Budget 2010 - Working Tax Credits

Not much for me to say about today's budget in Parliament, except the Times has an infograph saying the government are paying out £3.9billion and taking in £3.3billion. I'm not sure what the context is, but it looks like they're spending beyond their means.

Anyhoo I had a go at the BBC's budget calculator, and cos of my car, I'm about £10 better off but because of my Working Tax Credits I'm about £400 worse off. Not cos of the budget, mind, but cos I'm overclaiming this financial year. Now I'm on £54 a week, next financial year what I'll get is a lot lower, £14 a week. I'll have to tighten my belt a bit more.

There's something really wrong with Working Tax Credits. If you're on a low income you get paid money by the government, but you also pay income tax. At £10,200 annual gross earnings it reaches parity, you pay the same amount in Income Tax and National Insurance that your receive back in Working Tax Credits.

People who understand these things better than I will tell you that for low earners the marginal tax rate is near 100%. I'm not quite sure what that means, but I reckon if I get a wee pay rise for my £10,000 job, in return for working harder or more responsibility, the amount I take home barely increases. Working Tax Credits are a disincentive for promotion and hard work.

The personal tax allowance has frozen in this budget, so if I get an inflationary pay rise, that'll be taxed more.

Now the thing that's nagging in my head is that I used to feel guilty about claiming Working Tax Credits, they're a grubby con of a financial measure, so for months I didn't claim it at all. I'm not the only low earner not claiming.

Last year, 3rd November 2009, Hansard has Alistair Darling saying amongst some groups take-up is 81%. Wikipedia has info from 2004 that of the 7 million people entitled to Working Tax Credit, 2 million do not claim it.

So in terms of the net amount of tax/NI/working tax credits that the government gets, if you're earning that breakeven point of £10,200, the government gets nothing. But if 19% of people on £10,200 don't claim Working Tax Credits, then the government gets free money, and the people lose out.

In another world, if the government abolished Working Tax Credits and just raised the personal allowance to the break even point, there'd be no one losing out at that break even point. The government wouldn't be able skim off from people who didn't take up the Tax Credits.

And that's why they're there, to provide cracks for people to lose money down.

**UPDATE**

Time passes, I get home and feel less guilty about spending time drawing graphs. Here, I was playing with the BBC Budget Calculator, and thought you might like this if, like me, you earn less than £14,000 a year.


Gross Income % you keep
£4,000 167.75%
£6,000 144.65%
£8,000 119.21%
£9,000 109.30%
£9,500 105.13%
£10,000 101.37%
£10,250 99.64%
£11,000 95.45%
£12,000 89.48%
£13,000 84.90%
£14,000 82.74%