Tax Credits Mini-Shambles: A Reader Writes

Our excellent (and numerate) oft-times energy commenter 'rwendland' has come up with the goods in the comments to answer yesterday's throw-away line on the tax credit cuts.  Deserves to be above the line, so here it is: 

The MSM seem to have covered the Tax Credit issue very poorly. For many families the reduction will be over £2k, and when the letter drops on the mat they will be very shocked. The formula to calculate the drop is very easy for people at work, and is a simple function of Joint Income, so why has no MSM seemingly printed the table of reductions: 

Joint_Income    Tax_Credit_Reduction 
£12,000                   £1,624 
£14,000                   £1,764 
£16,000                   £1,904 
£18,000                   £2,044 
£20,000                   £2,184 
£22,000                   £2,324 
£24,000                   £2,464 

Obviously the reduction is limited to the total amount of the Tax Credit the family gets, so not all working low-income families will see the full fall given in the table, but I think most 2+ families will see the fall given if their joint income (post pension contributions) is in the table above. NMW for 37.5 hours a week gives an annual pre-tax income of £13,065, less any pension contributions - so if a 5% pension contribution that is £12,411. The classic "hard-working parents" on near-NMW could easily earn a joint income of £20k from one full and one part time job, giving them a £2,184 tax credit cut. I think they will notice that. 

The explanation for the average £1,300 fall given in the MSM is that there are a large tail of higher income families where the withdrawal taper has reduced tax credits to a small amount - they will lose all the small amount, but they make the average reduction repeated in the MSM smaller. But lower income families will be hit much harder than that average suggests. The simple formula is: If a family's joint income is above £6420, the drop is roughly £1233 plus 7% of income over £6420 (obviously only up to the amount of the Tax Credit the family gets). Why hasn't the MSM told us that clearly? I wonder if all politicians actually know that formula, and have seen the implications? Did Osborne and his SPADs even understand it? 

The 7% is from the increase in withdrawal rate from 41% to 48%. The £1233 reduction is from the reduction of the deduction free threshold from £6420 to £3850 - 48% of that reduction is £1233. Letters hitting mats time will be a shock to many, and I guess many of those once voted Tory, but perhaps not next time.  - rwendland

How bad is this for Osborne?  No lesser *ahem* authority than Polly Toynbee doesn't think this is a Poll Tax moment.  But the back-benches are uneasy, and Boris is stirring.  Early days ... let's wait and see. 

ND

Energy Policy: You Can't Keep a Good Paradox Down

A lot of lobbying against government decisions just now, notably over the tax credit cuts.  Has Osborne screwed up?  Search me (- perhaps one of our expert commentators knows?)  It's the energy-related items that have caught my eye.

First up was the significant reduction (87% !) in subsidies for solar power, which is part of a general post-election thrust I welcomed when it first became apparent, and still do.  Not many friends of subsidies hereabouts.  But, set alongside news that DECC has been reduced to an administrative rump with all energy policy now emanating from the Treasury, I start to wonder whether in detailed terms it isn't part of a mini omni-shambles, perhaps brought about by the Treasury not actually being quite in a position to discharge this new responsibility.   Or it could just be that Amber Rudd is stupid, which to be fair is getting more empirically plausible as the weeks go by.

In terms of immediate job losses, the precipitous solar-industry collapse is set fair to beat anything boasted for the job creation potential of the would-be nuclear revival and/or shale gas revolution.  Since the nuke thing is (at best) every bit as much a Keynsian boondoggle as the solar thing, it's fair to put them side-by-side in that way.  And of course solar is cheaper! - per job created, much cheaper.  Much lobbying in evidence; and maybe a leedle U-turn just around the corner?

The other one is steel.  Timmy reckons no-one needs those old blast furnaces at all, but in any case the lobby is out again.  China is one of the bad guys this time - perhaps Corbyn will berate Xi for steel-dumping as well as human rights at the Buckingham Palace banquet - but the Grauniad fingers another issue: 

Another of the complaints is soaring, and uncompetitively high, energy costs, that are an important part of the strategy for greening the economy. Yet if they drive up the cost of the domestic product, only for it to be replaced by imported steel with a bigger carbon footprint, more is lost than gained.

Carbon leakage! - now there's a thing.  Who could have anticipated that?  Would the Guardian care to extrapolate that subtle conclusion to, errr, the whole European economy?

Probably not.

ND

Osbrone to repeat 2012 Omnishambles budget

There is a budget tomorrow, lost in the unfolding Greek disaster that it will be. But from the bits I have gleaned in the media I am confidently predicting a  2012 style omnishambles budget:

There are to be £12 billion of welfare cuts, £11.5b if you exclude the radical and stupid idea of outsourcing over-75's licence fees to the BBC (it is a silly gamer, the licence fee is our money, like any other tax not the BBC's, the Government are just engaging in fiscal sleight of hand to cut the BBC budget a smidgen).

Also f note is the move t increase the inheritance tax threshold just as some welfare cuts are to be made. In the early years of the Coalition the Tories took a lot of flak, rightly, for cutting the 50p top rate of tax to 45p. At a time when the cuts are hitting the poorest, this is no time to do it.

The time to make radical tax cuts is in the 2 years before an election, not in its aftermath. You don't reward voters who have not served their purpose by voting, you look to store up the political capital to make them happy next time ahead of the next election.

Not that I vote Tory, but their sunny days in the polls are to be numbered if the Budget turns out as currently predicted.