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.
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10 Responses to “Fewer “young mums paying back 96 pence” than under Conservatives”
Jonathan Bryning
RT @leftfootfwd: Fewer "young mums paying back 96 pence" than under Conservatives – 'marginal deduction rates' explained http://bit.ly/EM0Vf
Jess
So is it ok then? After 12 years of Government? Forget the Tories – is this situation one Labour should be proud of? Just because it was worse under the Tories 12 years ago????? It seems to me that nit-picking at every line and sniping about every comment is not very constructive, and even rather childish. Tony Blair promised the world in 1997, and I don’t think I will ever be as disappointed in a politician again, because, sadly, he killed off any trust and enthusiasm for me. The debacle in Iraq killed of Labour for me anyway.
willstraw
Jess – It’s not OK and I never suggested otherwise but marginal deduction rates are an inevitable consequence of a benefits system. Tax credits have helped to address the problem to some extent but there is further to go.
The point, however, and why it is so important to go over Cameron’s speech with a fine toothcomb, is that he got a good soundbite out of it without explaining what he would do to address it. It’s not sniping, it’s holding a potential future PM to account.
Grumpy Old Man
Willstraw. Maybe you should have looked a little further. Labour are imposing a 50% income tax on the highest earners. I agree in principle that this is the right thing to do, because we’re all in this together. However, if you aggregate the 2 totals, in 1998 1,980,000 heads of families were paying a marginal rate of 60% or over, whereas in 09/10 2,550,000 low-paid people were paying a marginal rate of 60% or more. Your use of statistics is questionable in that you are attempting to demonstrate that the poorer are better off, whereas there is infact an increase of about 20% in the number of low-paid that are paying a higher rate than the richest. Is this the 10p rate all over again? Your comments wouuld be appreciated over this apparent anomally
Mary Wimbury
@leftfootfwd has the answer http://bit.ly/EM0Vf