From: "Andy Pandy" 
Newsgroups: uk.finance uk.gov.social-security
Subject: Re: 96% tax relief on pensions
Date: Sat, 10 Dec 2005 09:53:22 -0000


"Fred"  wrote in message
news:43999217$0$29564$da0feed9@news.zen.co.uk...
> > Nope. It's far more regressive than that, especially for families. It goes
> > something like this for a typical family (ranges are approximate and
> > depend on
> > circumstances):
> >
> > 10-4600:         100% - JSA withdrawal
> > 4600-7000:     85% to 88% - HB/CTB withdrawal, (+ some of IT, NI, TC
> > withdrawal)
> > 7000-12000:   95.5% - IT(basic rate), NI, TC withdrawal, HB/CTB withdrawal
> > 12000-20000: 89.5% - IT(basic rate), NI, TC withdrawal, HB withdrawal
> > 20000-25500: 70% - IT, NI, TC withdrawal
> > 25500-32800: 33% - IT, NI
> > 32800-37300: 23% - IT, NI(above LEL)
> > 37300+ :         41% - IT(higher rate), NI(above LEL)
> >
> > There will be a couple of very narrow negative bands as WTC and the 30
> > hour
> > element of WTC kick in.
> >
> > So in general, tax rates drop as income increases.
>
> Thanks for that.
>
> A lot of people don't like to see withdrawal of a benefit as a tax.

Especially the govt, 100% tax on the poor? But taking money off people by
reducing benefits has exactly the same effect as taking money off people by
taxing them.

> However if you're looking at incentivising people to work the effective
> incremental tax equivalent situation is a far better marker and illustrates
> what used to be called the poverty trap.

Still is, and has been made much bigger in recent years.

> What astounds me more than anything else is the number of agencies and civil
> servants who deal with all this very inter-related finances.  It would be so
> much easier for a single agency to do a single calculation in the same way
> PAYE is calculated.  It can't be beyond the wit of man!

It would be easy technically but impossible politically. Logically it makes no
difference whether you reduce someone's benefits as their income increases or
simply just tax them on their income. But then it would become apparant to
everyone what a regressive system we've got.

--
Andy