Warning on mixing tax and benefits

Integration of the tax and benefit systems, a central part of the new Government's welfare to work programme, carries a number of significant drawbacks according to a report from the Joseph Rowntree Foundation.

In a new analysis published today, the Foundation concludes that although these plans are feasible, they are not necessary to achieve the Government's objectives and would involve significant costs.

The analysis, conducted by Pamela Meadows of the Policy Studies Institute, lists these costs as:

r a return to family as the unit of tax assessment rather than the individual, removing the privacy introduced with separate assessment;

r the completion of tax returns by all taxpayers (only 25 per cent are required to do so at present);

r the passing on of labour costs from some employers to the taxpayer, with increased scope for fraud;

r the creation of some losers from a simplification in Family Credit arrangements and from loss of benefits in kind, such as free school meals.

Reform of the tax and benefit system is thought necessary by ministers because loss of benefit for those coming into the workforce often offsets earnings.

Linking the benefit and tax systems would improve the lot of the small group of low-income earners who do not claim Family Credit, the report says. But this improvement would only come about at the cost of a large increase in complexity and disruption for others.