Tax credits reduce incentive to work more?

[11stone4]

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

[needmoretogetby]

I work 25.5 hrs a week and thats over 3 full days and 3 hrs on the 4th day.Am i entitled to claim social for the rest? I know the 3hrs on the 4th day was stopping me before but has its all changed?

[Takver]

" I think we all just passed the mythical £1000 around and then it went back to someone's dad."
Maybe you moved in different circles to the average?

You definitely had to be unemployed (and eligible to claim benefits), though. I don't remember how long you had to have been signing on, but I think possibly 6 months. Certainly round us there were various workshops/training sessions linked to it which I don't remember having such strict criteria. DH went on some useful ones for basic book keeping as he was starting out on his own, (he had left his job to do so & didn't get the 40 quid a week).

TBH I think though you will inevitably end up giving some of the money to people who would be self employed anyway (like your journalist friends), there is a case to be made for this sort of support. There is a very high % of self employed people where I live now (I believe the highest of any county in the UK) and an awful lot of people depend on tax credits to get them through the first couple of years. But in the longer term it often gets them out of the low wage economy & potentially even in the future employing others.

[LineRunner]

It was definitely Enterprise Allowance. I think we all just passed the mythical £1000 around and then it went back to someone's dad.

[nkf]

Maybe I'm muddling it with something else. I remember there being this very catch all category and journalists came into it.

[Takver]

nkf, you had to be unemployed & claiming to get the money, though. IIRC that was one of the (many) problems with it - you had to be a claimant, but then you had to have £1000 of your own cash - quite a lot back then - to put up as start up capital.

There was an interesting scheme in the Republic of Ireland in the 90s which was an attempt to support start ups plus tackle the black economy. I can't remember the name of it, but as I recall you got to keep your benefits for a period of time whilst 'starting' (or building up your black economy) business but the quid pro quo was you then had to be legit.

Not sure how successful it was, no doubt many of the beneficiaries would have started businesses anyway (or become legit as the amount of work they had grew) but I guess it fulfilled a similar role to tax credits now in the UK for start ups in that it gave people a bit of cash in the early days.

[nkf]

I remember that. All my freelance friends went on the Enterprise Allowance Scheme. They were journalists and designers and so on. And they attended a one day course on how to set up a business and then got this money every week. But of course they were just freelancers as before.

[Takver]

Yes, there was. Two of the various precursors to tax credits were Family Credit (very roughly analogous to family tax credit) and supplementary benefit (though that topped up anyone on a low income whether employed or not).

We've also at different times in the past had direct wage subsidies for taking on certain groups of people, the Enterprise Allowance scheme if you remember that for people starting up businesses and so many others. It really is a question of what goes around comes around in this line.

[Mandy2003]

Am I dreaming, or was there once a benefit called Supplementary Benefit years ago? Maybe 30 years ago? I was working full time then and had no DC but I'm sure I recall the name and the fact that if you were in a low waged job, (maybe a single parent) and had DC you could claim it to top up your income to some arbitrary minimum wage type thing?

[JakeBullet]

Good lord.....I have just found myself agreeing with Orwellian .

Wonders will never cease.

Yes inequality is indeed about more than money. Money helps but poverty is about hope, aspirations and self esteem and belief in oneself.

I am a parent volunteer with an education service which helps get adults who might not have studied since leaving school back into education. Our courses are short and fun but have a serious aim in enabling people to succeed in education when they might never have done so before.

We also offer English and Maths courses so we can help people not confident in these subjects to improve their skills. We have had several use the courses as stepping stones into other forms of education. Local employers are now coming in board and offering their premises, staff and equipment for use in building people's confidence.

We are all voluntary workers apart from the paid tutors and our aim is to give people belief in themselves and confidence.

[nkf]

I think this could be one of those things a benefit exists, you claim it and make it work for you and your family. And after a while it becomes something you take for granted. Anyone would.

And just because an OP heard about it via a friend doesn't make it a benefit bashing thread. Sometimes that's how you hear about things. Most of what I know about benefits comes from friends who claim and Mumsnet.

[WhenSheWasBadSheWasHopeful]

I think Orwellian has made some good points. Corporations paying low wages and relying on tax credits to make it a living wage (while avoiding paying tax in some cases (the companies)).

Throwing money at people is not the solution, much better to provide services. I for one would rather get one day a week nursery care than child benefit. As the child gets older this could go on after school clubs.

[Wallison]

I don't buy the argument that raising the minimum wage would cause problems. There was plenty of bleating about it before it was introduced, but actually after it was the economy thrived.

My plan would be thus:

1. Raise the minimum wage to £10 ph. That is roughly what people working less than 30 hours per week get in tax credits, so it is commensurate with what they are taking home and clearly what the economy can support. But it should be supported by businesses, not public funds.
   

1. Do away with zero hours/short hours contracts. If a business cannot survive without planning in advance what hours its employees need to work, it is a crap business and isn't needed.
   

1. Build more social housing. This would be a massive investment as it pays for itself many times over in rent receipts, unlike handing over £billions a year to fund private property empires in the form of housing benefit. There could also be schemes whereby big investors could take over financial management, with profits ploughed into pension schemes and the like, as happens in other countries. More cash bouncing about and high returns on such investments; everyone's a winner.
   

Fucking around with tax credits and universal credit and bleating about part-time workers etc gets us nowhere. We need proper investment in employment and infrastructure, not curtain-twitching finger-pointing about "My friend gets a couple of thousand more than me and she doesn't work as hard" - you can't run a country on that basis, although fucking Cameron and his crew would have you think otherwise because they just want everyone to be fighting over the few scraps that are slung out to them as it takes the heat off their woeful policies. Don't fall for it.

[Takver]

I would definitely agree with you Orwellian that it would be better to have good quality state funded childcare generally available to those in work (and potentially to those actively jobseeking since they will be attending interviews, going round visiting employers etc).

IMO if there were cheap / free childcare easily available to anyone in work, and also not-for-profit rental housing generally available at an affordable rate, it would get rid of a lot of the benefit traps that we have at the moment.

Unfortunately at the moment the preferred solution is to have market provision for these services, then subsidise those who can't afford them through benefits.

IMO this is a very poor solution as it leads those just over the cut off level to resent those who are getting help. It also tends to segregate people by income level, and further divide communities.

[Tanith]

On the contrary!

The Government has reduced people's entitlement to Tax Credits, particularly the WFTC element.

This has made it difficult for many parents to afford childcare, particularly as the Government has also cut funding, training budgets etc for the childcare providers themselves.

That is why many parents are saying they cannot afford to work.

[Orwellian]

Takver - It is a bad thing imo.

It is exactly the same as the "Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime." Just throwing money at people doesn't help them. It just breeds inequality and resentment. Child poverty levels have not improved because poverty isn't just about money but about aspiration, mentality, education which cannot be bought in a shop.

I do agree that levels of equality are high in the UK but I don't believe this will be solved by just giving people more and more money. I think the money currently paid as tax credits could instead be used to offer, for example, full time free nursery places to children of those in work or study (in a similar fashion to Germany where good quality nurseries are heavily subsidised). Also, tax credits and housing benefit subsidise the super rich who don't have to pay liveable wages because they know the taxpayer will always top up the shortfall. This is disgraceful. The tax credit system is just a sticking plaster over a rapidly necrotising wound when it should be a scalpel to completely remove the rot (short term pain but long term gain - sorry for the overuse of metaphors!).

[Takver]

"Labour believed in equality of outcome rather than equality of opportunity"

You say this as if it is necessarily a bad thing.

I think most people would agree that complete equality of outcome isn't a good idea. But I think many others (even plenty of one nation tories, in so far as there are many of them left) would say that the level of inequality in the UK has gone too far, and that a more continental style outcome would be better for everyone, rich and poor alike.

While the very wealthy (the 1%, if you like) obviously do well out of our current system, it is arguable that those of us who are in the top part of the income distribution but not super rich would be happier in a country with the greater social cohesion and better public services that you typically see in more equal countries.

[Takver]

Orwellian, tax credits are just the last in a long line of in-work benefits - they're the direct descendant of Family Credit which was introduced in 1986 by the Thatcher government.

The problem if you don't have in work benefits, in a low wage economy, is that you either have to set out of work benefits so low that they will be below subsistence level for those with larger families who lose their jobs OR have a situation where people will lose money by moving into work.

The thing is, there is no easy answer - you could increase the minimum wage, but obviously that would have knock on effects, you could return to a system where there was vastly more social housing available at a low rent, or you could have a situation where large nos of families were living in extreme poverty.

Personally, as someone on the left, I would look for a mix of more social housing (ideally provided by co-ops / HAs rather than the state as such but perhaps facilitated by easier planning, tax breaks et al for such developments) and a reduction in income inequality. But easier said than done!

[Orwellian]

Tax credits were introduced by Labour to try and buy more votes. Apparently they increased spending on tax credits massively in the lead up to the 2010 election, trying to bribe the electorate.

Tax credits can also be seen as wealth distribution since if you are on a low wage you get them topped up because Labour believed in equality of outcome rather than equality of opportunity. No point in progressing up the career ladder and being rewarded financially for your hard work, as far as Labour were concerned "all must have prizes", so dampening and abusing the work ethic as something to be ashamed of.

The most pernicious element of tax credits, is that it lets some absent fathers get away without supporting their children since the taxpayer will pick up the bill. It is also completely unfair that unemployed families could get a "pay rise" for each new child they have, whilst those in work have to make do with what they can afford.

[morethanpotatoprints]

OMG, how many lols, does a person need.

Night all.

[morethanpotatoprints]

Catlady

I think it was your post, lol. Its past my bed time too lol.
No worries, don't think it was as rubbish as mine

[catladycourtney1]

Was it my post? It was probably gibberish if so, it's past my bed time

What I meant was, although you get WTC for working and so I suppose it can be an incentive to find employment, you can find yourself in a situation where you're better off working a small number of hours and claiming the tax credits, than working more hours and earning more. I'm sure there are some people who are better off not working at all and claiming unemployment benefits too, when you factor in not having to pay rent and council tax and whatever else, rather than working for a low wage, claiming WTC but having to pay full everything.

[morethanpotatoprints]

I see Catlady.

The post I was responding to must have been talking about Child tax credits when she said that "Tax credits should be an incentive to work". They clearly are as you don't get WTC without working.
The comment just puzzled me, doesn't take much

[catladycourtney1]

morethan you don't get working tax credits if you don't work, but if you work part time, you can find yourself in a position where increasing your hours would leave you worse off. This is the dilemma the OP's friend is facing, anyway.

Child tax credits, on the other hand, you do get (and get more of) if you don't work, so I don't think they really qualify as "tax credits" at all.

[morethanpotatoprints]

I thought tax credits were an incentive to work, Do you still get them if you don't work then?
Its ok saying what should happen, employers pay a proper living wage, absent parents support their kids, private landlords gaining less profit. But until this happens people need help, decreasing this help and support will leave many families in poverty. People can't just up their hours to become less reliant on tax credit, the hours might not exist. They can't just switch to a tougher job, nor improve their position. Some people don't have jobs but professions or work for themselves, where these things may not be possible.
So their tax credit should be stopped then?

[Viviennemary]

I agree with raising the personal allowance. And yes it does appear that in some cases it wasn't worth people working extra hours becausethey would lose their tax credits so gain nothing by working extra hours.