The eminent social policy thinker Richard Titmuss used to decry what he saw as a hidden ‘fiscal welfare state’, a system of tax allowances and perks for the middle class. New Labour’s increasing integration of the tax and benefits system for the poor, and attendant redistribution, may yet come to be seen as a new fiscal welfare state for social democracy.
Two new tax credits were launched in April – the child tax credit and the working tax credit. The child tax credit combines all the existing benefits and credits for children, except universal
child benefit. The working tax credit introduces the principle of in-work credits for those without children.
But what are tax credits? Tax credits can be understood as means-tested benefits delivered through the tax system or
pay slip. Rather than having separate benefits that people claim individually, the government prefers instead to use the tax system to ‘credit back’ money. Indeed, the child tax credit will see that some people’s net income is greater than their gross income. This may cause some surprise, and it is one in the eye for neo-conservatives who equate social policy with draconian levels of taxation.
It is a novel fact of political history that a Labour government now focuses on the means test. But Labour’s new social security agenda aims to recast it. A centre-right government’s means-testing methodology aims to secure a safety-net welfare state, which, with reduced levels of provision, often falls foul of Titmuss’s classic dictum that ‘services for the poor
are invariably poor services’. Labour’s is tied to a strategy of redistribution – rarely voiced, but redistribution nevertheless.
The issue of the take-up of tax credits is seen as the barrier to any claim of policy success. Yet the new credits render the take-up figures as flawed and meaningless – they should be abandoned. There are three ways of measuring the figures: caseload (the number of claimants as a proportion of those eligible), expenditure (spending as a proportion of assumed total take-up) and amount unclaimed. None of these capture the reality, that the degree of take-up is linked to the level of entitlement.
The estimated take-up of the old Working Families’ Tax Credit (the most recent figure we have on credits) was
65 percent. For a government that prides itself on a ‘what works’ approach to public policy-making, a policy which only reaches 65 percent of its target audience seems misconceived. Yet Department for Work and Pensions evidence on take-up shows that many of those who fail to claim their due are missing out on smaller sums of money, less than £20 per week, while most recipients claim sums in excess of £80 a week.
The new child tax credit will cover families with children whose combined household incomes are below £60,000
a year. This will cover 90 percent of all families. Those with annual incomes of £40,000 to £60,000 will receive the minimum award of £10 per week. Is it really a policy problem when well-off earners fail (consciously or otherwise) to claim, what are for them, relatively small sums of money?
This is not, however, to let ministers off the hook. Increasing take-up levels among lower earners must be prioritised
as a matter of urgency. Fifteen percent of those entitled miss out on awards of £80 to £100 per week. Crucial government targets – most noteworthy the target to abolish child poverty, but also to increase employment levels – squarely depend on increasing take-up of the new tax credits.