Tax Credits and the 'jobs miracle'

By Bernadette Meaden
October 18, 2015

When Michelle Dorrell, an angry Conservative voter confronted a government minister on Question Time, planned cuts to tax credits went to the top of the news agenda, with some commentators saying that the policy could become George Osborne's Poll Tax. But perhaps the story also shed some light on the government's so-called 'jobs miracle'.

The government has been given a lot of credit for the fact that despite the biggest financial crash in history, UK unemployment did not soar as predicted, and remains at a relatively low level, with the number of people claiming Jobseekers Allowance continuing to fall. The figures look good. George Osborne has been praised for his handling of the economy, and Iain Duncan Smith has claimed credit for driving down 'worklessness'. His welfare reforms, he claims, have encouraged the 'workshy' to find employment.

But look beneath the surface of this 'jobs miracle' and all is not what it seems. A lot of the people who have come off the unemployment register have not gone into a job, but into self-employment, as Ms Dorrell had done. So many people have done this that self-employment is now at the highest level since records began. David Cameron hails this as a sign of a new generation of dynamic entrepreneurs, thriving in the positive economic climate provided by a brilliant Chancellor.

Sadly for the people involved, that is not generally the case. It is said that almost eighty per cent of people who are self-employed are living in poverty. Their income from self-employment is so meagre that they rely on benefits to survive. How has this situation arisen?

Since 2010, to get the unemployment figures down and present a picture of an apparently successful economy, the government, through the Department for Work and Pensions, and private companies involved in the Work Programme, has got people off out-of-work benefits by almost any means, with self-employment being a very popular method.

Anecdotes abound. For instance, if a claimant mentioned they enjoyed baking, they would be encouraged to 'go self-employed' and set up a cupcake business. In 2013, the BBC reported this phenomenon, looking at six Work Programme providers. It found clients of all six providers who said that they were "encouraged to either pretend to be working for themselves or to set up businesses they did not consider viable."

Single mother Joanna was encouraged by her Work Programme provider to set up a gardening business. She would need to work sixteen hours a week to claim tax credits, but, "It was suggested to me that in the winter – when I have a down season and I would probably have no hours work a week – that I could invent the whole 16 hours a week, which I think is totally unacceptable."

Work Programme providers are paid by results, receiving a large fee if they get someone a job. But if the jobs aren't there, they receive the same large fee if they can persuade them to go self-employed.

In 2014 Ian Jack described in a fascinating Guardian article what had happened to his 62 year old friend who had been sent on the Work Programme: "His interviewer strongly recommended self-employment in words my friend always remembered: "Look, you'll get £50 working tax credits, housing and council tax benefits, so you only have to earn £22 a week to be better off [than on JSA]. We'll give you a start-up grant of say £300 and we're off your back.'" And the Work Programme provider would of course receive their generous fee.

So the 'jobs miracle' consists partly of people like this, removed from the unemployment figures but still dependent on benefits because there are not actually jobs out there which will allow them to live free of 'welfare dependency'. That is not because they lack pride or self respect, as Jeremy Hunt recently seemed to suggest, but because that is the truth of our economy, and that is what is being masked by tax credits. It may also go a long way towards explaining how we can have a 'jobs miracle' whilst at the same time having a productivity problem.

-----

© Bernadette Meaden has written about political, religious and social issues for some years, and is strongly influenced by Christian Socialism, liberation theology and the Catholic Worker movement. She is an Ekklesia associate and regular contributor. You can follow her on Twitter: @BernaMeaden

Although the views expressed in this article do not necessarily represent the views of Ekklesia, the article may reflect Ekklesia's values. If you use Ekklesia's news briefings please consider making a donation to sponsor Ekklesia's work here.