Gordon Brown had many merits as Chancellor (hindsight suggesting that one of the main ones was that it meant he wasn’t Prime Minister, with which I suspect even he might agree), but he did have a very bad habit of taxing people with one hand and ‘un-taxing’ them with the other – this was my main problem with his tax credits system. Ever the one to be innovative, but not necessarily in a good way, George Osborne has now achieved the reverse effect of granting a benefit with one hand and withdrawing it through the tax system.
At the time of the Budget I commented that this was a hideously inefficient way of conducting the nation’s fiscal policy, but that was before I started to wrestle with the problem of constructing a tax return questionnaire to deal with the issue (or at this stage, dealing with how to plan for the issue).
The major problem here is that one of Mr Osborne’s (more) illustrious predecessors, Nigel Lawson, introduced independent taxation of husband and wife. One of the beauties of this was that it meant that it was no longer necessary for husbands and wives to know what each other’s income was, and indeed this was trailed as one of the great advantages of the system. So now Mr Osborne has introduced a system for withdrawing child benefit via income tax which requires taxpayers to know …. you guessed it, what their spouse’s (or, a step forward from Mr Lawson’s day, civil partner’s) income is.
Add to this the excitement of introducing the new regime from 7 January 2013, being 3/4 of the way through the tax year, and we have a recipe for endless confusion and muddle. Mr Osborne would probably say that he introduced the withdrawal of child beneft through the income tax system because he received many comments about the staggering marginal rate of tax arising as a result of the original proposal to withdraw child benefit for all taxpayers earning over £50,000.
He did indeed receive many such comments, and about the only merit of the new regime is that it does indeed remove said precipitous marginal tax rate. However, the downsides are even more significant, introducing unnecessary complexity into the income tax system and prejudicing the principles of more than 20 years by requiring couples to disclose their income details to each other. The principle of giving benefits with one hand and taxing them with the other is so self-evidently inefficient that I am staggered that this is the best that the assembled brains at the Treasury could come up with.
PS I suppose it is appropriate now that I am 50 that I am becoming a grumpy old man!