Chancellor turns into Iron Tinkerer

GORDON Brown is keen to build a reputation as the Iron Chancellor, but when it comes to his pet obsession - tax credits for families - he is the Iron Tinkerer. He is so preoccupied with tax credits that he can't leave them alone.

The Chancellor has made so many changes to the system of tax credits for families that a new one is introduced - rather appropriately - every nine months.

No sooner has he introduced the Children's Tax Credit or the Working Families Tax Credit than they are abolished, to be replaced by the Child Tax Credit or the Working Tax Credit.

It is not just that he keeps on changing the system; it is fiendishly complicated as well. There are special tapers and allowances and complex means tests which make it very difficult for people to understand.

As a result, take-up of the tax credits is very low. The main one, the Working Families Tax Credit - introduced in 1999 and due to be abolished next year - is taken up by fewer than half of the couples entitled to it. This is a record low take-up for just about any benefit. What it means is that there are millions of families who are not getting the basic help they need, because the system has just become so absurdly complicated. It's a cross between the Hampton Court maze and Spaghetti Junction.

There is another serious problem. Brown thought it would be better if the money went to the man in his pay packet, so mothers have lost the direct payment which used to help with the cost of their children.

And asking employers to deliver it through the payroll has increased the hassle they face if they take on a low-paid worker with family responsibilities. Employers have long resented being unpaid tax collectors for the Government. Now they have become unpaid benefit officers as well.

I have tried to work out how much extra cost is placed on employers as a result of having to administer the Working Families Tax Credit, and it comes to almost £1bn during its short life. That money could have gone on investment or higher pay for employees. At last Brown has begun to see the light and the new system in 2003 will go back to the old arrangement of paying more money directly to the caring parent.

But he has brought in yet another new tax credit - this time including people who do not have children - which will have to be paid through the payroll. So businesses will find that some of their employees who currently get the credit will lose it, and at the same time they will have to start paying it to a different group of employees instead.

This is yet another nightmare for business. The only solution is to have a far better, simpler system that families can understand. At the last General Election, we said it was time to go back to an honest and straight forward distinction between paying in your taxes to the Inland Revenue and collecting your benefits from the Benefits Agency. Paying in and taking out are different. Trying to muddle them up makes life absurdly complicated for everyone.

Yes, it does make sense to provide extra help to families on low pay. In fact, we have been doing that in Britain for 30 years now. It's the right thing to do. But the Chancellor is so obsessed with the system that he has ended up making a complete mess of something that he genuinely cares about.

DAVID Willetts is the Shadow Work and Pensions Secretary