Thursday, 12 November 2015

Quod Erat Demonstrandum

I've been having an interesting exchange of views with John McTernan on Twitter about the interplay between tax credits and low pay.  

Now I've never advised a Prime Minister, but I do know how many beans make five and I think I've got as good as grasp on this subject as any, so let me expand beyond the 140 character confines of Twitter.

In 2000 the Scottish Government committed an additional £800 million of taxpayers money, every year, to fund a generous pay deal for a group of middle income earners, i.e. 70,000 or so teachers employed by Scotland's 32 local councils.

The landmark deal (McCrone Agreement) was fully funded, had no productivity strings attached to its delivery and provided this group of council employees with an eye-watering  23.5% pay increase in a single year.

One year earlier, in 1999, Scotland's council employers and the trade unions agreed a separate pay deal that promised to tackle low pay and end the widespread pay discrimination that existed amongst the lowest paid council jobs, i.e. those done by 100,000 or so carers, cleaners, catering staff, clerical workers and classroom assistants.

The 1999 Single Status (Equal Pay) Agreement was estimated to cost the public purse an extra £450 million every year, but the deal was never honoured despite the fact that council budgets in Scotland virtually doubled during the 10-year period between 1997 to 2007.

As a result the pay gap widened between the lowest paid council workers and middle income council workers, as did relative poverty between the two groups with those at the bottom of the pay ladder earning around £6.00 an hour.

If tackling low pay had been given the same priority as increasing the pay of middle income earners, the hourly rate of pay of the lowest paid, predominantly female jobs would have risen to £9.00 an hour years ago - removing the need for publicly funded tax credits to subsidise the poverty wages paid to these jobs. 

As such, there is a clear link between pay, poverty wages and tax credits when it comes down to the strategic choices government makes about allocating scarce resources.  

Quod erat demonstrandum, as they say.

    1. Tax credits are about poverty not pay

    2. Tax credits are about helping the 'working poor' which is inextricably linked to pay, especially low pay
    3. No tax credits are about poverty and pay is not the solution to many of the complex needs

      Tweet text
  • Tax credits are about poverty not pay

  • They tackle poverty based on need

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    Who Gets What and Why? (11/11/15)

    I came across an interesting article from Money Week magazine while researching the background to tax credits in the UK.

    The thrust of the article is that tax credits are paid far higher up the income scale than many people imagine and that it's possible to claim a package of benefits (while remaining on part-time hours) that go away beyond the average UK salary of £25,000 a year.

    If you ask me the argument about tax credits ought to revolve around how far up the income scale these benefits are payable, particularly if they present a perverse disincentive for people to remain on part-time hours. 

    Gordon Brown is in the news today claiming credit for the policy, but as everyone knows tax credits are widely used around the world and were introduced decades ago by a decidedly non-socialist President Ronald Reagan in America, where even now a celebrated billionaire businessman like Warren Buffet remains a big fan.

    In the UK tax credits have become widely discredited because the cost has apparently mushroomed from £1 billion to £30 billion a year which does sound crazy if the intention is to provide a 'hand up' to those the bottom need of the income scale.

    So instead of a false debate about whether the UK should have a system of tax credits, surely the real issue is about the length of time these benefits can be claimed and how far up the income scale they should be paid.

    As I said in a previous post, the 'sunshine of socialism' in Scotland enriched middle income earners compared to their low paid colleagues over public sector pay policy in 1999/2000 - could it be that something very similar has been happening over tax credits?


    The truth about tax credits 

    By: Merryn Somerset Webb

    A part-time worker on tax credits can take home as much as a junior doctor

    We published an article by James Ferguson a few weeks ago pointing out that it is entirely possible for a family on tax credits to work very few hours a week but still take home an income similar to that of a junior barrister or doctor. Several readers have taken issue with this.