Hand out or help up?

The Government appears intent in pressing ahead with its cuts to tax credits. With £4 billion a year savings at stake, it's easy to see why. However, the scale of these cuts is significantly higher than anything that has been suggested before. Having already taken billions out of the social security budget, options for further cuts are limited.

While the savings to the welfare budget will be significant, so too will be the impact on people and on local economies. We estimate that the local economy in Stoke-on-Trent could lose out to the tune of £16 million a year, or almost an eighth of the amount we calculated would be lost in the changes proposed in 2011. Given the local economy is still struggling to cope with the aftermath of the recession such a kick in the teeth could be extremely damaging.

Local people also stand to lose out big time. Other bodies estimates are that on average ordinary working people will be £1,300 a year worse off. It doesn't sound a huge amount but that's £25 a week that many families will struggle to find.

It is tricky to work out exactly how individuals will be affected overall because of the number of changes in the pipeline that will affect different aspects of working families finances: tax credit cuts, increases in the minimum wage, changes to childcare provision, increases in tax allowances and potential increases in rents charged to households in social housing earning more than £30,000 a year. As many of these changes take place at different times it is very difficult to assess accurately the impact over time.

However, it is not the detail that is important but the ethos. Tax Credits were introduced as a means of redistributing wealth from those who could afford to pay more to those who were 'doing the right thing' and working but struggling on a low income. That worthy initiative to tackle the growing economic inequality that blights our society has been recast as 'a subsidy to low pay' and 'giving with one hand to take back with another'. While superficially attractive this logic will undoubtedly condemn many people to increased hardship. Unable to increase their hours and possibly unable to increase their wages as employers cope with the increase in the minimum wage, a vast tranche of working people will feel the squeeze. In some cases it may make work unaffordable, driving people back onto benefits. It will certainly lead to more debt and greater pressure on working households.

As a helping hand for people moving into low paid work Tax Credits have been a great success. Rightly or wrongly people have come to rely on them to supplement their earnings. To take them away risks plunging many people back into poverty and possibly back onto benefits if work no longer pays. Areas like Stoke-on-Trent will feel the shock of a £16 million cut to local spending power and one wonders how many local jobs that will cost. Is that worth £4 billion a year?

This entry was posted on October 20, 2015

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