APPENDIX 6
Memorandum submitted by Mr Roger Cockfield,
Reader in Taxation, De Montfort University, Leicester (ICC 10)
1. SUMMARY
The Treasury paper[5]
proposes the integration of the child elements of various benefits/tax
credits but does not explain how it will be calculated[6]
nor how it will get over the problems of varying tapers and taper
starting points. No attempt has been made to address the problems
of discrimination against couples, savings and returning to work.
If the Treasury has solutions to these problems, they should be
made public so they can be tested and examined.
Splitting the existing benefit system into two
parts does not appear to solve the problems[7]
of our peculiar welfare system. If you are going to integrate
child related benefits, why not adult benefits? The major problems
with adult benefits remain untouched. How is adult income and
capital going to means test ICC. The crazy nature of our welfare
system is well illustrated by the following example.
2. HOURS CONUNDRUM
Two identical families (lone parent plus two
young children of the same sex and age) living next door to each
other pay the same rent (£44.42), the same council tax (£12.60)
and pay identical childcare costs of £2 per hour. Both lone
parents earn exactly the same wage of £57, yet one family
receives benefits total £210 per week, whilst the other £142
per week. How can a system be fair/sensible which penalises one
family by £63 per week merely because she works 15 hours
at £3.84 per hour whilst her identical twin next door works
16 hours at £3.60 per hour.
The penalty is £69.57 per week or £3,617
per year when the wage rates are £10.67 per hour and £10.00
per hour for 15 to 16 hours respectively.
3. RATES OF
TAPER AND
TAPER STARTING
POINTS
There is a wide variety of taper rates and starting
points for the various benefits to be integrated. These are shown
in the table below. No attempt appears to have been made to tackle
which rate and which starting point should be used, or even whether
there will be just one rate/ starting point. How will the difficulty
of having a fluctuating starting point for CTC somewhere between
£32,000 and £64,000 be tackled. Will there be any attempt
to place homosexual couples on the same footing as heterosexual
couples? If a different taper rate is used on the child element
of a benefit to the adult element, how will the split be dealt
with?
4. WHICH DEFINITION
OF PROFIT
TO USE
Income tax has a different method of calculating
profit for the self employed to social security (no deduction
for depreciation, losses, expenses must be reasonable). Which
will be used in ICC, where the income tax method is used for CTC
but the social security method for IS, WFTC and HB?
5. ALLEGED ADVANTAGES
OF ICC
The Integrated Child Credit (ICC) integrates
the child elements of Income Support/Job Seekers Allowance, Working
Families Tax Credit and Children's Tax Credit. The advantages
claimed by the government are a seamless and transparent support
for children, which spans welfare and work. ICC will have a common
framework for assessment and payment, with all support for children
paid to the main carer. It is also claimed that there will be
efficiency gains, as one department not four will run ICC.
6. WEAKNESSES
OF PROPOSED
ICC
A major flaw is that ICC concept overlooks the
child element in Housing Benefit and in Council Tax Benefit. Claimants
will still have to deal with any many departments as at present
when they claim the adult element of their benefits, so the claim
for efficiency gains appear unlikely. Housing Benefit will become
more complex to administer, as the local authority will have to
confirm details of the adult element of WFTC and separately the
child element. There is no discussion by the Treasury so far of
how adult income and capital will be obtained and verified in
computing ICC. Will adult income restrict the adult element of
benefits first or will ICC be restricted first. How will the balance
of restriction be identified and transferred? What happens in
the rare cases where the child has income and capital in its own
right? What happens to the 16-hour rule? How and where will childcare
costs be allowed?
7. PAID TO
MAIN CARER
Apart from the problems of how to identify the
main carer (and how to settle disputes), this is a code for a
benefit to be paid to the wife, which amounts to discrimination
against men. This will be in breach of Article 14 of the European
Convention of Human Rights.
Another flaw is the statement that child benefit
is a universal benefit. Child benefit[8]
is not charged to income tax at the basic or higher rates but
for those on Income Support or Jobseekers Allowance-income based,
it is taxed at 100 per cent. This means that the family on £200,000
per year pay 0 per cent but those unemployed pay 100 per cent.
For those working 16 hours a week or more, child benefit is taxed
at 65 per cent for Housing Benefit (HB) and 20 per cent for Council
Tax Benefit (CTB). This is because it is part of income which
triggers the taper restriction when income exceeds the relevant
threshold. The taper tax operates rather differently to an income
tax rate in that it eventually wipes out the whole of the benefit.
- THE TREASURY
CHART 3.6
The Treasury[9]
View of CB/JSA/WFTC and CTC is shown by Chart 3.6
9. WEAKNESSES
OF TREASURY
CHART 3.6
This chart plots £'s along the horizontal
axis. This does not identify/highlight the major breakpoint at
16 hours per week (when JSA can no longer be claimed, the starting
point for WFTC) and the minor breakpoint at 30 hours (when WFTC
30 hour premium is paid). It is much better to plot hours along
the horizontal axis.
Chart 3.6 uses an unrealistic 200-hour week.
If your model requires someone to work 200 hours per week, it
suggests there may be serious flaws in your models concepts.
10. TREASURY
CHART 3.6—40 HOUR
WEEK, WAGES
£3.60 PER HOUR
Using my model, the actual graph for £3.60
per hour working between 0 and 40 hours looks like.
11. TREASURY
CHART 3.6—40 HOUR
WEEK, WAGES
£20.00 PER HOUR
Using my model, the actual graph for £20
per hour working between 0 and 40 hours looks like.
12. INTEGRATED
CHILD CREDIT
The Suggested Future Structure with an Integrated
Child Credit takes the original 200-Hour graph and draws a horizontal
line across. The WFTC is renamed Employment Tax Credit.
13. PROBLEMS
OF INTEGRATION
How the integration is achieved is not clearly
stated. It overlooks a number of problems, which are summarized
in the table below.
| CB | JSA
| WFTC | CTC |
| Income Means Tested | No |
Yes | Yes | Yes
|
| Taper starts at | N/A | £520
| £4,680 | £32,335 to £64,670(1)
|
| Taper Rate | N/A | 100%
| 55% | 6?% |
| Capital Means Tested | No |
Yes | Yes | No |
| Administered by | DSS | UBO
| Inland Revenue—
Preston |
Inland Revenue—
Local Office |
| | |
| |
1 If both earn the same, the taper does not start till £64,670,
but for a single earner couple it starts at £32,335.
14. ALLOCATION OF
ADULT AND
CHILD ELEMENTS
OF BENEFITS
It is possible to arithmetically extract the child elements
from the adult benefits whilst retaining all the existing rules
on tapers, starting points etc. How much benefit my model attaches
to each is shown in the next table. This allows graphs to be generated
for any level of wages. The one shown is for £15 per hour.
My method of dealing with the fact that HB disregards the 30-hour
premium of £11.25 in WFTC; is to treat it as its own 30 hour
premium valued at 65 per cent to give £7.31.
| CB | JSA
| WFTC | CTC |
HB | CTB |
| First parent | N/A | £52.20
| £53.15 | £0.00 |
£52.20 | £52.20 |
| Second Parent | N/A | £29.75
| £0.00 | £0.00 |
£29.75 | £29.75 |
| | |
| | | |
| Family Premium | £5.00 |
£14.25 | £0.00 | £8.50
| £14.25 | £14.25 |
| Small Child | £10.00 |
£26.60 | £21.25 | £0.00
| £26.60 | £26.60 |
| Medium Child | £10.00 |
£26.60 | £21.25 | £0.00
| £26.60 | £26.60 |
| Large Child | £10.00 |
£31.75 | £26.35 | £0.00
| £31.75 | £31.75 |
| | |
| | | |
| 30 hour premium | £0.00 |
£0.00 | £11.25 | £0.00
| £7.31 | £2.25 |
| | |
| | | |
| Taper starts at per week | N/A
| £10.00 | £90.00 |
£621.83 | £202.60 | £202.60
|
| Taper starts at per year | N/A
| £520.00 | £4,680.00
| £32,335.00 | £10,535.20
| £10,535.20 |
| Taper rate | N/A | 100.00%
| 55.00% | 6.67% | 65.00%
| 20.00% |
| | |
| | | |
| Capital | | |
| | |
|
| Lower Limit | N/A | £3,000.00
| £3,000.00 | N/A | £3,000.00
| £3,000.00 |
| Upper Limit | N/A | £8,000.00
| £8,000.00 | N/A | £16,000.00
| £16,000.00 |
| Tariff Income | N/A | 26%
| 26% | N/A | 26%
| 26% |
| | |
| | | |
| | |
| | | |
CTC Taper starts at £32,335 for single earner couple,
but up to £64,670 for double earner couple.
HB/CTB taper for couple with 4 small children, varies with
number of children.[10].
15. MY MODEL
ICC-£15.00 PER HOUR
It is also possible to include the child elements from HB
and CTB, which give the following graph.
M16. Y MODEL
ICC-INCLUDING HB/CTB—£15.00
PER HOUR
October 2000
5
HM Treasury. The Modernisation of Britains Tax and Benefit System,
No 5, Supporting Children through the Tax and Benefit System.
November 1999. Back
6
Para 2.28 of HM Treasury. The Modernisation of Britains Tax and
Benefit System, No 6 Tackling Poverty and Making Work Pay-Tax
Credits for the 21st Century gives a very brief and inadequate
explanation eg does not mention how childcare costs will be dealt
with. Back
7
The problems are discussed in my previous papers, see the Sixth
Report from the Social Security Committee:Housing Benefit: Session
1999-2000: HC385-11 , Vol 11, p327-329; and Seventh Report from
the Social Security Select Committee, Pensioner Poverty: Session
1999-2000:HC606, at pages 134-137. Back
8
See the Sixth Report from the Social Security Committee:Housing
Benefit: Session 1999-2000: HC385-11 , Vol 11, p327-329. Back
9
HM Treasury. The Modernisation of Britains Tax and Benefit System,
No 5, Supporting Children through the Tax and Benefit System.
November 1999, Chart 3.6 is on page 40. Back
10
This table is taken from the spreadsheet 40-Integrated Child Credit.
It is not linked. Back
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