“Tax Credit cuts could damage Britain’s entrepreneurial economy and the Conservative Party’s claim to be the workers party”. – Bow Group Social Affairs Fellow Nic Conner

The Bow Group today releases a briefing paper “Credit Where it’s Due?” looking at the potential impact and alternatives to the government’s proposals to nearly halve the tax credit earning threshold by April 2016, and proposing three key amendments to the Government’s policy.

Read the full paper here.

Key Points:

• Cuts to Tax Credits to be introduced by April 2016

• Those earning up to £6420 without children are currently eligible for full tax credit benefits. The Government proposes to reduce this to £3850

• 90% of new jobs created since the recession was from self-employment

• 15% of the UK workforce is currently self-employed

• 62% of registered businesses in the UK are sole traders, over 60% would qualify for tax credits if this is their sole source of earning

• Those earning up to £6420 without children are currently eligible for full tax credit benefits. The government proposes to reduce this to £3850

• Institute of Fiscal Studies predicts 3.2 million working families will lose an average of £1300 from their annual budget under current cuts proposals

• Current plans are projected to save £4.4bn

Proposals:

The Bow Group proposes the following three measures to reduce the negative impact of tax credit cuts to the UK workforce:

1. Ensure that cuts to tax credits are implemented gradually, alongside and proportional to the increase in the national living wage and the minimum tax threshold up to 2020.

2. Introduce an exemption for tax credit cuts for the self employed up to 2020.

3. Lift the ring-fence of 0.7% GDP spending on foreign aid to demonstrate the Conservative Party’s commitment to the domestic UK workforce and ensure any shortfall to the Government’s plans to reduce welfare spending by £12bn by 2018 is met elsewhere.

Quotes:

The paper’s author Nic Conner said:

“Tax credit Cuts Could Damage Britain’s entrepreneurial economy and the Conservative Party’s claim to be the workers party 

15% of the UK workforce is currently self-employed. Those self-employed people that are not being paid won’t be able to invest the same time they would under tax credits to grow their business. Removing tax credits would remove a crucial component of the self-employment boom.

If tax credit cuts are to go ahead, they need to be implemented at a slower pace, in line with the introduction of the National Living Wage and the raising of the tax threshold.”
Bow Group Chairman Ben Harris-Quinney said:
“It is unclear why a policy that will disproportionately harm workers is being supported by the Conservative Party at a time when the Party is keen to claim the title of “the workers party”.
There is no doubt that the welfare bill needs to be reduced, but to target those that are most vulnerable trying to transition into work is wrong-headed.
The reforms we are suggesting would significantly reduce the negative impact of tax credit cuts and allow them to come in in line with reforms to the living wage and tax threshold, easing the burden on the poorest workers.
It is astonishing how quickly support for the cuts in their current form is disappearing within the Conservative Party as public anger grows, and we hope reforms in line with what we are suggesting will be implemented without delay.”

The paper’s author Nic Conner is the Bow Group’s Social Affairs Research Fellow, he has previously worked on the Government’s New Enterprise Allowance Scheme and for the Big Issue.

Read the full paper here.