The truth about tax credits that most won’t tell you

The truth about tax credits that most won’t tell you

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In the latest drama unfolding in parliament, the Chancellor has managed to let his overzealous right wing ideological battle against poor people cause him yet another debacle.

Everyone was expecting another five years of Tory rule and even those who finally accepted it won’t be pleasant had a rather rude awakening at how far the government wants to go in their spending cuts.

Tax cuts usually paid to those in low earning jobs were proposed to be heavily cut with the justification that if wages are increases, then that would make up for the loss of credits. However, as most things in life, things are never quite simple.

In the latest PMQT which has recently gathered more viewers due to the polarising nature of UK politics (and because of the childishness of our MP’s and the hilarity that ensues), the PM was asked I believe six times to confirm if some families would be worse off and of course, knowing that it was designed to in fact do so, he refused to give guarantee that it wouldn’t be the case.

1. Employers will not accept higher wages for the same work

There are two issues specifically that need to be made clear. First of all, the assumption that if wages go up due to an increase in the national minimum wage, that it would automatically get rid of the need for tax credits is as much of a fallacy as the idea of of trickle down economist because it’s too simple.

Let’s look at it from the point of view of an employer. Let’s say that I pay someone the minimum wage and I expect let’s say 10 units of work from him or her. That sets a specific expectation of productivity; for this much pay, they will expect to get a certain benefit back.

However, if the wage is increases by let’s say, 20%, then would an employer be happy that they are paying an extra twenty percent for the same work, the same productivity, the same benefit? Of course not. Otherwise, this whole system would have simply shifted the burden of helping poor people onto employers, essentially being a hidden tax. Employers would be responsible for your new form of ‘tax credits’ now.

This would not happen. They would simply find others to do extra work for the same level of pay, effectively pitting the low paid members of society against each other. If an employer Is paying little to their workers, then be assured that they are very vigilant against anything that will increase their costs.

2. A higher minimum wage doesn’t help anyone who isn’t on the minimum wage

Secondly, anyone who is earning just over the limit will not have any of the benefits of higher wages, but may still suffer the loss of tax credits. In this case, the overall benefit of a higher minimum wage would be hugely offset by the cuts.

The minimum wage should be raised, no doubt about this, but to give with one hand and take away something with the other in a situation that is potentially a lot more damaging to many, is just pure cruelty. It would have been funny if it wasn’t so ironic and sad that many of the peers in the House of Lords who were ushered in by the Tories to vote in favour of the cuts (and still embarrassingly lost) were multi-millionaires, one of which (and we won’t say who here) I hear has said that it was perfectly fine for someone at his shops to earn a wage of £6.70 an hour. But you know what, Iam sure these people care about low paid workers and this is all a plan that is too intricate for everyone to understand but it’s all in the best interests of everyone, we just don’t get it.


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