Listening to ‘Call me Dave’ speak about what he calls the
welfare merry go round, referring specifically to tax payers being given back
their contributions in tax credits, topping up their substandard incomes and
helping with child care, I couldn’t help feeling sorry for the Tories. Of
course a 12bn slashing of the welfare budget is callous right now but we should
recognise that tax credits were never a good idea. History has shown that this
has served to lower living standards for the poor overall, not raise them.
The issue the Call me Dave is battling most is that of child
poverty. The IMF is reporting that any progress made during the Blair years and
beyond regarding child poverty, will be reversed further than it already has
since the coalition government began it’s austerity programme. The Child
Poverty Action Group says that, relative poverty, which is defined as those
subsisting on less than 60% of the median average wage in the UK, has risen
from 2.3 million in 2013 to 2.6 million in 2014. The IFS predicts a further
rise in relative child poverty by nearly a third based on it’s current
trajectory and the government’s current attitude toward the poor.
Call me Dave’s response to this is to question the widely
accepted definition of child poverty. He said, that government should ‘recognise
the causes of stalled social mobility and lack of economic opportunity.’ These
comments summed up his speech in that he was moving away from focusing on those
that a cut to tax credits would hurt the most, the vulnerable, single mothers,
perhaps those who are educationally underdeveloped and in need of working tax
credit to bump up their pay for the short number of hours they work per week.
Cameron’s critics are quick to say that this policy of cutting welfare and
specifically tax credits will hurt the vulnerable across society. However, if employers
were not offering 1.3 million minimum wage jobs with 10% of all employees
earning less than £7.28 per hour but offering more to employees, would
abolishing tax credits as part of our welfare system be such a bad thing?
It is often claimed that tax credits have played a part in
bringing down child poverty and relative poverty more generally. But in my view
tax credits subsidise real wage increases. A single parent working a 16 hour
week can receive approximately £5,500 annually on minimum wage. If topped up by
tax credits, both working tax credit and child tax credit, he/she can boost her
income to almost £25,000. Also, for every hour worked beyond the 16 hour threshold
for the receipt of working tax credit the single parent would lose 74p for
every extra pound earned. So, with this in mind employers have little in the
way of an incentive to increase wages for low skilled jobs and employees have
little incentive to work more than 16 hours per week, especially if they have
children and cannot arrange alternative, cost free child care, as their child
tax credit does not increase in line with the amount they work. What our single
parent would gain per hour of work, he/she would lose to a greater or lesser
extent in childcare costs dependant on circumstance.
Also, another important factor here is productivity. The
OECD reports that the G7 nations were 17% more productive as a measure of GDP
per hour worked than the UK in 2014. This, coupled with a large low skilled
labour market, partially due to high immigration levels of low skilled workers
from the EU, and a focus from government on promoting the Retail and Service
industries which make up almost half of all minimum wage jobs according to the
Low Pay Commission, has meant that business has made no move to improve the
quality the UK’s workforce in many sectors. Tax credits keep employees out of relative
poverty and a low minimum wage simply means that big business, instead of
paying more across any particular sector, in order to boost productivity to
incentivise the workforce, pays to take on more staff on low pay and short hour
contracts, even if per capita they produce less. There is no incentive for big
business to pay more across sectors where large businesses employ lots of low
skilled workers, not whilst working tax credits exist and the labour demand
increases.
David Blunkett appeared on the Daily Politics today and on
this question of tax credits he agreed that an individual’s overdependence on
government subsidy for work was daft. But he made one point that ‘Call me Dave,’
and his ‘Cameronettes’ simply do not understand. Actually, I’m not sure they
care. ‘They need to get their ducks in line.’ Before we get to the business of
reforming the welfare system, there must be appropriate wage levels, levels of
productivity and protections for the most vulnerable. The IMF’s report may be
right in one sense, that relative poverty levels will continue to soar under
this government but Cameron’s critics should perhaps not suggest that this is
directly as a consequence of welfare spending reductions and specifically cuts
to tax credits. Fundamentally tax credits were bad for the poor in the first
place. It kept them in their place, at the bottom by subsidising employers for
employing them.