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Commenting on the tax credit debate taking place in Parliament, Deputy Director of the Adam Smith Institute Sam Bowman said:
Working tax credits are the best form of welfare we have, and cutting them would be a huge mistake. The government has long claimed to want to make work pay for everyone, but cutting tax credits would disincentivise work and hurt those at the bottom of society.
Contrary to the government’s claims, the National Living Wage will do little to help those affected by these cuts and, according to the Office for Budget Responsibility, it risks adding insult to injury by pricing tens of thousands of workers out of the labour market altogether.
There is little evidence that tax credits ‘subsidise’ employers, except to the extent that they make more people willing to work in the first place, creating a larger pool of workers. The politics of this looks dangerous, too: when it’s working families at the bottom of the income distribution that are being hit hardest, it’s hard to say that we are ‘all in this together’. We urge the Chancellor to rethink these cuts and find savings elsewhere instead.
Notes to Editors:
ASI publication Abolish the Poor finds that tax credits are not a subsidy to employers and offers evidence that they may induce employers to offer higher wages.
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The Adam Smith Institute is a free market, libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.