Combining Welfare‐to‐Work Measures with Tax credits: A New Hybrid Approach to Social Security in the United Kingdom

Abstract

The changes described in this article reflect a shift in social security away from social insurance and towards a mixture of social assistance, occupational or private insurance and tax credits. It suggests that what is new and distinctive about UK social security policy is the way in which a new strategy has been forged by linking the New Deal, which provides job opportunities for people who are not in employment but can often only offer them low-paid jobs, with tax credit schemes, which provide in-work benefits and are designed to ensure that, if necessary, people accept poorly paid employment.

Remembering and Rethinking the Social Divisions of Welfare: 50 Years On

“…It should also be noted that the Inland Revenue did attract criticism when it sought to recover overpayments (Adler, 2004).…”

Making work pay, making tax credits work: An assessment with specific reference to lone‐parent employment

“…The origin of the UK's tax credit system is sometimes ascribed to the example of the Earned Income Tax Credit in the United States (US), for example by Giddens (2006). However, although the US experience was undoubtedly influential, the origins of the UK tax credit system can be traced more directly within the UK system itself (Millar, 2003; Adler, 2004; Bennett, 2005). There has been a system of wage supplementation in the UK since the early 1970s, initially as a relatively small benefit and only for low‐paid full‐time workers with dependent children.…”

“…Tax credits highlight the way that the UK income maintenance system is increasingly focused on wage supplementation rather than on wage replacement, which was the rationale for the Beveridge welfare state (Millar, 2003). Adler (2004, p. 103) argues that the tax credits and the New Deal programmes represent a “new and distinctive” approach to social security, which he describes as an “employment model”. Similarly Dobrowolsky and Jenson (2005) place tax credits in the context of the “social investment” welfare state, which in the UK has been characterised by policies to improve skills for employment, to invest in children, and to enable people to build up assets.…”

“…The social investment model is based on an analysis that stresses the need to respond to “new social risks” that have been created by changes in family and household structures and in the labour market (Esping‐Andersen, 2002; Giddens, Diamond and Liddle, 2006). The UK tax credits are a specific attempt to cover these new risks (Adler, 2004). They are intended to provide income support to people in potentially adverse labour market situations, including low pay, self‐employment, part‐time work, and temporary or irregular work.…”

Lifting families’ incomes

“…Family and working tax credits are able to provide tax relief on a more targeted (less fi scally costly) basis than changes to personal income tax scales, and as they are generally provided through personal income tax systems they are seen to more strongly reinforce work effort than main welfare benefi ts (Alstott, 1995;Nolan, 2005). The use of working tax credits is often part of a reform strategy emphasising active labour market policies (Adler, 2004). In New Zealand family and working tax credits provide assistance only to families with children (Nolan, 2006).…”