Would you tax credit it mags macinnes iss28 by Drouth

Would you tax credit it? By Mags MacInnes

As philosophies go, ‘helping to make sure that work pays more than welfare and that people have incentives to move up the earnings ladder’,1 sounds cool in the early years of a new millennium. But instead, tax credits simply heighten the good, the bad and the ugly of current economic arrangements. Why else, you might ask yourself, would we so under-value, and under-pay, the core workers at the base of our society? For me, thoughts of the good, the bad and the ugly were triggered by the million pound daily take of a flagship, red, white and blue supermarket in my small town and the thought about the profits made and the tax credits consumed. Successive governments have wanted people to work more; and for more people to work. And recently they have wanted them to work for longer hours and for more years. They want them to be flexible, and thousands are – lurching from one short-term, variable-houred job to another, in order to make a wage. Meanwhile, as the giant corporations focus on their bottom-line the government spends around 16 billion pounds a year on tax credits to bolster an economy founded on a spend – spend – spend necessity. Tax credits do not ensure that work pays more, if we take ‘the work’ to equal the place of work

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and therefore employers, then the working tax credit system provides no incentive for employers to pay more for work. Employers paid more attention in the past (between 1999 and 2006) when they administered most of the tax credits. They faced many of the difficulties now being faced, alone, by current tax credit claimants; delays in getting through to Revenue and Customs (HMRC), constant changes, poor internal communication – the right hand not knowing what the left hand is doing – endless resubmissions of data already within the annals of HMRC, and call centre staff ill-equipped to deal with queries. Jane Kennedy (Financial Secretary, HM Treasury) informed the House last November, that: ‘HM Revenue and Customs wrote to around 250,000 households in August and September about reviewing or inquiring into awards in order to correct an administrative error … No tax credits claimants have yet been advised that their overpayments will be remitted as a result of this exercise.’2 Put yourself in the place of any one of those households – two months or more have passed since that letter dropped through your door.You are all too familiar with the lurid headlines about people having to pay back thousands received in overpayment. Like Jeannie, who I will tell you about shortly, you will have become dependent on the regular receipts of tax credits.You may

be single, or married, with or without children, having to manage on a budget in uncertain times. The most certain thing about managing budgets is that it is a whole sight easier if you know what money is coming in as this largely determines the household spend. A former pig farm, transformed into a clutch of modern builds was where, at the agreed time, I met Jeannie, my first interviewee. Her daughter, Chloe, danced out in bare feet to greet me. Jeannie, aged 30, married, husband self-employed, works part-time. Following her in, I passed through her kitchen where the extended family was ready to eat. Grandma, with baby grandson on her knee, frowned at my intrusion. The living room was no lounge, it was comfortable and lived in, children’s toys – CBeebies on a turneddown television. Chloe danced round the couch barely making a sound, her ears flapped as children’s ears do when they think they’re going to hear something that grown-ups don’t want them to hear. A bit of small chat and Jeannie relaxed – Chloe showed me a drawing – then the squiggles of my shorthand mesmerised the child and she forgot to listen. It was then Jeannie told her story.

have a second child. ‘And they sent me £1,000 – I thought it was because I had given up work.’ And Jeannie, who was grateful for the way tax credits had improved their family’s quality of life, was able to return to work part-time. She was enjoying feeding her baby when two identical white envelopes slipped through the family letterbox. It was the end of the tax year, and HMRC was telling her she had been overpaid. The amount – £5,000. It would be deducted from her household’s tax credits – her family income. That’s debt. Huge debt, for someone on a low income. So what did she do? ‘I dissolved. Couldn’t understand it. Was too petrified to deal with it.You see you have to ’phone them every time there’s a change of circumstance, and I had done that – always.’ Jeannie listed the notifications she had made – change of hours at nursery, change in cost of nursery, change of work hours, no longer working, birth of new baby, back to work, etc. Once any change was instigated she simply had to call HMRC.

Up until the birth of their daughter Chloe, now crayoning a picture, Jeannie worked full-time. When Chloe was 18 months old Jeannie decided to return to work. Enquiring at the nursery she learnt for the first time about tax credits. Forms were sent out. She found herself back in work and in receipt of working tax credit and child tax credit.

After each call HMRC would send out, in duplicate, a letter confirming the changes for each element of change so that sometimes she would end up with six large envelopes, three for her and three for her husband.Yet over the six-year period that she has been in receipt of tax credits she says she has never had to send in written evidence to back-up events and this concerned her greatly.

‘They were chucking money at me, left, right and centre,’ so after a period she gave up work to

Traumatised by the demand for repayment, and the serious drop in income, she was relieved,

Courtesy of Mags Macinnes

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after three harrowing months, to learn from her boss (who had read it in the Financial Times) that there was an appeal’s form that she could complete. Jeannie completed the form and in response to a question asking: ‘Why do you think you should not have to pay back?’ she said, ‘I just wrote – I have no idea how you work this out. I gave you all the information about every change in household circumstances and I expected you to know what you were doing.’ In Jeannie’s case they wrote back and said, ‘Fine.’ But to this day Jeannie doesn’t know what went wrong, or why she was overpaid, or how they worked it out, or why they suddenly changed their mind. ‘They try and send you this information on how they work it out but it’s basically incomprehensible.’ Conscious of the family in the kitchen I took my leave. Chloe, free of the worries of adulthood, and still barefoot, danced out on to the pavement and waved me off. Tax credits are not just for low wage households. Employed as an administrator, James, who went to university as a mature student, lives in a household earning £37k. As a new parent he is astonished by the cost of caring for a baby. He works full-time and his wife works 17.5 hours a week. He illustrated the complexity of the child tax credit calculations. A nursery voucher scheme, bought into by his employer, was based on a four-weekly system while the costs he had to pay towards the nursery were monthly. Grateful as he was for the assistance, and appreciative of the money (c£55 a week), he

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pointed out that it was tough living off £37k with a young family. It had meant moving from a single-bed flat, to a two-bed house. The move to an out of town village, to make a larger house affordable, led to them having to buy a second car to make employment and childcare manageable from a location without nursery provision or a regular bus service. James considered himself lucky to be in a marriage with their level of income. However, he was worried about the closeness of the cessation of their fixed-term mortgage and the likely availability and cost of renewal. In addition, his good fortune in ‘moving up the earnings ladder’ meant he was now in the income bracket for paying back his student loan. This was costing him £150 a month and the interest on the loan of £7.5k had raised his debt to £9k. (Which is £9k more than I had to pay as a mature student – in the 1980s.) As for the administration of the tax credits, he reinforced Jeannie’s tale. ‘You get two or three copies of the same document to each of us and the forms are very complicated – a lot of the information refers you to the net. And when you use the ’phone lines, if you’re not IT literate, or don’t have access to a computer, as I do here at work, they can be very patronising.’ Duncan, the manager of an advice agency listed another problem: ‘You have to ’phone people who don’t understand your accent – they send a form that is wrong, then six months later, you still don’t have the money that is due to you. They just don’t appear to have the capacity to respond quickly.’

Morag, a parent herself, and the manager of a service supporting people to return to work said: ‘ I get a lot of lone parents, and the good part is, that it gives extra support to them, access to extra money.’ However as with Jeannie’s experience there was that huge downside. ‘A lot of people end up in debt because of tax credits.’ One of Morag’s clients had sent seven letters saying her child had turned 18, had left college, and she believed she was no longer entitled to tax credits. But the ‘tax people’ kept paying her. So the woman thought she must be entitled after all. Instead, she ended owing thousands. And she had to pay back at a time when her income – with the loss of child tax credit – had been radically reduced. Two other householders I spoke to, who were entitled to child tax credits, had not reapplied following experience of overpayments. In both cases it had led to first-time debt and the humiliating situation of having to reveal all your incomings and outgoings to a debt collector instructed by the Revenue. One, who still had a child at primary school, said: ‘They have made such a mess of things I don’t want to take the chance of getting into that kind of debt again so I never filled in my forms last year.’ The other said: ‘I like to know where I am financially, and don’t like to be torpedoed by other people’s incompetence – I don’t see why I should have to pay for their incompetence.’ Yet workers, with children, earning as little as £5k or as much as £55k can receive child tax credit, or cash as we know it, and in case you’re confused this cash credit is over and above the Child Benefit which is not means-tested and comes from the Benefit pot. The government, to bolster its work ethos, appears to have nationalised the workforce. So now, a couple on the minimum wage, working at least 30 hours a week will receive additional tax credits (cash) worth between 61 per cent and 104 per cent of their gross waged income (dependent on the number of children in their household). It’s tricky, isn’t it? And then you begin to question why it is possible for the country to subsidise a workforce to such a huge extent and still allow benefiting flagship companies to locate their headquarters in tax havens offshore.

When I asked Wullie, an adviser at a Citizens Advice Bureau, about Tax Credits, he lauded the idea and decried the reality. ‘The tax service is used to taking. The Benefit service to giving. Now, the tax agency is giving and taking, so it doesn’t know whether it’s coming or going, and ends up impoverishing many of the people the tax credit system was set out to assist.’ He described the tax credit system like a giant tanker: it delivered cash to applicants, but even when applicants said they were not entitled to it, it kept on delivering, and when claimants rang the Captain of the ship their Petty Officers said, no it’s fine, you’re entitled. Then people started to believe it must be right because it was still being delivered and the Captain should know. But of course the Captain didn’t know. The Captain was so out of touch with the state of the machinery, that there were even times when Petty Officers said: ‘Just a moment while I get you up on my radar’, and there was no screen and no radar, no information at all. So, beside the ugly aspects of tax credits, Wullie said: ‘They can have a positive impact for families with children – particularly for children with disabilities.’ I asked him to explain. ‘Previously children with disabilities weren’t eligible for special benefits, unless the family was in receipt of Income Support. They could apply for DLA (Disability Living Allowance) and DLA is still there for people receiving disabled child tax credits. But the claiming and appealing and reclaiming can be a nightmare process, and adds to the stress levels of people struggling to help their family.’ Wullie, a worker earning barely above the minimum wage, applauds the concept of lifting people out of poverty, but like James, decries the difficulty of engaging with the Tax Credit help line: ‘The main problem for us, as advisers, and for people claiming tax credits is the terms of their annual award. People don’t understand that they have to check the actual figures. If they don’t check the figures and there’s a mistake and they don’t notice it, then the HMRC can recover the money awarded even if the mistake was made by HMRC.

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‘Clients are told to ’phone in with changes and are told that is all they have to do and then they find that HMRC has lost the information and claims have not been recorded. And people not in receipt of claims can end up being penalised financially by being unable to claim other benefits designed to relieve people on low incomes.’ ‘When you think about the cost of living, the national minimum hourly wage should be about £9 or £10,’ Wullie said. ‘And if the national minimum wage was set at a realistic level there would be no need for tax credits.’ I did a quick calculation based on Jeannie’s £11k tax benefit, which made up half her household income, and sure enough it was close. In Scotland alone a conservative estimate of £110 million of tax credits went unclaimed for the year 2005-20063. Across the UK 78 per cent of people without children and eligible for working tax credits have made no claim. So while hundreds of thousands of people are not benefiting, HMRC has adhered a new patch on the punctured system. The patch allows people to continue to receive current tax credits as long as their income doesn’t rise more than £25,000 over the year. Previously the limit was £2,500. This patch, some argue, will skyrocket the level of payments, fraud, and indebtedness; and add to the layers of questions unanswered about the efficacy of the whole tax credit system. With the Treasury annually writing off hundreds of millions of pounds in lost overpayments, while failing to reach hundreds of thousands of ‘deserving workers’, the good aspects of assisting people to move out of poverty or improve their lot, are being lost in the debt ridden/ harrowing experiences of unlucky recipients of overpayments and those too confused, ignorant or proud to claim. The necessity of underpinning so much employment by tax credits, suggests that the economy is living way beyond its means, and it is the lower paid, flexible – often disposable employee – that is forced to carry the greatest personal burden in dealing with government agencies. Meanwhile we should ask ourselves why the profligate rulers of Britain, apparently powerless, stare aimlessly, bluster and question – as the taxes we all part with as individuals are squandered – and the institutions which protect

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the wealth of the establishment are allowed to canter on. Acknowledgments: Thanks to all those who shared their personal financial circumstances and to employment agencies and to Citizens Advice Scotland and local advisers for their time and assistance in researching this article. 1

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