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Tax credits reduce incentive to work more?

(127 Posts)
11stone4 Thu 07-Feb-13 17:11:51

My best friend Has found this to be the case. The more hours she works the less tax credits she gets. So what's the point exactly to work longer hours to get working and child tax credits to be reduced. I'm a SAHM FWIW

11stone4 Thu 07-Feb-13 17:34:52

Do what changes are being made exactly? Can someone please explain so I can inform my BF. She's clueless.

propertyNIGHTmareBEFOREXMAS Thu 07-Feb-13 17:34:52

CTC enables parents who don't earn vast sums to meet the costs associated with having children (or can even provide enough extra income to enable one parent to stay at home whilst children are young).

Two examples:
1) My friend with 3dc has a husband who earns around 20k a year. She gets around £400 CTC a month which enables her to be a sahm.
2) Another friend with 4dc has a husband on £32k a year. She also gets around £400 CTC a month enabling her to be a sahm etc.

My family does not qualify for CTC but I think it is a very good thing and a great incentive to hard working families. Obviously it would be better if salaries were higher and the government did not need to supplement income.
We need plenty of babies born in order to carry us (financially) in our old age. If CTC encourages the birthrate and enables famillies to function financially then it is all good, IMHO.
I don't know much about how 'increasing hours' reduces CTC. I had assumed entitlement to CTC would diminish on a 'sliding scale' so that you were always better off on a higher wage. If this is not the case then that seems rather odd and perhaps that issue needs reconsideration.

usualsuspect Thu 07-Feb-13 17:35:47

You don't even work. You just want everyone else to work more then?

Are you new?

amillionyears Thu 07-Feb-13 17:36:11

Unfrotunately op, you dont seem to have been on MN for long.
And this contentious subject comes up quite often.
If you look in search, there are long discussions about it.

nkf Thu 07-Feb-13 17:36:27

The higher tax allowance, fewer benefits makes sense

Lovelygoldboots Thu 07-Feb-13 17:37:12

Well I guess that's the point of uc. If anyone knew what was happening. Everyone wants to be better off.

dancemom Thu 07-Feb-13 17:38:20

ackerchewelly - if you work 30 hours you get a 30 hour "bonus" so you receive more tax credits than working say 25 hours

LST Thu 07-Feb-13 17:39:58

I didn't bitch. I was being honest.

DolomitesDonkey Thu 07-Feb-13 17:40:46

holly the "flaw" is not that you get a rebate on tax paid, it is that credits can far out-weigh tax paid. It is both the system of tax "credits" and your understanding which is flawed.

TomDudgeon Thu 07-Feb-13 17:41:06

I suffered from this problem. Was a sahm got myself a job and worked out I would pretty much working for nothing. I wanted to do it though because of all the other benefits of working as well as feeling we should provide rather than rely on the state.
It did seem a bit nuts though.
Sadly my employers tried to pay me cash in hand. It would have kept me my tc I guess grin but I'm too honest for that

zebrafinch Thu 07-Feb-13 17:44:16

Tax credits will be subject to the capital rules under Universal
Credit. Any household which has £6000 in savings or another property Will be affected in future even if they are on a low income. THere will be transitional arrangements in place for existing claimants. If you google universal credit and capital rules you will find the relevant documents.

expatinscotland Thu 07-Feb-13 17:49:27

Why not ask your BF to come on here herself?

usual, let's do it! I hear life on benefits includes endless smoking, drink and drugs, Sky, iPhones, iPads and goats.

Takver Thu 07-Feb-13 18:03:54

A few things. Firstly, I don't think that this is a daily-mail-ish sort of question to ask. I think most people, left or right, would think it is unfair if they get more hours at work or a pay rise and end up worse off.

Secondly, it is a really, really tricky problem to solve; governments on the left and right have been trying to come up with a benefits system that deals with this problem for ever, really. The Labour tax credits system did work a little better in this regard than the previous in-work benefits BUT with the end result that people earning really quite high wages were still receiving tax credits.

In theory - both now and under Labour previously - you should never actually be financially worse off (or even the same off) if you get more money from work - your benefits will be reduced but not pound for pound.

Generally the problem is that while you may end up with more cash theoretically, in practice you are actually worse off. For example you might lose free school meals, or your free prescriptions card - so you are paying out for things that were free before. Or the costs of getting to work (transport, work clothes etc) could leave you worse off.

Universal credit is yet another attempt to improve the system - maybe it will work better, but I am sceptical, I suspect it will have its own quirks and corners where there are irrational results

Final thing, sorry this is long. For those saying why do you have to pay out tax while getting in tax credits. The reason is that at the moment your tax allowance takes no account of your family circumstances, whereas tax credits take account of whether you have children, childcare costs etc etc.

I wouldn't be surprised if in the long run they do integrate the systems better so that you aren't simultaneously paying out tax and receiving benefits, but it would be quite a major shift.

Wereonourway Thu 07-Feb-13 18:15:45

I watch these threads with interest.
I'm work for a government department, 24 hours per week(four days) Good hourly wage.
I claim tax credits and also get help with childcare costs.
If I worked an extra day a week I would lose tex credits and would be working to pay for that days childcare.
It's that's simple.
I chose to not work that day, I spend it doing things with ds.
This week I sat down and worked out what would happen if I didn't work.
Staggeringly I would be around £180 per month BETTER OFF.
I want to work, I also want time to be a mum.
I have knowledge of tax credits and know they make a huge difference to people like ne who want to work and raise families.
It will always be open to abuse.
I'm interested to see how uc affects me personally, tbh it's not something I've looked into in much detail yet

Dahlen Thu 07-Feb-13 18:20:32

Well I know that when I was being crippled by childcare costs if I'd cut my hours by half and gone part time, I'd have only been £150 a month worse off due to the fact that I'd have then qualified for tax credits. However, £150 is a significant amount of money and was more representative of the fact that many full-time wages are rubbish rather than tax credits too generous.

Crawling Thu 07-Feb-13 18:25:38

I disagree every year dp gets a pay rise of 1500 pound he ends up about 100 better off a month we only lose 50 in tax credits so are still 50 pound up plus we rely on government by 50 pound less win win.

Dahlen Thu 07-Feb-13 18:27:59

I'm sure most people with an IQ above 5 would prefer to gain their income from their job rather than tax credits because relying on the latter rather than your own earning potential means that you are forever at the mercy of political whims.

Llareggub Thu 07-Feb-13 18:32:54

I claim tax credits as I am a lone parent to 2 children under the age of 6. I worked full-time last year but as I then worked ridiculously long hours, with limited child-care available, it became untenable. I moved to the other end of the country to access more family support, reduce my hours and get cheaper childcare. My hours have dropped from 40+ to 21 hours and I am just £100 worse off.

However, I have an excellent job and when my children are both in full-time work I will happily increase my hours and claim less. Tax credits allow me to remain IN work and in the very near future, when my children are less dependent, work more and contribute back into the pot. That's why they are a good thing.

I couldn't have got through the last year without tax credits. I was alone, paying a crippling mortgage with an alcoholic ex-husband. I won't need or want them forever. Not quite sure how I feel about people using them to subsidise SAHM lifestyles to be honest.

CloudsAndTrees Thu 07-Feb-13 19:08:24

Dahlen, I'd agree with you if the only issue was being in work versus being completely out of work. But if you have a part time job that you enjoy and you still get time with your children during the week, then you have the best of both worlds.

It would take someone very dedicated to their job to lose time with their dc and do more hours at work for little or no financial gain.

Even looking at it long term, you are of course better off having a job than none at all, but I don't think that someone who worked part time as opposed to full time is at a significant disadvantage to someone who has never worked when the time comes to start working full time again.

Skittish Thu 07-Feb-13 19:08:32

I love the idea that other people's money paid in tax can be sued to allow people to choose to be a SAHM. Absolutely crazy. SAH is a luxury that you shoudl bear financially yourselves. If you can't afford to do it on your partner's salary, get a bloody job like every other poor sod!

CloudsAndTrees Thu 07-Feb-13 19:13:02

I don't have a problem with people claiming working tax credits to enable them to spend some time with their children while they are young, but child tax credits are a joke. They are what enable people to keep getting paid more with every child they have, and they are what stops people only having children they can afford.

Working tax credits could be increased for people who need to pay for childcare, but we shouldn't have benefits called 'tax credits' available for people who pay no income tax, and only pay other taxes out of other benefits.

foslady Thu 07-Feb-13 19:21:50

Tax credits allows me to keep a roof over me and dd's head.

My aim is to get off tax credits - I HATE being reliant on the state. I have always taken on more hours whenever I could, and the rule of thumb is for every £3 extra you earn, you loose £1 of your tax credits.

I'm not looking forward to UC and have been trying like mad to get full time rather part time work (was working 32hours/week until being made redundant and just took the 1st similar job I could get, only it's only 18 hours) but it seems everyone wants the same. Dd has just turned 10 so I feel happier to work more hours - her dad left when she was 6 and TC's have been our lifeline, but now it's time to let go of it in my case.

So not everyone wants to see TC's as a 'forever' thing in their lives - but they've made a world of difference to mine.

11stone4 Thu 07-Feb-13 19:23:40

Em, to all those of you slating me being a SAHM? I've already mentioned I do not claim TC and even if I did, it would be because a partner worked so many hours allowing me to do so. This is what I've been led to believe.My Bf said to me, why should she work 40 hours instead of 30 as her tax credits would go down and she would be working more for very little money. She doesn't have childcare costs.

CloudsAndTrees Thu 07-Feb-13 19:25:45

Your friend has a point. Don't be annoyed with her. Be annoyed with the system that created this situation.

11stone4 Thu 07-Feb-13 19:32:00

"the rule of thumb is for every £3 extra you earn, you loose £1 of your tax credits". If this is right, no wonder she doesn't want to up her hours!! How utterly ridiculous!

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