Select Committee on Treasury Written Evidence


Memorandum submitted by Roger Cockfield

  1.  Has HMRC considered extending PAYE to update payment of CTC/WTC on a real time basis similar to wages at present? My method is to use a rolling average applied to a week one set of tax tables covering IT/NIC/WTC/CTC and CB. This removes the creation of underpayments which are an inherent design fault of the present system (Conclusion 4 of Inland Revenue Standard Report: New Tax Credits, Committee of Public Accounts, HC 782 April 2006).

  2.  What do I mean by rolling average? The total childcare paid for weeks one to seven are added up and then divided by seven. This figure, along with the rolling average wages and family structure is applied to a week one set of tables. One can use the spreadsheet program devised by the DWP (this generates their Tax Benefit Model Tables) or my own spreadsheet. I prefer my own as, inter alia, it allows for capital and working less than 16 hours per week. My program calculates the after income tax plus tax credits figure for week 7 by deducting the cumulative figure for week 6 (six times the rolling average week one figure) from the cumulative figure for week 7 (seven times the rolling average week one figure). Both these spreadsheet programs are small enough to be stored on a floppy disc and also cover housing benefit and council tax benefit.

  3.  Considerable work will be necessary to change an academic program to a fully working practical one. Not least structural changes like moving NIC to a cumulative basis will be required. The weekly upper limit on childcare costs needs changing to a cumulative basis, so any unused balance for one week is effectively carried forward. The enormous wasteful cost of the £25,000 disregard can be saved to be spent on better things.

4.  COST OF £25,000 DISREGARD FOR TAX CREDITS

  5.  I have calculated the cost of the £25,000 disregard at £1,500 million This is shown in the following calculations using the figures supplied in Hansard on 7 December 2005. It would be interesting to know which part of my calculations HMRC disagree with and why.

  6.  The first estimate (of £4,470 million) assumes all the increases are within the 37% taper. The second estimate (of £806 million) assumes all the increases are within the 6.67% taper. The third estimate (of £2,198 million) assumes the lowest increase is all associated with the 37% taper, whilst the highest increase only attracts a 5% taper. The ones in the middle gradually reduce between these two figures.

  7.  These estimates are all vulnerable to a lack of knowledge of which increases take the individual outside the effects of the taper. My feeling is that the actual figure will lie somewhere between the second and third estimates, say £1,500 million.

8.  POTENTIAL FOR ABUSE OF £25,000 DISREGARD

  9.  In addition to the manipulation of income between years, a more likely cause is the change of family status from lone parent to two earner couple. There is a substantial incentive (£25,000 at 37% = £9,250) to then revert back to lone parent status. There is strong evidence of the abuse of lone parent status from the IFS. Their press release of 12 March 2006 claimed that the Government are paying tax credits and benefits to 200,000 more lone parents than live in the UK.

ABBREVIATIONS
CTBCouncil Tax benefit
CTCChild Tax Credit
DWPDepartment for Work and Pensions
HBHousing Benefit
ISIncome Support
LPLone Parent
MDRMarginal deduction rate or marginal effective rate of tax
WTCWorking Tax Credit
WFTCWorking Families Tax Credit
February 2007





 
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