TAX CREDITS CAN BE A CON.

I've just heard a Labour spokesman, Rachel Reeves, make a statement that I find mindbogglingly incomprehensible. Talking on the 'Daily Politics' the importance of people being better off in work than on benefits came up and Reeves immediately referred to the importance of tax credits in achieving this. Tax credits were, of course, an invention of that failed Chancellor and Prime Minister, Gordon Brown, who just happens to be a member of the same party as Reeves.

 

Now, I have looked in some detail at the way in which tax credits operate and the way in which they also affect 2 other principal benefits, those for housing and council tax. The simple truth is that these 3 sources of income are structured and intertwined in such a way as to render it impossible to gain from working more hours once you have achieved the minimum for tax credits which is currently set at 24, at least if you're on a relatively low wage. The way that the system works actually means that for anyone who receives all 3 payments, which must be a very large number of people, every extra pound they earn from additional work is taken away by reductions in their tax credits and benefits; there is, in fact, a perverse disincentive to work longer hours or earn any more.

 

There are some slight 'wrinkles' in the system which mean that tax credits are not usually reduced within a year in which a claimant's pay rises, but this is countered by the savage actions of local councils which grab back whatever they can whenever they can, frequently, it seems, following a deluge of incomprehensible paperwork.

 

The system as it is currently structured may encourage people to go to work, but it provides no incentive for them to work more than 24 hours nor to earn more than the minimum wage. It simply encourages people to seek out menial, low paid, employment and, once they've found it, does nothing more. Whether or not Iain Duncan Smith's much heralded 'Universal Credit' will address this issue has yet to be discovered but there can be no doubt that the present system has failed miserably and is in need of replacement.

 

Reeves might do well to find out  bit more about how the tax credit system actually works.