The government is encouraging firms to pay peanuts

Michelle McGagh
Tax and credits
Tax and credits

Low income families with children will be unhappy to hear that child tax credit is on the chopping block as chancellor George Osborne looks for £12 billion of cuts

Cutting the benefit would save the government £5 billion a year but 3.7 million working families would lose out on around £1,400 a year – not an insignificant sum.

Under the plans, a two-child families with one parent working full time would see tax credit stop when earnings reach £28,847 rather than the current mark of £32,969.

The government argues that the plan will mean businesses, not the state, will shoulder more of the burden of employee costs. I understand this argument and I agree with it to a point but it does pose the question of why we have child tax credit and, expanding the argument, working tax credits at all.

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These government top ups are a huge subsidy for Britain's businesses who know they can pay the lowest amounts possible to employees because they know the government is going to step in and make up the shortfall.

Why does this subsidy for businesses, even those which are extremely profitable, exist in the first place?

It seems it is only there to let large companies pay poor wages to their workforce while giving to their shareholders.

One of the large problems with tax credits is that the companies that benefit from them aren't means-tested.

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While the workers are told they will stop receiving top ups when they hit a certain income level, businesses no matter how big are free to let the state – aka taxpayers – pick up the bill. This allows those at the top to get richer while the staff at the bottom have to rely more heavily on the state.

If businesses were forced to pay a real living wage we wouldn't need top ups in the first place. However, the business lobby is obviously against anything coming out of their pockets when they have balance sheets to think of, but if a business can't afford to pay its staff a liveable salary should it really be in business at all?

The government is strong-arming employers to take more responsibility for their staff but the fear is that companies won't step up to fill the gap to a liveable wage and we end up with people working for the same wages but their families scrapping by on even less than they had before.

Read more:
Working tax credits: a guide

Child tax credits: a guide

HMRC could confuse you into losing tax credits

Osborne Considers 5billion Poumd Tax Credit Cut
Osborne Considers 5billion Poumd Tax Credit Cut