No (tax) credit for Iain Duncan Smith

It’s New Year’s Eve, newsrooms are quiet and casual comments by ministers are enough to make top headlines. Today, Iain Duncan Smith, the Work and Pensions Secretary, has made the news with some vaguely worded attacks on the system of tax credits.

Duncan Smith says that tax credits (government payouts to people on low incomes) are “not fit for purpose”.

Now, there’s very little about which I agree with Iain Duncan Smith. However, I agree that tax credits are not fit for purpose. I suspect that he and I have different reasons for thinking this.

Many tax credits are paid to people who are working in very low paid jobs. In other words, they are a taxpayer-funded subsidy for poverty pay. Employers can get away with paying people unreasonable wages because the taxpayer will foot the bill through tax credits. They are thus not a subsidy for the poor but for the rich (I accept that not all employers are rich, but most major employers certainly are).

However, other people receive tax credits because they can work only part-time, for example because of disability or childcare responsibilities.

Duncan Smith’s planned “universal credit” is likely to be far worse for many of these people than the existing tax credit system.

If Duncan Smith really wants to cut the tax credit bill – as he should – he needs not to introduce new systems that will penalise the poorest but to look to the real reason for such a high bill.

A considerable increase in the minimum wage would make many tax credits unnecessary. Of course, some will argue that this would lead to mass sackings from employers who claim they can’t afford it. This prediction was made when the minimum wage was introduced in 1998. It didn’t happen.

We can reduce the welfare bill, like so many other bills, in ways that cause inconvenience to the rich rather than suffering to the poor.

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