Employers and workers are both gaming the welfare system

The way our welfare system works encourages employers to pay low wages and employees to work part time, says Merryn Somerset Webb.

Does the welfare system encourage companies to pay low wages? Does the tax credit system encourage people to only work part time? Do people work the tax credit system to work the minimum hours for the maximum overall income? To what extent do welfare and low pay interplay? All uncomfortable questions.

All questions the taxpayer rather deserves answers to.

We've looked at this several times in the past see our articles here and here. Look at the numbers and you would think that most people on low wages would be crazy to work what most of us would consider a full week working tax credit payments kick in at 16 hours a week and 30 hours a week so unless you are earning a reasonable hourly wage, working more than that makes little sense.

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This, we have suggested several times, probably explains why so many people in the UK work part time, why our unemployment rate is so low, how companies get away with paying such low wages and, of course, why productivity is so low.

We were interested, then, to see last week that McDonalds had introduced new fixed hours contracts for employees who want to take them up. Anyone who does can choose the number of hours they commit to every week. And those hours? Four hours a week, 16 hours a week or 30 hours a week.

Anyone want to argue now that both employers and workers aren't gaming the welfare system?

Merryn Somerset Webb

Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).

After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times

Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast -  but still writes for Moneyweek monthly. 

Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.