Theresa May appeared to contradict George Osborne this morning on tax credits. But the Conservative's figures don't add up - their policy would save £352.5 less than they estimate.
Theresa May and George Osborne appear to contradict each other on the Tory’s tax credit policy but there’s a £350 million blackhole in the their calculations.
On the Today programme this morning, Theresa May denied that a Conservative government would cut tax credits:
“They keep making these false claims about what we would do. For example, Yvette [Cooper] … implied that we’re going to take away tax credits. We’re not going to take away tax credits. We actually want them to work better for people.” (08’00”)
But in his conference speech, George Osborne said:
“And I can also tell you today, we can no longer justify paying means tested tax credits to families with incomes over £50,000.”
At the time, the Times and Telegraph reported that this would save £400 million a year. But calculations carried out by the ‘ippr tax/benefit calculator’ and seen by Left Foot Forward show that this policy would only save £65 million assuming full take-up of the family component. If take up were 73 per cent, the relevant HMRC figure in 2005-06, the total saving would fall to £47.5 million. (pdf, Table 3: CTC, family element or less)
At present the family component of the Child Tax Credit starts being withdrawn at a rate of 6.67 per cent from an income level of £50,000. The value of the family component is £545 per year so it gets completely withdrawn at about £58,000. Ensuring that no-one earning above £50,000 received the CTC would mean that the family component was withdrawn at about £42,000.
Howard Reed, who designed the ippr model, told Left Foot Forward:
“The Conservatives would need to make the main threshold steeper or make the system less generous for low-to-middle income families in order to save £400 million.”
A separate scenario was modelled with the family element withdrawn between £27,000 and £35,000. Assuming that entitlement to the rest of the Child Tax Credit and Working Tax Credit was exhausted at that point, it would save around £280 million.
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