In the Huffington Post this week, Lib Dem Work and Pensions spokesperson Zahida Manzoor wrote of the party’s opposition to the Government’s severe cuts to tax credits for the lowest paid.

The Tax Credit system is hugely complicated, made up of various different ‘payment thresholds’ and so-called ‘disregards’. But ultimately the key aspect of the system is the ‘taper rate’ – that means how much is taken away in Tax Credits for every additional pound you earn.

This taper rate is important, because when someone is making the decision about whether to take on more hours, particularly if they have children, then money matters. If it turns out you’re only going to keep a few pence in the pound by taking on the extra work it may not be worthwhile, particularly if you need to pay for expensive additional childcare in order to cover the increased time spent away from home.

When the Liberal Democrats were in Government we recognised this problem and, alongside Iain Duncan Smith, fought for a new system, which would guarantee you kept more of the money you earn and that it would always be beneficial to take up extra work. Iain Duncan Smith rightly gets a lot of criticism for some of the benefit reforms he has introduced, but his support for the ‘make work pay’ agenda was greatly to his credit.

And she gave some detail on how it would hit people on low wages:

The impact will be hugely damaging. According to the Institute of Fiscal Studies 8.4 million household will lose on average £750 as a result of these changes- serious money if you are on a low income.

Further analysis by the Social Market Foundation, suggests a couple living in social housing with two children, where one person is in work will lose up to £1,736 as a result of the changes. Even worse, when combined with the various other complexities of the benefit system they could lose up to 93p in benefits for every pound they earn. How are we going to persuade people that there is real value in going out and finding those additional hours if they are effectively doing them for free?

The Conservatives have argued that they can make these tax credit changes because they are increasing the minimum wage. While this increase in the minimum wage is welcome, the average social housing tenant earns £8.08 an hour – already above this new minimum wage. This means they will not see any benefit from the increase, but will see a huge loss in their tax credits. Even worse, the newly increased minimum wage does not, disgracefully, apply to those under 25, meaning that young couples will be hit even harder. According to the IFS the new minimum wage will only make up 26% of the losses that households losing out on tax credits see.

You can read the whole article here.

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