Well George has now decided to scrap all the tax credit changes. because they’ve discovered some £27 billion leeway in the public finances! All those hard working families will be breathing a sigh of relief. But the death knell for tax credits is still on the horizon as Universal Credit will come in to replace the old benefit system as it takes the place of six different benefits.

What is it with tax credits? You take money away from people in the form of tax and give it back to them in the form of tax credits. Why not tax people less in the first place and then they have more money to spend as they wish. Wouldn’t that be more cost effective? Where exactly did tax credits come from?

As I understand it tax credits were awarded by Gordon Brown as a top up for people on low incomes who were working. The current system came into operation in 2003. In fact the Conservatives also paid Family Credit before that so the principle was already established. Family Credit was brought in through the Social Security Act of 1986 for low paid workers with children Call me simple but the way I understood it tax was taken out of your gross income to fund public services, pensions, unemployment benefit and suchlike, the rest you kept for yourself as disposable income to do with as you wanted. Never would it have been countenanced that in effect the government would dream up another benefit and call it tax credit.

On Question Time a few weeks ago this whole matter was highlighted by a very agitated single parent from the audience having a go at the government for reducing tax credits and lowering her standard of living. What a lesson for any government, it is very difficult to take benefits away from people once you have given something out, even to more prosperous older people who have been given bus passes, heating allowances and so on and so forth. Many will say they have paid into the system for their whole life so it is entirely fair to benefit from it. Tax credits were given by the government in the first place, now if another government takes them away it is seen as ‘taking money from the working poor.’

However what is the logic of the government subsidising the wages paid by employers? Gordon Brown himself admits that the biggest problem is not worklessness but low pay. This fosters dependency on the government not only on the part of employees but also on the part of companies who now know they can get away with paying lower wages as it will just be topped up by the government. Quite a useful helping hand if you are facing strong national or international competition.So you and me as the taxpayer are subsidising both workers and companies.

Presumably it will benefit some firms more than others who employ more low paid workers. What would happen to those firms if the government subsidy was withdrawn, which it will be? They would be forced to perhaps lay off workers or pay people more money to retain staff. If they can’t afford to operate without government subsidies they have to cut their costs, increase their revenue or go to the wall? If they did pay more money they could feel justified in upgrading the skills of those workers, increasing their productivity and helping to keep their costs down. On the other hand as we are talking about low paid workers perhaps they would carry on trying to get away with paying lower wages.

The direction of travel is right, I’ll give that to the Conservatives. Tax credits must be one of the worst ways to help poorer people. It shows the extreme difficulty of awarding a benefit with shaky foundations, then trying to remove it.

One can understand the House of Lords asking the government to think again, especially when it has more of a Labour/Liberal Democrat bias, but even a Conservative House of Lords should be compassionate towards the poor. Osborne faced a Tory backbench rebellion, so the ‘heartless tories’ tag was a mite unfair. To be fair to people those on tax credit could stay on the same amount as a new system is tapered in. All the government has to do is to stop paying any more tax credit to new recipients after a certain date. Universal Credit is taking its place as a replacement for six benefits.
An elderly Conservative that I used to campaign with used to talk about Brown’s Britain, a culture in general of state dependency was fostered in order to cement a client state where everyone would vote for the Labour party in perpetuity because they would always reward the hand that feeds them. In other words an utterly corrupt system where the government gives people other people’s money, and then borrows of course to make up any deficit. If one was cynical one would say that this was part of the aim of tax credits.

Tax credits seem to symptomise the general malaise that has afflicted the British welfare state. It is almost as if the deliberate aim of government has been to get as many people as possible on benefits of one sort or another, even if you are in work. A Guardian article of 2013, admittedly a little dated, said 64% of all families were receiving some sort of benefit. There was an article in the Guardian recently where it refers to Osborne announcing in his first budget that ‘working tax credits and child tax credits would be cut for middle class families.’

The whole idea of tax credits makes the UK tax system unnecessarily and fiendishly complicated. An article written in 2012 by Craig Kennedy for Inner Reid Investments Limited was entitled ‘Taxing Child Benefit – another layer to the world’s most complicated tax system.’ Trolleys tax guide, the Bible of tax, had reached 11,520 pages, twice as many as in the 1997 edition, due to Gordon Brown ‘on speed’ changing of the system. What happened to the good old fashioned idea of us all paying tax and contributing to a system that would support us when we’re genuinely in need?

Getting people at low earnings levels out of tax is a great idea to make work worthwhile, so tax allowances are a sensible idea which could be expanded, getting rid of tax credits is a further sensible direction to go to fit with that scenario. And of course there are increases to the national minimum wage with the national living wage being introduced from the 1st April 2016. George Osborne is even thinking of cutting housing benefit to save the necessary money. Hopefully Universal Credit will provide a fairer and more straightforward overall framework. Whatever he does it will be ‘damned if you do, damned if you don’t. A long term strategy has to be to encourage equality of opportunity, a positive stance that gives poorer or disadvantaged people the chances to help themselves up by their own bootstraps, but it sure is a difficult task