Tax Credits

Sapphire

So, does it work like this?

1. Many individuals receive copious payments courtesy of taxpayers. >

2. This helps to avoid employers raising wages. >

3. This means that the prices of the output employers produce are kept low (in whatever area). >

4. Which means that inflation is kept low.

Personally, I would prefer it if prices rose and tax credits courtesy of taxpayers were removed. One could then choose what to buy – conversely, taxpayers have no choice in having to pay tax credits. Suppressing inflation by these means is also not a good idea, I feel. It is contributing to rising house prices, and low mortgage rates also point to people over-extending themselves (not good in the long term, for obvious reasons); encouraging people from abroad to come here for benefits (while our NHS and other services suffer badly); no doubt contributing to a lazy, unambitious attitude in many people who receive tax credits; and preventing savings rates from going up.

Benefits should only be given to those who are really in dire straits, not to those who say they are because they want to receive them.

CLAPTON

kinger101 wrote: »

The new market rate (w/o tax credit) would establish over time. I think many workers are likely to be motivated to find better paying work if they suddenly get a drop in pay. They either need more hours or a higher hourly rate. If they find a new job, the employer then needs to fill the old one. If they can fill it at the existing pay rate, nothing changes. If they don't, they can't really offer the same one vacancy at a higher rate without increasing the pay of other employees in similar positions without falling foul of employment law. Eventually, they'll have too many vacant positions, and need to come up with a new market rate for the position.

Of course, none of this is happening in isolation, as the minimum wage is being increased. So the pay rates are increasing anyway. Osbourn could have easily got this though the Lords had he just revised the timings better (or even stuck it in a Finance Bill instead). But he didn't want anymore bad press.

There's an interesting article here on from the Economist highlighting a study that indicated that around one third of the tax credit benefited the employer.

http://www.economist.com/news/finance-and-economics/21656710-reducing-wage-subsidies-would-hurt-workers-more-their-employers-credit-where

Apparently, a similar study is being done for the UK, but they only have preliminary data.

Yes it's a little difficulty to disentangle the issues.

-if people are motivated to get better jobs and/ or work longer hours then that presupposes that there are already higher paying jobs and more hours available already, which currently people have rejected due to wtc.
-to have a significant effect on the existing nmw jobs the number of new higher paid work would have to be significant.

Interestingly, (and a point I hadn't previously considered) the economist article suggests that more 'married/partnered' women would try to re-enter the labour force (as there would now be no disincentive to do so due to the wtc ).

The overall effect might well mean that there is no lack of workers will to work at current wage levels

Interestingly too, the article suggest that higher NMW levels will increase automation to replace expensive labour.

Interestingly, they seem to conclude that (in USA) the employers subsidy effect is relatively small being 21-28% of the wtc bill and that most goes to the workers.

Sapphire

As an addition to my post 982, payment of these costly tax credits by taxpayers is presumably in effect a form of taxation, just not called that and not put through the standard taxation system. How very devious…

Thrugelmir

Sapphire wrote: »

2. This helps to avoid employers raising wages. >

Wages have to be affordable to the employer. If customers (for example) don't want to pay the increased prices asked. Then the result is no business and no employer.

CLAPTON

Sapphire wrote: »

As an addition to my post 982, payment of these costly tax credits by taxpayers is presumably in effect a form of taxation, just not called that and not put through the standard taxation system. How very devious…

well probably not
tax credits are part of the benefits systems, obviously funded by taxation and borrowing but not themselves a form of taxation

kinger101

CLAPTON wrote: »

Y
Interestingly, (and a point I hadn't previously considered) the economist article suggests that more 'married/partnered' women would try to re-enter the labour force (as there would now be no disincentive to do so due to the wtc ).

Yes, that was interesting point. Seemed the tax credit system had an affect on the type of employee - more single parents, fewer married. I don't find 21-28% to be insignificant as an employer subsidy. If this figure were true for the UK, it's £6.3-8.5 Billion!

kinger101

Thrugelmir wrote: »

Wages have to be affordable to the employer. If customers (for example) don't want to pay the increased prices asked. Then the result is no business and no employer.

Yes, the wages have to be affordable to the employer, but what they can afford, and what they actually pay are not the same thing. Also, there are some things we'll always need to buy, so whether supermarket wages are £6 an hour or £9 hour, it's not going to send them bust.

The supermarket has the choice of;

(a) raising prices;
(b) reducing the amount of profit;
(c) finding efficiency savings other ways.

(c) is already happening anyway given the changes in logistics that have happened over the last two decades, and the amount of self-service checkouts we see. This has been driven by competition which will keep (a) to a minimum too (unless collusion occurs).

michaels

If the employer could pay higher wages and still make a return on the capital employed then by definition they are making excess profit and another supplier could enter the market and undercut the incumbent and take their market share.

Supermarkets as you say are a good example of how labour can easily get priced out.

France is a very good example if what happens if you price one section of society out of the labour market on a 'semi'-permanent basis.

CLAPTON

kinger101 wrote: »

Yes, that was interesting point. Seemed the tax credit system had an effect on the type of employee - more single parents, fewer married. I don't find 21-28% to be insignificant as an employer subsidy. If this figure were true for the UK, it's £6.3-8.5 Billion!

well, within the terms of the USA study one could say

that of the wtc benefits bill
that 72-79% subsidised the workers
and 21-28% subsidised the employers

whether that applies to the UK situation is difficult to say, as their benefits and general employment rules etc are different to ours

but it's very different from simply saying wtc are a subsidy for employers without qualification

Thrugelmir

kinger101 wrote: »

it's not going to send them bust.

That's a politicians response. i.e. try running a business yourself before telling others how to run their's. 90% of people in this country are employed in SME's not large organisations such as supermarkets. Imposing large increases in pay may well have a negative impact. The care industry in particular may well buckle.

The biggest cost to many organisations is labour. So cost efficiency through investment in technology is inevitable. The bigger the cost pressure imposed