It’s tax credits, stupid

Labour needs to defend low-income families

The chancellor made a great play in his July budget of announcing the introduction of a new national living wage which, by April 2020, will be over £9 an hour. He claimed this would help working families earn more. However, what he did not say then, and still has not admitted since, is that thousands of low-income, working families, will lose many hundreds of pounds a year more due to the cuts he is planning to make to the tax credits allowance than they will gain from the new living wage.

Studies by both the Institute for Fiscal Studies and the Office for Budget Responsibility clearly show that the lowest earners in our economy will lose in many cases up to £1,340 a year and in return take home only an extra £90 a year in increased pay. The IFS is exactly right when it says in its analysis of the changes that, ‘there may be strong arguments for introducing the new NLW, but it should not be considered a direct substitute for benefits and tax credits aimed at lower income households.’

The changes simply do not add up: you cannot make people better off when you are axing £12bn in tax credits and other benefits and introducing a new ‘national living wage’ that will only lead to an increase of £5.6bn in gross wages, remembering that of that some £2bn of this will be paid to the Treasury in extra tax.

There are 8,200 families receiving tax credits in my Bassetlaw constituency, of which 6,300 families are in work and receive tax credits to help make up for the shortfall in their incomes. These are not ‘shirkers’, or ‘skivers’ or the people the chancellor would like to make out do not do their bit. They are low-paid workers doing vital jobs like cooking, cleaning and caring. The IFS has shown that these low earners will lose on average between £690 and £1,340 a year. For many of my constituents this is a huge part of their annual income and it is money that will not be coming back any time soon. This will lead to families having to make very tough choices when it comes to how to provide for their families.

There are 13,600 children in households in Bassetlaw whose parents receive tax credits, and they simply should not be forced to go without because the chancellor wants to find an extra £12 billion in savings. The Labour party has so far been far too slow in stepping up and defending these low-income earners. They are doing the jobs that many of us do not see, having to start work early, often before we have had our first cup of tea in the morning, and they rely on tax credits for a little bit of help, not much. It is not their sole source of income but it is the bit they need to survive.

Tax credits were brought in by the last Labour government to help working families, not as a substitute for work but as a way of supporting low-income families to pay their way. Under that government we witnessed the single biggest drop in child poverty in our nation’s history. The introduction of tax credits played a key role in this and like our increased funding for the NHS and building of hundreds of new schools, it needs defending.

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John Mann is member of parliament for Bassetlaw. He tweets @JohnMannMP

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Photo: TaxRebate.org.uk

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Comments: 2...

  1. On October 14, 2015 at 6:11 pm Marie responded with... #

    Agree. It’s the terminology of ‘tax credits’ that needs changing perhaps, as it caused confusion – because some households were not in work through sickness or loss of a job etc – but still received ‘tax’ credits. Why not ‘welfare support’ when it is needed (nobody disagrees with the need for a welfare net, surely) and child or family ‘allowances’ (for those with children when income has to stretch further ) and ‘family supplement’ for people on low incomes that need topping up to fair hourly rate? But then this goes against the idea of rolling everything into one for ‘universal credit’. Certainly we need fairer family taxation that takes into account care responsibilities and the fact there are extra mouths to feed – a civilised country is judged by how it provides for its children/the future generation.

  2. On October 14, 2015 at 7:20 pm JayUKChelsea responded with... #

    Must admit dont know the exact figures – but believe the way the mimimum wage and tax credits are applied has basically allowed employers to pay the minimum wage and expect the state to pick up rest with family credit – is it something like used to be 1 in 10 employees were at the “minimum wage” level before it was introduced, but now employers just pay the minimum legal requirement and family credit acts as the subsidy to their operations? Now 1 in 4 employees at the min wage level? Gotta develop a new approach as basically the state is picking up the pay bill for company/director profits – maybe have a staggered corporation tax based on percentage of employees on “minimum wage” or gap between board and front line? If they pay good wages, pay less corp tax? Family credit aint the NHS and aint worth defending at the barricades – its an empoyer subsidy

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