Wrap it up, guys, the Telegraph has proved socialism is wrong

Look at this post. Just look at it.

The Telegraph is hosting a truly marvellous piece of trolling from Tim Worstall, in which he proves socialism is wrong because there isn't enough money in the world to satisfy a 13-year-old's definition of what it entails.

The whole piece is probably worth reading; I've heard it described as "Brick-esque", which can only be a compliment.

Worstall starts with an insult:

As anyone who has ever met or been a teenager knows, there's this idea floating around that we'd all be so much richer in a very real sense if everything was just shared equally. Most of us grow out of this and some become socialists.

Then he "runs the numbers":

If we average out global GDP we get to a figure of about $8,000 per head, something like that. That's a tad over £5,000 each. So if we share everything around the world equally with everyone around the world then that's what each of us, at maximum, can possibly have each year.

One might think that given 95 per cent of the world live on less than $10 a day, more than doubling that would be a huge achievement. But Tim is right, it would hit hard in the UK. Because an insurance company ran a survey:

A survey of over 2,000 adults by the insurance company found that Britons need extra pre-tax income of £7,236 a year to make them feel financially secure.

This is when his connection to reality goes a bit (more) wobbly. If Britons need an average of £7,000 extra to feel financially secure, then they can never get that by redistributing money within themselves. As he says, "that's what an average means." So it's strange that the next four paragraphs are spent demonstrating that yes, you couldn't find that extra money within Britain.

Especially since he doesn't even get his straw-man argument right:

If we wander over to the ONS we can work out how much those rich have been unrighteously keeping from us too. Household expenditure by income decile group would be a good one. A decile is 10 per cent of all households in this instance and when we download the .xls file we can see that the top 10 per cent of all households spend £1,000 a week. Yes, this includes their food, their mortgages, all their spending.

That's not what redistribution of wealth means. The clue is in the name: Tim has looked at income, when he should be focusing on wealth. Actually, not even income, but expenditure, which means that he must think the rich aren't taxed and don't save. He clearly thinks he is looking at wealth too:

To make all households financially secure we've got to find £180 billion, but even if we take all the cash off the top 10 per cent, all the food, ponies, labradors and croquet lawns they have, we've only got £130 billion.

Unless you need to buy a new croquet lawn every week (you might; I've never owned one), then it isn't going to show up in a survey of household expenditure. But it's a pretty good indicator of household wealth.

Socialists don't believe any of this, of course. It's been a very long time indeed since you would find someone on the left advocating the "everyone put their money in a pot and share it out equally" model of socialism. But if for some reason you were going to publish on a major newspaper's website a debunking of an economic theory no-one holds, you would think you would do a better job of it.

A person reads a copy of the Daily Telegraph. Photograph: Getty Images.

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Q&A: What are tax credits and how do they work?

All you need to know about the government's plan to cut tax credits.

What are tax credits?

Tax credits are payments made regularly by the state into bank accounts to support families with children, or those who are in low-paid jobs. There are two types of tax credit: the working tax credit and the child tax credit.

What are they for?

To redistribute income to those less able to get by, or to provide for their children, on what they earn.

Are they similar to tax relief?

No. They don’t have much to do with tax. They’re more of a welfare thing. You don’t need to be a taxpayer to receive tax credits. It’s just that, unlike other benefits, they are based on the tax year and paid via the tax office.

Who is eligible?

Anyone aged over 16 (for child tax credits) and over 25 (for working tax credits) who normally lives in the UK can apply for them, depending on their income, the hours they work, whether they have a disability, and whether they pay for childcare.

What are their circumstances?

The more you earn, the less you are likely to receive. Single claimants must work at least 16 hours a week. Let’s take a full-time worker: if you work at least 30 hours a week, you are generally eligible for working tax credits if you earn less than £13,253 a year (if you’re single and don’t have children), or less than £18,023 (jointly as part of a couple without children but working at least 30 hours a week).

And for families?

A family with children and an income below about £32,200 can claim child tax credit. It used to be that the more children you have, the more you are eligible to receive – but George Osborne in his most recent Budget has limited child tax credit to two children.

How much money do you receive?

Again, this depends on your circumstances. The basic payment for a single claimant, or a joint claim by a couple, of working tax credits is £1,940 for the tax year. You can then receive extra, depending on your circumstances. For example, single parents can receive up to an additional £2,010, on top of the basic £1,940 payment; people who work more than 30 hours a week can receive up to an extra £810; and disabled workers up to £2,970. The average award of tax credit is £6,340 per year. Child tax credit claimants get £545 per year as a flat payment, plus £2,780 per child.

How many people claim tax credits?

About 4.5m people – the vast majority of these people (around 4m) have children.

How much does it cost the taxpayer?

The estimation is that they will cost the government £30bn in April 2015/16. That’s around 14 per cent of the £220bn welfare budget, which the Tories have pledged to cut by £12bn.

Who introduced this system?

New Labour. Gordon Brown, when he was Chancellor, developed tax credits in his first term. The system as we know it was established in April 2003.

Why did they do this?

To lift working people out of poverty, and to remove the disincentives to work believed to have been inculcated by welfare. The tax credit system made it more attractive for people depending on benefits to work, and gave those in low-paid jobs a helping hand.

Did it work?

Yes. Tax credits’ biggest achievement was lifting a record number of children out of poverty since the war. The proportion of children living below the poverty line fell from 35 per cent in 1998/9 to 19 per cent in 2012/13.

So what’s the problem?

Well, it’s a bit of a weird system in that it lets companies pay wages that are too low to live on without the state supplementing them. Many also criticise tax credits for allowing the minimum wage – also brought in by New Labour – to stagnate (ie. not keep up with the rate of inflation). David Cameron has called the system of taxing low earners and then handing them some money back via tax credits a “ridiculous merry-go-round”.

Then it’s a good thing to scrap them?

It would be fine if all those low earners and families struggling to get by would be given support in place of tax credits – a living wage, for example.

And that’s why the Tories are introducing a living wage...

That’s what they call it. But it’s not. The Chancellor announced in his most recent Budget a new minimum wage of £7.20 an hour for over-25s, rising to £9 by 2020. He called this the “national living wage” – it’s not, because the current living wage (which is calculated by the Living Wage Foundation, and currently non-compulsory) is already £9.15 in London and £7.85 in the rest of the country.

Will people be better off?

No. Quite the reverse. The IFS has said this slightly higher national minimum wage will not compensate working families who will be subjected to tax credit cuts; it is arithmetically impossible. The IFS director, Paul Johnson, commented: “Unequivocally, tax credit recipients in work will be made worse off by the measures in the Budget on average.” It has been calculated that 3.2m low-paid workers will have their pay packets cut by an average of £1,350 a year.

Could the government change its policy to avoid this?

The Prime Minister and his frontbenchers have been pretty stubborn about pushing on with the plan. In spite of criticism from all angles – the IFS, campaigners, Labour, The Sun – Cameron has ruled out a review of the policy in the Autumn Statement, which is on 25 November. But there is an alternative. The chair of parliament’s Work & Pensions Select Committee and Labour MP Frank Field has proposed what he calls a “cost neutral” tweak to the tax credit cuts.

How would this alternative work?

Currently, if your income is less than £6,420, you will receive the maximum amount of tax credits. That threshold is called the gross income threshold. Field wants to introduce a second gross income threshold of £13,100 (what you earn if you work 35 hours a week on minimum wage). Those earning a salary between those two thresholds would have their tax credits reduced at a slower rate on whatever they earn above £6,420 up to £13,100. The percentage of what you earn above the basic threshold that is deducted from your tax credits is called the taper rate, and it is currently at 41 per cent. In contrast to this plan, the Tories want to halve the income threshold to £3,850 a year and increase the taper rate to 48 per cent once you hit that threshold, which basically means you lose more tax credits, faster, the more you earn.

When will the tax credit cuts come in?

They will be imposed from April next year, barring a u-turn.

Anoosh Chakelian is deputy web editor at the New Statesman.