Here is a clear account of how our 'welfare state' treats those on low incomes:
Anyone entitled to claim tax credits – and that includes about half of all pensioners – whose annual income exceeds about £7,000 (believe it or not, neither HM Revenue & Customs nor the Department of Work and Pensions could tell me the precise figure when I called to check) has some of their state benefits withdrawn through a means test.To be precise, claimants lose 39p of tax credit for every £1 of income above that limit. Then, like anyone earning more than £6,475 a year – the current personal allowance – they must pay National Insurance Contributions (NICs) at 11pc.
Plus, to put the tin lid on it, like everybody whose income exceeds their personal allowance, they must now pay 20pc income tax instead of the 10pc they paid on the first £2,230 earned in the last fiscal year before Mr Brown cut off the bottom rung of the tax ladder. So, total deductions from their marginal earnings are 39pc, plus 11pc, plus 20pc – or a total of 70pc.
What it all boils down to is that people earning about £7,000 a year are allowed to keep just 30p in every £1 they earn above that level. The scope of this poverty trap was set out in the Treasury's Red Book last year – funnily enough, the chapter headed 'Fairness and Opportunity For All' – to see the figures, but there they are.
More than 1.87m people paid "high marginal deduction rates" of between 60pc and 90pc last year.
This description is by Ian Cowie, the personal finance editor of the Daily Telegraph. The full article is here.
Two points:
1. Things used to be even worse in discouraging work and employment.
2. What a pity it is that newspapers do not, on the whole, have 'welfare state' correspondents who would point out this kind of thing more frequently and on pages that politicians read more frequently. Of course, as newspapers lose circulation, they have actually been cutting back on specialist correspondents including those who deal with health policy and education.
Posted by James Bartholomew • Indexed in Welfare benefits
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Not only is there a high marginal tax rate for Pension Credit, but if you have any savings over £6000 (it may be a little more now - this is the 2008/09 figure) they deduct £1 per week for every £500 (or part). If anyone can tell me where you can get a guaranteed income of 10% (which is what £1/week for £500 amounts to) without risking your capital I be pleased to hear about it.
This kind of punitive deduction does not encourage people on low incomes to make any kind of saving at all.
Posted by: John Harrison at July 13, 2009 10:21 AM
There is a huge difference between the savings limit for pension credit and the savings limit for tax credits. The difference is that there is no maximum limit of savings for tax credits as it is based on the income produced by the savings, ie interest. As interest rates are relatively low,savings in excess of £100,000 will not greatly affect tax credits received. This rule of unintended consequences means pensioners are severely punished for prudence but those in receipt of a lump sum (compensation, lottery, legacy etc)still receive potentially large tax credits and other allied benefits such as maximum EMA payments to their children.
Posted by: Jimmy Mac at July 30, 2009 11:56 PM
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As you say the mainstream media sadly want to ignore this kind of 'welfare' story (otherwise I'd be writing it for them and not on benefits!) However it is being looked at in the blogosphere. There's a fair few disabled bloggers who regularly write about these kind of issues. There's also the BBC's Ouch site which has a section of disability related news, usually including things on the welfare state, although it's not as updated or comprehensive as it should be.
For bloggers mine's probably the one most aimed at benefits, but I'd also recommend http://takingiteasywatchingjeremykyle.blogspot.com/
who writes about life with a serious brain injury and his experiences of the various New Deal programmes and Batsgirl at http://batsgirl.blogspot.com/ who has ME and works part time. Hope you find them useful and look forward to seeing your views, Bendy Girl
Posted by: Bendy Girl at July 11, 2009 11:56 AM