Sunday, 15 November 2015

The Tax Credits debate is going nowhere. Here's my opinion.

The Conservatives are right to want to reduce the money we spend on tax credits. But, as is usual with the Tories, though their convictions may be sound, they are absolutely hopeless when it comes to implementing them.

When the Conservatives began their attack on benefits in an attempt to reduce what they called a ‘culture of dependency’, their ruthless approach led to outrageous stories of shamefully unreasonable back-to-work interviews and heart-breaking suicides.

The Conservative cuts to tax credits will have precisely the same effect, with young working mothers losing the vital benefit that they rely on to survive. The simple fact is that the Conservatives cannot be trusted with welfare because they don’t understand what poverty is really like. Cameron himself demonstrated his ignorance this week in his letter to his local council complaining about cuts.

Don’t get me wrong, tax credits have played a big role in one of the most impressive reductions in child poverty since World War Two. Between 1998 and 2012 the number of children living in poverty   fell from 35% of the child population to 19%directly due to the tax credit system. 

But tax credits are now costing the government an astonishing £30 billion a year, and we simply can’t afford it. So, as I have said, the money we spend on tax credits need to be reduced, but not by cutting them and not with the same ruthless approach that the Tories have consistently adopted.

Osborne and other Conservatives have repeatedly referred to the ‘package’ that works alongside the tax credit cuts, a package that includes a higher minimum wage (I shall not call it a national living wage because it is neither national nor a living wage), 30 hours of childcare and changes to income tax thresholds. These are all things that we should be applauding.

However, as the Institute for Fiscal Studies has pointed out, this package will fail to compensate low-income workers for the cuts in tax credits (not to mention the other cuts in the welfare budget). Indeed, as Corbyn told Cameron in PMQs, some three million families could be up to £1,000 a year worse off.

What is more, the Resolution Foundation has noted that a family with three children, making a claim after April 2017, could be £3,450 a year worse off than under the current system. As the IFS said, this budget is regressive and it is taking “much more” from the poor than the rich.

Many people will argue that these people shouldn’t rely on the state, but the fact is that they have to. For most people, the minimum wage is not enough to live on, and so many working people have no other option. The Conservatives, despite claiming to be the party of the working people, are now taking money away from some of the poorest and most deserving people in society, the working poor.

The Institute for Fiscal Studies estimates that the number of children living in poverty has increased in the last three years from 2.3 million to 2.5 million. They predict that, if Osborne’s plans go ahead, then child poverty will increase to 2.8 million. We cannot let this happen.

So what’s the answer? Well, the money we spend on tax credits should be reduced gradually, but not by making massive cuts. It’s ludicrous suddenly to slash tax credits whilst the minimum wage goes up gradually over five years. The government should continue to raise the minimum wage so that the tax credit bill is more manageable - we shouldn't be subsidising big businesses. 

Also, if they continue raising tax thresholds and the amount of free childcare, then this will allow them to reduce tax credits, albeit slightly. In this way, the Conservatives can ensure that absolutely no one is being made worse-off and that the poorest workers aren’t losing out. 

Of course, this will mean that the government saves far less money from tax credits, but surely that is the only option. Though tax credits can be reduced according to wage rises, introduction of more free childcare and rise in tax thresholds, Osborne's hope of saving £15 billion is simply unfeasible. If they want to reduce the cost of tax credits, then tax brackets and wages must continue to rise.

As of yet, no major political party seems to agree with me. Why is this? Because Cameron and Osborne are pulling out all the stops to reach a surplus by 2020, and they are quite happy to do so on the backs of low-paid workers.

Corbyn, on the other hand, has never supported any reduction in welfare in all his time as a Member of Parliament, so we can’t expect anything particularly sensible from him - though he does support a higher minimum wage, and this will contribute towards a lower tax credit budget. And finally, Tim Farron has continued the Lib Dem reputation for vagueness and ambiguity, happy to condemn the cuts but unable to offer an alternative.

Surely, this is the solution: decreasing welfare spending so that the government aren't subsidising big businesses who refuse to pay a living wage, whilst also ensuring that low-income earners aren’t forced to struggle even more to survive. If Corbyn wants to be seen as electable, this ought to be the argument he adopts.


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  4. Thanks for commenting, I'm sorry you didn't agree with my points :) keep commenting!

  5. I agree in principle with what you say, but you haven't mentioned some of the other ways to cut the deficit, other than through the welfare budget. The Welfare budget isn't the only area where savings can be made and it does seem to be taking the brunt. I also wonder what will happen if employers can't afford to pay the minimum wage and have to close their businesses. Is there a Plan B?

    1. Hmm I don't know. I've always thought we should introduce a curved corporation tax like we have with income tax so smaller businesses can afford to pay higher wages because they are paying less corporation tax, whilst bigger businesses are paying more corporation tax. But I don't know if this is feasible.

  6. Naomi: it's very kind of you to share Tom's blog, although I'm a bit surprised y are sharing it if you think it is so bad. Perhaps you can enlighten us about 'how tax credits work' which you think Tom has misunderstood.

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