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A consumer&#39s view

Now that we have had time to digest the implications of the Budget, there must be many who are questioning the whole thrust of Chancellor Gordon Brown&#39s attempt to redistribute wealth. Is it really necessary to give people benefits when they have an income of £58,000 a year?

While millions of pensioners still have to struggle on incomes as low as the minimum income guarantee – £100 a week for a single person or £154 a week for a couple – relatively well-off families with children will be guaranteed a minimum of £26.50 a week child tax credit , including the existing child benefit, even though they have incomes of £50,000 a year. Hardly the breadline, however expensive it is to bring up children.

What Brown appears to be doing is reinventing the wheel – in this case, otherwise known as child tax allowances. It is right and proper to allow families with children to pay less tax than families without children to reflect the cost of bringing up the next generation. But why not simply restore child tax allowances or increase child benefit, payable to those whose incomes are too low to benefit from a tax allowance?

What Brown is trying to do is limit child tax credits to those with incomes below £58,000 a year. The old child tax allowances were universal and applied to all families with children, however rich. But it would be a simple matter to phase out child tax allowances on incomes above a certain level.

Moreover, child tax credit is a bureaucratic nightmare. The benefit will be paid direct to the main carer – usually the wife – along with child benefit. But families will have to make a claim each year, estimating how much income they will have in the coming year – a virtual impossibility for large numbers of employees on bonuses and commission.

If they subsequently earn more than they estimated by £2,500 or more, the tax benefit will be clawed back.As accountant Anne Redston of Ernst & Young puts it: “Why not just let people pay less tax?”

What must stick in the throats of low-income families, whether single persons, childless couples, families with children or pensioners, is that the cost of this child tax credit largesse, much of which will go to people who could not be described as needy, is a whopping £13bn a year.

The Chancellor could have done so much more for those at the bottom end of the social scale at less cost. He could have removed 13 million of the poorest taxpayers from taxation altogether at a cost of around £12bn.

Out of 26 million taxpayers, the lower-earning half, 13 million, contribute only 12 per cent of the total income tax take of £100bn a year. Removing them from taxation requires no administration whatsoever, simply an annual declaration to the Inland Revenue that income from all sources has not exceeded a certain level, probably around £13,000 to £15,000 a year.

This would remove around 90 per cent of all pensioners from tax altogether without the need to apply complicated calculations, grossing up small amounts of savings income and working out whether age relief clawback applies – or, as will be the case from next year, working out complicated pensioner credits.

What is the point in taxing a family with children, where the husband earns only £13,000 a year, £1,505 in tax and £847 in National Insurance contributions, a total of £2,352, only to give back £2,821 in child benefit and the new child tax credit, which is what Brown&#39s proposals mean?

Why not simply increase child benefit for the poorest families and remove them from taxation altogether on earnings below £15,000 a year? This would be too easy, presumably.

The real reason for this pointless and wasteful system is, of course, that the politicians want to exercise their muscles and be seen to be doing something. Few Chancellors have been able to resist the temptation to tinker and Brown is no exception.

But more important, they want to make us feel grateful for what they hand out and, hopefully, vote for them at the next general election. Sooner or later, the electorate will wake up and revolt against a tax and benefits system that is unfair, incomprehensible and wastes billions in pointless administration.


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