Tax credit shambles hits lowest paid

SNP Business and Enterprise spokesperson, Mike Weir MP, has secured cross-party support in a bid to persuade the UK Government to revise the threshold for Working Tax Credits (WTC) after warning that low income workers are missing out on the benefit because they have had their hours cut as a result of the recession.

The Working Tax Credit (WTC) is intended to "help make work pay" for lower income workers. For people with children and disabled people, WTC is payable if the person works 16 hours or more a week. For others, the threshold is 30 hours a week, however, as a result of the recession many workers have had their hours cut and now face a "double whammy".

Mr Weir has tabled an EDM on the issues which has already received backing from Labour, Liberal Democrat and SDLP MPs.

Mr Weir, the SNP MP for Angus, said:

"For low paid workers to lose hours at work and then be punished again by having their Working Tax Credit entitlement withdrawn is clearly a double whammy.

"Working Tax Credits are supposed to help make work pay, but clearly the reality of the recession is having an impact on peoples employment and the UK government must look at revising the threshold.

"Just like the 10p tax fiasco these ridiculous rules are hammering those on low incomes especially hard, and is further compounded by the recession. Instead of helping the less well off and the vulnerable these ridiculous tax credit rules are punishing them.

"The tax credit system is patently not working, and I hope that Ministers can be persuaded to sort it out."

Note:

1. The text of Mr Weir's EDM is set out below:

That this House notes that many firms have introduced short time working for employees during this time of recession; further notes that many workers who are in receipt of tax credits are facing difficulties as the reduction in hours takes them below the minimum hours required to qualify for tax credits; and calls on the Government to take action to ensure that those who are so affected are deemed to still be working for the minimum hours and that their tax credits are maintained until such time as their hours are reinstated.

Supported by: Mike Weir MP, Lynn Jones MP (Lab), Mark Durkan MP (SDLP), Andrew George MP (Lib/Dem).

2. Background on Working Tax Credits.

The Working Tax Credit (WTC) is intended to "help to make work pay" for lower income workers. For people with children and disabled people, WTC is payable if the person works 16 hours or more a week. For others, the threshold is 30 hours a week. The lower threshold for people with children and disabled people is justified because people in these groups suffer greater disadvantage in the labour market.

To qualify for WTC, the claimant or their partner must: work 16 hours a week or more and be aged 16 or over and be responsible for a child; or have a disability that puts them at a disadvantage of getting a job and have been or are claiming a disability benefit; or be 50 or over and returning to work after receiving specified benefits or work 30 hours a week or more and be aged 25 or over

The 30 hour requirement therefore applies to all WTC claimants without children, unless they are disabled or aged 50 and over and returning to work.

The lower hours threshold for claimants with children or a disability "recognises the difficulties that those with children face in combining work with family responsibilities and the difficulties that workers with a disability may face" (HM Treasury, The Child and Working Tax Credits: The Modernisation of Britain's Tax and Benefit System, April 2002, p 33). The same source also stated that the WTC elements for disabled workers and for those aged 50 or over returning to work after a period out of the labour market "recognise particular aspects of disadvantage in the labour market" (ibid.). It goes on:

Workers with neither children nor a disability, aged 25 or over, will be entitled to the Working Tax Credit provided they work at least 30 hours a week. This is in recognition that people in this situation do not face the same barriers to full-time work and should be encouraged to work full-time because it is more likely to offer them the opportunity to improve their skills and progress up the earnings ladder. Eligibility for workers in this group will begin at the age of 25, as it is those aged 25 or over who are most likely to face poorer incentives to work or suffer persistent poverty in work.

[ibid., p33, para A.12]

SNP News, 26th March 2009