From City AM Forum:
BRITAIN’S tax credit regime was introduced by Gordon Brown in an attempt to boost the living standards of the low paid. But by topping up pay, this effective state wage subsidy has worrying long-term implications for the worst off and the economy.
Tax credits suppress natural market pay rises, encourage overmanning (particularly in non-growth sectors), and thus depress productivity growth. And they cost a fortune. Few employers would increase pay when the state effectively does this for them. Tax credits also discourage people from improving their skills when it makes little difference to their take-home pay…
OK, yes, Working Tax Credits mean significantly higher marginal tax rates on low earners, whatever your political persuasion, that must be A Bad Thing.
This was precisely what happened under the “Speenhamland System” in the early nineteenth century. Agricultural workers’ incomes were topped up out of the poor rate, encouraging over-employment in the sector. When the system was abolished in 1834, a substantial movement of labor into the new industries of the day followed, leading to an economic take-off over the next 20 years…
No, as badly designed as the Speenhamland System might have been, what drove people into shit jobs in factories was The Enclosures and the withdrawal of the Speenhamland System, i.e. the choice between just about staying alive and starving to death.
Tax credits have had similar results.
Case not proven. It's a shit system, nobody's disputing that, the "depressing wages" is a minor irritant compared to all the other faults.
The cost has ballooned (to £28.7bn in 2012-13), wage increases have been suppressed, and productivity growth has been poor.
Oh fuck off.
If you actually bother to read HMRC's Annual Report & Accounts 2012-13 note 10 on page 118 (it took me three minutes to find as it's a searchable pdf) you learn that the £28.8 billion can be broken down into Working Tax Credits (wage top-ups) of £6.4 billion and Child Tax Credits (which is mainly a bung for unemployed single parents) of £22.4 billion.
We also learn that £2.8 billion out of that £28.8 billion is treated as 'negative taxation', i.e. some marginal people have PAYE deducted with one hand and Tax Credits given back with the other, which is surely a sign that the personal allowance is too low; bump that up a bit and there would be less need for Tax Credits in the first place; and if withdrawal rates for actual unemployment benefit were lower, there'd be no need for them at all.
Twat.
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