Dead Men Left

Wednesday, June 22, 2005

Tax credits: a thoroughly New Labour triumph

The tax credits scandal has finally broken into the headlines:

The government's tax credit system is subject to "completely unacceptable" errors, Citizens Advice (CAB) has said.

A third of recipient families have been overpaid - and many forced into poverty when HM Revenue & Customs (HMRC) takes back overpayments, the charity said...

CAB's damning report - based on 150,000 cases handled by the charity, which runs the Citizens Advice Bureaux - said that HMRC had "failed to live up to its own standards of information, clarity and efficiency of service" in the administration of tax credits.

From the Guardian:

In the first year alone, one third of all awards - 1,879,000 - were overpaid by a total of £1,931m, official figures revealed.

The ombudsman - who is in charge of investigating complaints against government departments - was unable to say how many of those had been due to government mistakes and how many had been caused by delays in claimants reporting changed circumstances.

Her report noted that 1,000 officials were currently handling complaints, and said overpayments caused by official errors in the first two years could be written off.

This dreadful mess cannot be blamed only on bad administration. Tax credits are so complex that they have deterred literally hundreds of thousands of potential beneficiaries. (PDF file; see p.36, where the IFS spin the figures to state that 150,000 non-claimants is only "fractionally lower" than predicted.) It is the combination of that complexity and a seriously under-prepared administration has proved disastrous, not least for the thousands of families now suffering as a result.

It is a direct result of the "Third Way": over-complex schemes, carefully devised to meet the requirements of the labour market alongside some nodding acquaintance with social justice have produced this mess. The bizarre idea that markets, if cajoled, can somehow produce social justice is integral to New Labour's thinking, and not least to the thoughts of its most active exponent, Gordon Brown.

The Rowntree Foundation, some time ago, recommended a simple redistribution of wealth to meet poverty and inequality targets. This IESR report is an important critique of targetted benefits. The case for a simple and efficient system of redistributive taxation, stripped of means-testing, is strengthened by the tax credit debacle.