We have had a reminder this week about how emotion can trump the facts. In the words of a court scene from an episode of The Simpsons: “Your tears say more than real evidence ever could.”

Michelle Dorrell, a 35-year-old mother-of-four, runs a nail salon from her home in Folkestone. She voted Conservative at the last election but broke down in tears on BBC’s Question Time over her fears that she would lose money with the withdrawal of tax credits. “I work bloody hard for my money, to provide for my children to give them everything they’ve got – and you’re going to take it away from me and them, “she said. “Shame on you” as she added furiously to Amber Rudd, the Energy Secretary.

The raw display of anger and despair caught prompted Jeremy Corbyn to cite her intervention adding that government’s tax credit cuts have “got to be stopped”.

But the Daily Telegraph reports this morning that Miss Dorrell has told them that she does not know how she will affected by the reforms. She can hardly be blamed for her anxiety. The complexity of the current arrangements for tax and benefits is one of the arguments for welfare reform – but also a reason why such changes are difficult to introduce.

However the good news for Miss Dorrell is that it seems she won’t lose any money at all. This is at present her business makes a maximum of £150 week, all of which is put back into new products and advertising. She doesn’t pay herself anything:

“The Institute for Fiscal Studies suggested that because Ms Dorrell does not make a profit she is unlikely to be hit by changes to the income threshold for working tax credits, which is being almost halved to £3,850 a year. She will also not be affected by the changes to child tax credits, which will only be restricted to the first two children for new parents from April 2017. David Phillips, a senior research economist at the IFS, said: “On what she has told us she wouldn’t be affected by the cuts to the child tax credits or the change to the taper rate because she is not above the threshold. Even the family element thing comes in 2017, and will only apply to new claimants.”

The still leaves the stark reality that at present there will be a large number of poor people on course to lose money. They are people working quite a few hours but not full time. If someone is only working a few hours a week they will be below the £3,850 threshold. If they are working full time then the benefits of the living wage and the increase threshold for income tax are most significant. A couple with two children – not in child care – with only one earner – and the earner is on the minimum wage working 35 hours a week would, apparently, see their income fall from £21,669 to £20,322. The earner might be able to increase his or her hours – also his or her might be able to find at least some paid work, perhaps making use of free child care.

Critics have said the changes punish those who work as the “taper” starts earlier. It may have that impact. On the other hand it may cause those working part time to increase their number of hours to compensate for the loss of earnings. Is it fair that those working full time subsidise those who choose to work part time? When unemployment started falling Labour made the criticism that often the jobs were part time. What has been happening in the labour market more recently is that many have switched from part time to full time work. So there is strong evidence that many have that opportunity should they wish to take it.

On balance it is right for George Osborne to press ahead with these changes. But again emotion should not be allowed to take over from reason. There is plenty of rhetoric about being tough “putting on your tin hat” as his predecessor Ken Clarke said. But while the reduction in Tax Credits should not be compromised more could and should be done to mitigate the pain. This could be done in a way that both helps the low paid and fully in line with Conservative principles. That is also the right tone. There is no reason for being unsympathetic or inflexible for it’s own sake. It is about moving forward in a way that addresses the concerns rather than retreating.

At present someone earning £12,000 a year has £473 taken off in National Insurance and another £280 in Income Tax. That damages the incentive to work. The Laffer Curve is relevant to the poor as well as the rich. the Chancellor has made good progress in increasing the Income Tax threshold but not the one for National Insurance – that kicks in on someone earning just £8,060. This figure should be raised dramatically in the next Budget.


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