30 October 2015

‎Osborne right to reform out of control tax credits system


Tax credits have dominated political debate in recent weeks. To cut, or not to cut, has been the key question that has divided the nation – and even the Government itself.

Yet never has so much been said about something with so little basis in cold, hard facts. Instead of a genuine debate about the realities of tax credits and their effect on millions of families’ lives, the discussion, whether in Parliament, on TV or online, has been based on little more than rhetorical grandstanding and the pulling of heart strings. Even Tory MPs are accusing the Chancellor George Osborne of planning a merciless attack on the hard-working, deserving poor with his planned cuts to Working Tax Credit and Child Tax Credit entitlements.

But even the most cursory glance at the official statistics would tell us that this is a system, with a £30billion annual cost to the taxpayer, in desperate need of reform.

For all the talk of the hard-working or deserving poor, official HM Revenue and Customs data suggests a rather different state of affairs for many tax credit claimants. Yes, the vast majority (but certainly not all) of the people who rely on tax credits are living on low incomes and many of those people are deserving of state help. But the truth is that many claimants are not poor because they earn low wages but simply because they don’t work enough hours – and, for many of those people, that is their own choice. For seven out of 10 couples claiming Working Tax Credits, there is only one adult in the home who works – and that is the case whether they have children or not. Yet, among the population at large, just one in five families has a sole breadwinner, even when they have young children. Why, taxpayers are entitled to ask, should perfectly healthy, able-bodied people on low incomes be entitled to other people’s money to fund their decision not to seek paid work?

Meanwhile, for a third of households where a couple is claiming Working Tax Credits, no one works full time at all. Is it really any wonder that couples who work only a few days a week between them can’t make ends meet when so many other couples who both work full time still struggle to pay their bills?

This isn’t because there simply aren’t enough full time jobs to go round, but because the tax credits system provides a bizarre disincentive to both adults earning, cutting entitlement for every extra pound the second adult earns. Tax credits were supposed to help people back into work by not penalising the jobless for taking on part-time work, in the long term aim that “getting the work habit” would eventually lead to a full-time job and a life off benefits. Instead, tax credits have become an alternative to full-time work.

George Osborne’s reforms may not be ideal but if we are going to debate what should be done about tax credits, can we at least start with a few facts?

Julia Hartley-Brewer