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