £1.16bn out there – which is better than his previous effort.
It’s also worth pointing out that of the £11.16bn lost to fraud and error under Labour, just £1.27bn of that was actually down to fraud. Or 0.7 per cent of the total amount spent on tax credits.
The claim
“It will come as no surprise therefore that fraudsters from around the world targeted this benefit for personal gain. ”
The verdict
Actually this did come as a surprise. Fraudsters from around the world coming to the UK exploit the tax credit system? Sounds serious.
But when we asked HMRC how many non-UK nationals were responsible for tax credit fraud, it said: “The tax credit system doesn’t record nationalities of claimants, so we don’t have those figures.”
I forgot to add that the economic model is weakened by too many leaks outside of the closed system. The two key ones are too many people saving and not spending so you need to manage that aspect and secondly offshore shop tills, so too many people passing money into new systems outside of ours and thus the money is gone from circulation.
You can combat these in a small way by changing benefits of saving or by enticing new money in but these are even less precise tools and more prone to failure.
The more efficient solutions are to ensure that those who save are kept feeling safe and secure so that they maintain a lower savings ratio while to also limit the loss of money from the system from offshore businesses.
Certainly not easy tricks to balance but easier than using a hundred inaccurate patches.
So, there is a strong argument that the best thing we could be doing now is to pump more money into the benefits system (it's infinitely more efficient than bolstering bank balance sheets as you know that every penny will bang into specific areas of the economy instantly) but at the same time, rapidly reduce the number of shop tills that divert money out of the system. And this can only be done by stimulating and favouring small business.
You can combat these in a small way by changing benefits of saving or by enticing new money in but these are even less precise tools and more prone to failure.
The more efficient solutions are to ensure that those who save are kept feeling safe and secure so that they maintain a lower savings ratio while to also limit the loss of money from the system from offshore businesses.
Certainly not easy tricks to balance but easier than using a hundred inaccurate patches.
So, there is a strong argument that the best thing we could be doing now is to pump more money into the benefits system (it's infinitely more efficient than bolstering bank balance sheets as you know that every penny will bang into specific areas of the economy instantly) but at the same time, rapidly reduce the number of shop tills that divert money out of the system. And this can only be done by stimulating and favouring small business.
DonkeyApple said:
But it is always relevant to recognise that recipients of welfare are spenders and not savers. Almost every penny of welfare is cash directly back into the economy. It does create employment, commercial activity and opportunity for others.
The fact is that it is actually a pretty good mechanism for putting cash into the economy as fast as possible. Money given is spent quicker than money earnt. All that money pours almost instantly into the highstreet and into employment, growth and investment into other assets.
Okay so you give away $1m and you get $900k back (assuming the other 10% goes to China or the middle East in oil/raw materials). Next year you give out that $900k, then you get $810k back, and so on... no matter how efficiently the outlay is distributed you're never going to get it all back.The fact is that it is actually a pretty good mechanism for putting cash into the economy as fast as possible. Money given is spent quicker than money earnt. All that money pours almost instantly into the highstreet and into employment, growth and investment into other assets.
However if you build a road, you not only pay the workers on the ground (who spend some of it) but also that road will pay you back over the years in increased productivity. Or you give a tax cut to a firm wanting to invest, you may only earn a few % of that money back each year but eventually you'll be in a sustained profit.
As for the spenders / savers argument, isn't that just a function of how much money they have. If you need £10 a day to feed your family and you have £10 then clearly you're not going to save. If you have a job and earn £20 a day then you may save and still contribute the same amount to the local economy. Plus, by saving you'll be reducing the burden on future generations of workers.
DonkeyApple said:
So, there is a strong argument that the best thing we could be doing now is to pump more money into the benefits system (it's infinitely more efficient than bolstering bank balance sheets as you know that every penny will bang into specific areas of the economy instantly) but at the same time, rapidly reduce the number of shop tills that divert money out of the system. And this can only be done by stimulating and favouring small business.
Don't small businesses need to borrow from banks? Not sure I follow. Banks (should at least) be good at making money available to viable businesses and ensuring a return.Edited by theaxe on Tuesday 1st January 10:50
HMRC are also disengenous about some of their "facts".
The Tax Credit system still has massive problems in that it often gives too much money to people - not because of fraud - but purely down to the complexity of the system and the fact that it relies heavilly on making the recipient keep it up to date every time they experience a change of circumstances in their income levels or living situation.
People either fail to notify HMRC of such changes or, if they do notify, they get some basic facts wrong or HMRC fail to actr and adjust the Tax Credit amounts cotrrectlyu.
Initially, HMRC tried to enforce the rules rigidly which caused all sorts of problems as they tried to reclaim amounts thay had paid out in error. Their chasing of such refunds was putting some people (often very vulnerable people) into real financial difficulty and caused a small number of people to file for bankruptcy.
HMRC were therefore ordered from on high to back-off chasing people for money they should never have had. As a result these incorrect overpaid amounts are now ommitted from the statistics as "fraudulent" or "erroneous" claims.
The Tax Credit system still has massive problems in that it often gives too much money to people - not because of fraud - but purely down to the complexity of the system and the fact that it relies heavilly on making the recipient keep it up to date every time they experience a change of circumstances in their income levels or living situation.
People either fail to notify HMRC of such changes or, if they do notify, they get some basic facts wrong or HMRC fail to actr and adjust the Tax Credit amounts cotrrectlyu.
Initially, HMRC tried to enforce the rules rigidly which caused all sorts of problems as they tried to reclaim amounts thay had paid out in error. Their chasing of such refunds was putting some people (often very vulnerable people) into real financial difficulty and caused a small number of people to file for bankruptcy.
HMRC were therefore ordered from on high to back-off chasing people for money they should never have had. As a result these incorrect overpaid amounts are now ommitted from the statistics as "fraudulent" or "erroneous" claims.
LaurasOtherHalf said:
DonkeyApple said:
But it is always relevant to recognise that recipients of welfare are spenders and not savers. Almost every penny of welfare is cash directly back into the economy. It does create employment, commercial activity and opportunity for others.
The fact is that it is actually a pretty good mechanism for putting cash into the economy as fast as possible. Money given is spent quicker than money earnt. All that money pours almost instantly into the highstreet and into employment, growth and investment into other assets.
It is a moral and social issue rather than an economic one as economically it is a brilliant and efficient system to generate commerce and wealth. There isn't a better way to create a boom than handing out money to people who will hurl it back into the economy instantly. They spend it at the local crappy shops, those shop keepers and employees spend the profits in slightly less crappy shops and so on up the chain.
But the social side is that when people don't earn the money in their pocket you get a very rapid decline in social structure.
And the morality of debasing the input of the working man is clearly detrimental.
Good post The fact is that it is actually a pretty good mechanism for putting cash into the economy as fast as possible. Money given is spent quicker than money earnt. All that money pours almost instantly into the highstreet and into employment, growth and investment into other assets.
It is a moral and social issue rather than an economic one as economically it is a brilliant and efficient system to generate commerce and wealth. There isn't a better way to create a boom than handing out money to people who will hurl it back into the economy instantly. They spend it at the local crappy shops, those shop keepers and employees spend the profits in slightly less crappy shops and so on up the chain.
But the social side is that when people don't earn the money in their pocket you get a very rapid decline in social structure.
And the morality of debasing the input of the working man is clearly detrimental.
For instance, if the low paid can't afford to live in London let them leave. Wages in basic jobs will very soon rise to bring things back into balance. All the state subsidy does is distort the market.
And it's insane that the non-working can afford to live in London if the workers can't!
theaxe said:
Okay so you give away $1m and you get $900k back (assuming the other 10% goes to China or the middle East in oil/raw materials). Next year you give out that $900k, then you get $810k back, and so on... no matter how efficiently the outlay is distributed you're never going to get it all back.
Does it not work as a multiplier though? 900k spent, say, on local businesses. Business owners see an increase in income, which they spend, via suppliers and staff wages, all of which is spent in turn, and ach time it goes though the system, HMRC get a %. Of course, if the business keeps the profit and lodges it abroad, there's another 'leak'.There's also an effect on wages, competitiveness, and working patterns from TC. I.e. if you know the govt will top up the wage you offer as a business you can lower the rate - which could create jobs and help you compete in a global market, or just increase profit. You can also employ p/t staff more readily (which afaik, are more likely to be women).
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