An overhaul of tax credits in 2003 created a £13bn system of benefits that rewarded families for taking a job and remaining in work.
While the system has suffered administrative problems, it is widely applauded for boosting the incomes of low paid families. In the recession it has provided a safety net for many families and allowed them to accept part-time work when in a previous era it would have paid them to leave work and claim benefits. Families where the main wage earner is forced to take a large cut in hours will see their incomes largely maintained by tax credits.
Well, yes, that\’s nice, but look at it the other way around. What\’s the incentive to do extra hours if income barely changes as a result of the withdrawal of tax credits?
Incentives do matter, after all.