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Uber Member
Join Date: Sep 2004
Location: Woking
Posts: 30,604
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Brown must answer for migrant tax credit catastrophe
http://www.ukip.org/ukip_news/gen12.php?t=1&id=2468
Quote:
24-08-2006
"Gordon Brown must act", said Nigel Farage MEP today (24.8.06), "whilst he is holding his baby, his tax credit system is pouring down the plughole". The leader of the UK Independence Party MEPs is demanding that the invisible man of British politics, Gordon Brown act after revelations that his tax credit system is providing upwards of £10,000 each, to recent migrants from Eastern Europe.
"Not only do we know that hard pressed families are having to refund money wrongly paid by his incompetent department, but now we discover that he is granting a generous hello to economic migrants", he went on, "I am sure that those who have suffered under his high tax, high regulation regime would be very happy to get a free £10,000, but the British people seem to be at the bottom of his list of priorities".
"It is about time he took his responsibilities to his country as seriously as he takes his paternal duties".
Mr Farage also revealed that under EU rules there was almost nothing that the government could do to stop the entry in to the British workforce of a possible 300,000 new migrants from Bulgaria and Romania. "Having spoken to both the Foreign Office and the European Commission, I can tell you that the only way to stop this is to leave the EU".
"Because our Government has already signed and ratified the accession of those two countries, it can no longer veto their entry into the EU. Germany and France have postponed ratification until they learn the facts, giving themselves freedom of action but this Labour Government, typically, went ahead without any serious checks".
Notes:
The European Commission will release its report on the suitability of Bulgaria and Romania for EU membership on the 26th September. If it believes that they are suitable then there is no procedure to block them for the UK. If the Commission offers a note of caution then Britain will need the support of all 25 countries to block Bulgaria and a Qualified Majority to block Bulgaria at the European Council meeting in November.
Migrationwatch study on possible Bulgarian/Romanian immigration to the UK
http://www.migrationwatchuk.org/Brie...d_Bulgaria.asp
Gordon Brown's “Accidental” Golden Hello for Migrant Workers
Gordon Brown's recent attempt to “disappear” multi-billion pound Tax Credit overpayments, may yet cost him additional hundreds of millions in increased Tax Credit and Child Benefit payments to migrant workers and asylum seekers. It will also provide a dazzling “golden hello” and considerable incentive to anyone thinking of living or working in the UK. With a possibility influx of migrant workers if Romania and Bulgaria join the E.U. in January 2007, this may be an appropriate time for a re-think. MigrationWatch has estimated that up to 300,000 Bulgarians and Romanians could come to work in the UK by the end of 2008.[i]
Here's the deal. For 2006-07 onwards, most legal migrant workers aged over 25 working at least 30 hours a week and migrant workers aged over 16 with children will receive maximum Tax Credit payouts in the year of arrival in the UK. This is because the tax credits system assesses entitlement using previous year income figures. Migrant workers will be assessed on the basis of their foreign income before arrival. For the vast majority of asylum seekers and workers from Eastern Europe – the A8 nationals - this will be below the income threshold and claimants will receive the maximum tax credit payout.
This situation has arisen because in December 2005, Gordon Brown announced in his Pre-Budget report, that for 2006-07 he would increase the annual income tolerance from 2,500 to 25,000.[ii] The purpose was to reduce the multi-billion pound Tax Credit overpayments. The implications with respect to migrant workers and asylum seekers do not appear to have been thought out.
The Details
Tax Credits awards are based on annual household income. The claim is initially assessed using the previous year's (PY) income. For tax years 2003-04 to 2005-06, if the current year (CY) income was greater than the PY income, the first 2,500 of the increase was disregarded. If the CY income was less than the PY income, then the lower CY figure is used.[iii]
The first two years of operation the system resulted in billions of pounds of overpayments, a substantial number of which were due to claimants failing to notify Revenue and Customs that their current year income had increased beyond the 2,500 tolerance. Most families are now being asked to pay the money back.
In December 2005, Gordon Brown announced in his pre-budget report that he would increase the annual tolerance from 2500 to 25,000 for 2006-07 onwards. This would cover 95% of all increases in household income.[iv]
The effect of this is not to reduce the amount of tax credits paid. It simply increases the claimant's entitlement and the overpayment “disappears”.
Problem solved. Or maybe not. Wages in Eastern Europe are a fraction of those in the UK. In May 2005, Eurostat published a report showing average annual wages across the EU in 2002: Latvia 3600 euro, Lithuania 4100 euro, Estonia 4900 euro, Slovakia 5700 euro, Hungary 5900 euro, and Poland 7070 euro.[v] Earnings are lower still for Europe's new arrivals, Romania and Bulgaria.[vi]
For Tax Credit purposes, the first £5,220 of assessable income is discounted after the previous year (PY) income allowance of £25,000 is deducted. £5220 is approximately 7350 euro at today's exchange rates, well above the average earnings from all A8 countries and Bulgaria and Romania.[vii]
Households with £5220 assessable income or less are treated as having nil income and receive maximum tax credits. That means migrant workers or families who earn up to £30,220 (25,000 + 5220) in the first year in the UK and who earned £5220 or less in their home country in the tax year before arrival, will receive the maximum tax credit award in the first year. If they earned more than £5220 before arrival then their tax credit entitlement will be reduced by 37p for every pound above the threshold.
In the second year, they will be assessed on their first year UK earnings so they may receive substantially less or nothing at all from the second year onwards.
How much money are we talking about? Tax credits awards are based upon income, the number of hours a person works, whether they are disabled, how many children they have, whether their children are disabled, and whether their children are in childcare. A tax credit award can be anything between £545 per year to £30,000 a year or more, depending upon the circumstances. The current tax credit bill is currently £15 billion a year.[viii]
A maximum 2006-07 tax credit award might look like this:[ix]
Single parent or couple both resident in UK working at least 16 hours each. They have one child who lives with them in UK.
Working Tax Credit (WTC)
£3985 (1665 basic element + 1640 lone parent or second adult element + 680 30 hr element)
Child Tax Credit (CTC)
£2310 (545 family element + 1765 child element)
Total £6295
For each additional child add £1765. If there is a baby in the household add £545. For each disabled child add £4115. Add eligible childcare costs up to a maximum of £7280 for one child or £12,480 for two or more children.
Any migrant worker with two or more children with one or more in childcare would receive a five figure tax credit pay out in the first year, even if their UK household earnings were £30,220.
The majority of the A8 migrant workers are young people in their twenties without children. These would be entitled to Working Tax Credit if they are over 25 and work more than 30 hours per week. With household earnings up to £30,220, a single claimant would receive £2345 (basic element + 30hr element) and a couple £3945 (basic element + 30hr element + second adult element). That is more than most of them would have earned back home in a whole year. It would go a long way towards covering the cost of rental accommodation in the first year, and therefore provides a nice to come to the UK.
However, there is now a much greater incentive for parents to come to the U.K, because of the sums of money on offer. EEA migrant workers are entitled to claim child tax credit (CTC) and child benefit (CB) even if their children live back home with their partner or spouse. They cannot claim childcare costs if the children are not in the UK, however.
Firstly, EEA including A8 nationals are not subject to immigration control, which overcomes the first barrier to claiming UK benefits.[x]
The technical manual explains that EEA workers including A8 nationals are also exempt from the requirement to be ordinarily resident in the UK. i.e., the requirement to normally reside in the UK and establish a settled life here. [xi]
The Tax Credits (Residence) Regulations 2003, Reg. 3(4) and (5)
WTC is available to people from countries in the European Economic Area who are exercising their rights as workers in the United Kingdom, or their right to reside here, under Community law. Such people are, therefore, to be treated as ordinarily resident for the purposes of WTC. A8 workers have a right to claim WTC on the same basis as other EEA workers.
In order claim Child Tax Credit, A8 migrant workers have to register on the Home Office Workers Registration Scheme. This establishes their “right to reside in the U.K.” for the purposes of claiming Child Tax Credit.[xii]
The Tax Credit Office has set up a special unit in Northern Ireland to deal with migrant workers, the international claims processing section. If a migrant worker does not bring their family, they can claim Working Tax Credit, but their partner is ignored when assessing the claim. A separate Child Tax Credit and Child Benefit calculation is performed for the non-resident children.[xiii]
Before Child Tax Credit and Child Benefit is awarded, international claims section has to decide whether the UK or the migrant's home country in which the children reside, is the “competent state”. [xiv]
If the UK is the competent state, the UK pays the family benefits, i.e. Child Tax credit and Child Benefit. If the other member state is competent, then it will pay the family benefits. So long as the migrant worker does not have simultaneous employment outside of the UK, then the UK will be the competent state. This will be the case for the vast majority of migrant workers.[xv]
Even in the few cases where the UK is not the competent state, migrants are entitled to equalization under community law. This means the UK must make up the difference if the competent state pays a lower rate of family benefit than the UK rate. Family Benefits in A8 countries will be a fraction of those paid in the UK.[xvi]
If the claimant has children, the age limit for claiming tax credits is dropped from 25 to 16. Also, the minimum number of hours worked required to qualify for WTC is dropped from 30 to 16. In this case the worker loses the WTC “30 hour element” and receives only the 16 hour “basic element”. [xvii]
The effect of this is that that migrant workers aged 16 or over whose children reside either with them in the UK or with their partner in their home country will receive the maximum WTC and CTC and child benefit in the first year, even if they only work 16 hours per week.
Conclusion
Noone can predict exactly how this will influence the behaviour of migrant workers or how much it will cost the Treasury. What is certain is that once news of this gets round Europe, Britain may find hundreds of thousands more unexpected visitors with the prospect of an increased Tax Credits bill. The irony of the situation is that migrant workers who have been working here for years already will be left scratching their heads wondering why they are not entitled to the same pay out as their countrymen who have just arrived. They should know that if they returned home for a year or more they would be entitled to the pay out on their return to the UK, providing they earned less than £5220 back home.
If this is not a deliberate Treasury policy, then it is an oversight that that needs to urgently examined preferably before Bulgaria and Romania join the EU.
The author is an Inland Revenue and Customs official who specialises in Tax Credits
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[i] Bigger EU 'may bring 300,000 workers to Britain' By John Steele, 15/05/06 The Telegraph. http://www.telegraph.co.uk/news/main.../15/nimm15.xml
[ii] Pre-budget Report, p.97, Dec 2005 http://www.hm-treasury.gov.uk/media/...apter5_203.pdf
[iii] Tax Credit Technical Manual TCTM07042 http://www.hmrc.gov.uk/manuals/tctmanual/TCTM07042.htm
[iv]Big Changes to Tax Credit Limits, BBC, 5/12/2005 http://news.bbc.co.uk/1/hi/business/4500282.stm
[v] (5) Eurostat news release 68/2005, 30 May 2005. “average annual earnings varied significantly across the EU25”. http://epp.eurostat.cec.eu.int/pls/p...GE_CAT_PREREL_
YEAR_2005/PGE_CAT_PREREL_YEAR_2005_MONTH_05/3-30052005-EN-AP.PDF#search=%22average%20annual%20earnings%20var ied%20significantly%20eu%22
[vi] FedEE's (Federation of European Employers) seventh annual Pay in Europe 2006 http://www.finfacts.com/Private/isl/PayinEurope.htm
[vii] Tax Credits Technical Manual TCTM07043 http://www.hmrc.gov.uk/manuals/tctmanual/tctm07043.htm
[viii] Tax credit policy is losing £1.3bn a year to fraud and errors, The Telegraph, 12/07/06 http://www.telegraph.co.uk/news/main.../12/ntax12.xml
[ix] Maximum rates, Tax Credit Technical Manual TCTM0300 http://www.hmrc.gov.uk/manuals/tctmanual/TCTM03000.htm
[x]Tax Credits Technical Manual TCTM02102 http://www.hmrc.gov.uk/manuals/tctmanual/TCTM02102.htm
[xi] TCTM02007 http://www.hmrc.gov.uk/manuals/tctmanual/TCTM02007.htm
[xii] TCTM02003 http://www.hmrc.gov.uk/manuals/tctma...CTM02003.htm#4
[xiii] (13) NTC manual, International claims, Handling Claims For WTC From Cross Border (Migrant) Workers (Info) http://www.hmrc.gov.uk/manuals/ntcma...grant_info.htm and Action Guide step 16 http://www.hmrc.gov.uk/manuals/ntcma...migrant_ag.htm
[xiv] International Claims, Deciding Competency (Info). http://www.hmrc.gov.uk/manuals/ntcma...ecomp_info.htm
[xv] (15) Deciding Competency, Action Guide, step 6 http://www.hmrc.gov.uk/manuals/ntcma...idecomp_ag.htm
[xvi] Tax Credits Manual, OMS In EEA Competent (Info) http://www.hmrc.gov.uk/manuals/ntcma...ineea_info.htm and Tax Credits Manual, Payment And Accounting For Complex Cases (AG) http://www.hmrc.gov.uk/manuals/ntcma...ntc0506111.htm
[xvii] (17) Tax Credits Manual, Entitlement, Working Tax Credit (info) http://www.hmrc.gov.uk/manuals/ntcma...ntc0300030.htm
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I wish we had seen this frenzy of releases outside of the leadership contest, even if does seem Nigel farage is the only person capable of stringing a few words together.
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