Time to reform Britain’s unfair in-work benefits system

Britain’s tax credit system is horribly expensive and deeply unkind to both those in receipt of benefits and those paying for them. Merryn Somerset Webb explains why.


Britain's tax credit system: horribly expensive and deeply unkind

In the post below we look at just how tax credits work and just how much money some families can make out of claiming them.

It isn't a pretty picture it's horribly expensive and deeply unkind. It is unkind to workers at the low end, for the simple reason that it encourages them to do something that is not in their long term interests to work very little. Work only a few hours a day in a low-paid job and your promotion prospects the likelihood of you ended up in genuinely fulfilling work are pretty low. So it seems wrong to incentivise you to do that.

It is also unkind to net taxpayers why should a family with two full-time workers finance one with one part-time worker? And perhaps even more importantly why should they finance that family if it has only just arrived from another country?

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According to the prime minister, speaking today on his demands for a new EU, 43% of EU immigrants to the UK rely on benefits during their first four years here, and some 66% of those are on tax credits to an average of around £5,000 per family.

The truth, as a government source pointed out to the Times, is that "because of how generous the UK's in-work benefits can be, it can make sense for an EU citizen to go from an average wage elsewhere in Europe to a minimum wage in the UK using the in-work benefits to top up the income."

Why do the UK's taxpayers put up with this? It's just nuts.

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.