Corporate Benefits – The Working Tax Credit

kamsandhu —  November 19, 2013 — Leave a comment

Corporate benefits is a feature which aims to cast light on how big businesses and companies receive benefits and gain profit from welfare policy. Whilst the media have been quick to name and shame the benefit cheats that make up 0.7% of all claimants, they have been quiet on the ways in which corporations profit handsomely from our ‘bloated’ welfare system.

In the last article, we spoke about Workfare – a series of schemes set up by government which hand companies a free workforce, paid unfairly (and unlawfully when referring to laws on the minimum wage) at a cost to the taxpayer and other workers.

This time, we look at Working Tax Credits.

Image: taxcredits.net

Image: taxcredits.net

Working Tax Credits are a means tested benefit for those on low incomes. Essentially, they top up low pay. Working Tax Credits were introduced in the UK in 2003, as a way of encouraging people to take on low paid work. Last year, £14bn was spent on such credits, and as the government pull back welfare spending in all other areas, the solution to saving money here is rarely tackled.

Despite the Working Tax Credit being a huge help to those on low income, it does not address the subject of low pay. And far from the credit being used to help top up the pay of employees of small companies and start up businesses, it now subsidises the pay of employees from huge corporate conglomerates who’s profits are in the billions.

Huge supermarket chains, clothes stores and other companies now have thousands of employees who claim Working Tax Credits. This calls into question the helpfulness of the policy, as what seems to be materialising is a culture of low pay amongst large companies who are aware that the state will pick up the bill.

Whilst the introduction of the minimum wage was meant to protect against the low pay issue, the wage has not increased in line with inflation for years and is running behind at a rate of 10-12%. Thus, the minimum wage is not performing the action of a minimum standard of living. This is why we have recently seen the Living Wage being pressed for in news and media.

Image: citizensuk.org

Image: citizensuk.org

The Living Wage is a rate set according to the basic cost of living in the UK and it recently rose to £7.65 per hour in the UK and £8.80 in London. Companies may take on the Living Wage on a voluntary basis, but as the gap between the minimum wage, inflation and the cost of living increases, the need for the Living Wage is becoming ever more important to those on low pay.

Ed Miliband recently promised a temporary tax break to companies who begin using the Living Wage, if Labour are elected in 2015, and while the momentum for this pay is increasing and positive, legislation is the real power that can change the conditions of all on low pay.

Working Tax Credits, whilst seemingly helping out the low paid worker, is allowing companies – who can afford to pay a living wage – the ability to underpay employees with the knowledge that the welfare system is at hand, and for these companies the tax credit is subsidising profit and avoiding the issue of low pay. Working Tax Credits should only be awarded to those working for small businesses who are trying to grow, as a support to both the worker and the business, if used at all.

Around 20% of welfare spending goes to in-work tax credits, and if the government are serious about cutting welfare spending then it is about time they asked large companies to pay fairly for staff, and put an end to a culture where companies reap the benefits and profits from low paid employees and our welfare system.

by Kam Sandhu @KamBass

kamsandhu

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kambass@hotmail.co.uk

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