David Cameron spoke yesterday 'marginal deduction rates,' the amount given back to the state in lost benefits, lost tax credits, and paid taxes as a worker earns an extra pound. But this is not a new problem and the Labour government has more than halved the number of people facing these high marginal rates.
In one of the most emotive passages of his speech yesterday, David Cameron said:
“Big government has all too often helped cause them by undermining the personal and social responsibility that should be the lifeblood of a strong society. Just think of the signals we send out …
“To the young mum working part time, trying to earn something extra for her family “from every extra pound you earn we’ll take back 96 pence.”
Cameron was talking about ‘marginal deduction rates,’ the amount given back to the state in lost benefits, lost tax credits, and paid taxes as a worker earns an extra pound. This is not a new problem and, as the table below taken from the 2009 Budget shows, the Labour government has more than halved the number of people facing these high marginal rates. Indeed, when the Conservative party were still in office, some people were still paying marginal rates of 100 per cent – meaning they lost every extra pound they earned.
Cameron neglected in his speech to mention what he would do to reduce further the number caught by these marginal rates. Reducing deduction rates either mean spending additional money to reward work or cutting people’s benefits and tax credits. Responding to the publication of Iain Duncan Smith’s proposals to create “dynamic benefits” in mid-September, Conservative sources told the Guardian they were unlikely to embrace the proposed reforms because of the upfront costs:
“Any changes need intense and careful scrutiny.”
In focusing on young mums, David Cameron also forgot to mention that the employment rate for single parents has gone up by 12 per cent in the last ten years, more than for any other group.