Nic Conner is the Home and Social Affairs Research Fellow for The Bow Group, and a Fellow of The Royal Society of Arts.
According to Institute for Fiscal Studies, the cuts to tax credits mean that, from next April, 3.2 million working families will be losing, on average, £1,300 from their living budget. This is part of the Government’s commitment to reduce welfare spending by £12 billion by 2018. George Osborne’s plan is to reduce the earnings threshold for tax credits from £6,420 to £3,850, but this will have a deadly effect on people’s pockets and be crippling to the economy.
As a Conservative Party activist, I was pleased, whilst knocking on doors during the General Election, to look voters in the eye and tell them that, during a time of cuts and austerity, the economy was recovering whilst having record amount of people in work.
This ‘job miracle’ I was so eager to tell people about was key to the Tories’ election success. When people went to the voting booth to cast their vote, they knew that, during the five years of Conservative-led Government, employment was up by 1.7 million. A job was being created every ten minutes in the Midlands. Yorkshire created more jobs than whole of France, and the number of people claiming Jobseekers Allowance fell by 30 per cent in 2014.
All this didn’t come about by the Government swinging in to save us with more public sector jobs, or arranging for big corporations to offer us employment. The ‘job miracle’ was down to normal people just doing it for themselves. A Royal Society of Arts research paper shows that 90 per cent of all new jobs created during the recession was from people becoming self-employed. So the job creation was truly down to people seeing self-employment as a viable alternative to working for a large corporation or the state. This ‘self-employment miracle’ was transforming our nation into an entrepreneurial nation turning the UK back into a nation of shop keepers.
The Osborne tax credit reforms will destroy the ‘self-employment miracle’ and hart the credentials of the Tories becoming the workers party. Of the 5.2 million registered business in the UK 62 per cent, are registered as sole traders and most will be recipients of tax credits.
Until very recently, I worked for a social enterprise which helped unemployed people to start small businesses, The scheme I worked on was the Governments flagship jobcentre employment scheme: New Enterprise Allowance (NEA). The NEA took people from unemployment benefits such as Jobseekers Allowance and helped them start a business.
Many of the people who become self-employed on the NEA would not have been able to do so without with financial assistance from tax credits. But with it, they managed to survive and build an independent income from their business. Lots of people turn to self-employment as they cannot gain employment. The largest group of people I helped to start a business with involved single mothers who needed flexibility in their working life to carry out their maternal duties.
Another one of my former jobs was working for The Big Issue, the magazine that the homeless buy for £1.25 and sell to the public for £2.50. Big Issue vendors would proudly tell me that they did not claim unemployment benefits: they were working their way off the streets by earning an income from selling the magazine, but the income made by selling it was never enough to survive on alone, and they were supported by working tax credits.
I once number-crunched the revenue of the highest-selling vendor; he sold about 60 times more magazines than the average one. Even with this high-selling rate, his annual income Big Issue was about £11000 - so below Minimum Wage levels and impossible to live on awithout tax credits.
This tax credit cut will see low-earning self-employed people such as Big Issue vendors leave their money-making enterprises and sign onto unemployment benefits. It will also discourage others to join programs such as NEA to sign off unemployment benefits and become self-employed. People will be better off not working than being self-employed.
Osborne announced the cut in tax credits alongside his National Living Wage pledge. The idea is people won’t need tax credits, since they will be better paid. But 15 per cent of the UK work force is self-employed. Those self-employed people are not being paid and won’t be able to run their business. Furthermore, they probably won’t be able to grow their business since they won’t be able to pay this new National Living Wadge.
Now I’m not against the idea of cutting tax credits, but it should be done at a slower pace – more in line with the introduction of the National Living Wage. And it should have special measures and exemptions for the self-employed so not to harm the ‘self-employment miracle’. If we do that, then the Conservatives can continue truly claim to be the Workers Party.