Tax credits currently represent the latest bandwagon for politicians to jump on by proclaiming their overwhelming commitment to the ‘working poor’ and parading their artificial compassion for all to see. I’m sure that most people simply don’t understand that individuals behave differently when their circumstances change, so predictions of outcome that assume everyone will continue to behave in exactly the same way will be quite wrong. 

It is one thing to reflect this honestly but, to get the “Question Time” rapturous round of applause it’s sufficient to just mention the “working poor” and how they must continue to be hugely subsidised by others who actually pay into the system. It’s a very low bandwagon and therefore easy to mount, so it has become the issue of choice for all those who like spending other people’s money and are happy to ignore our massive debt for a superficial accolade today.

The major problem with, “who loses forecasts”, is that they all fail to take into account behavioural changes simply because that isn’t a matter of arithmetic. It is a future happening and is difficult to do and, therefore, always open to challenge. However, changes in how people organise their lives and work patterns will have an effect on the projected outcomes.

People in general, always act in their own best interests and those of their loved ones. Whatever the prevailing environment they’ll adjust their behaviour to make the most of it. The introduction of “tax credits” meant that you could be working and still get state benefits, thereby encouraging people to modify their circumstances to get the most they can from the system. There is nothing wrong or immoral in acting this way as it’s simply human nature but, is probably why the cost of tax credits has ballooned and would have continued to do so without reform.

Imagine someone working full time and earning above the threshold for tax credits. They might quite like to work fewer hours and on discovering that the tax credit system would make up the pay gap were they to do this they might be motivated to take advantage. Such a move would enhance their lifestyle which is good for them but is a burden on other tax payers but, if the system allows it then why not do that? When the tax credit changes are implemented they will have a decision to make. They may become worse off if they keep their hours the same, or they may decide to increase them to the level they had before. With this behaviour change their income would remain the same. It is a valid concern to have with a system that allows one group of taxpayers to fund the lifestyle preferences of other working people.

Some may have decided that the benefit allows them more freedom, but that doesn’t necessarily mean they would be worse off when the benefit stops. People will have a variety of options that will pertain to their individual circumstances.

Critically, all projections, pounced on by the spenders, do not allow for such behavioural changes simply because they cannot be arithmetically calculated and in any case it isn’t helpful to their opposition to be totally honest.

I’m sure this pattern of behavioural change is well understood but not part of the general argument for two reasons:

The government can’t be sure of how much of an effect this change in behaviour will have but they strongly suspect it will be a material one, which, in time, will show fewer people actually being worse off with the vast majority winnersbenefitting, but it will take 3-4 years for that to be realised. Their hope is that by 2020 the statistics will prove that the effect of the changes was minimal and they will have justified their actions. Were that to happen then the opposition arguments would be easily overcome. The same opposition tactic of making dire predictions was used to oppose “austerity”, of which we have actually had very little, and subsequent economic indicators have proven those forecasts to be totally wrong.

The opposition are simply taking an opportunity that exists. They realise that the changes might make life better for everyone but want to get their pennyworth in before that happens. The Labour Party has already been severely burnt over the earlier strategy of forecasting zero growth and mass unemployment when they lost in 2010, so to repeat the strategy is risky. It’s not entirely honest, of course, to simply oppose for opposition sake, but that’s usually no obstacle to the left as dogmatism, the stifling of debate and the oppression of different views have always been associated more closely with the left of politics. The further left you go the worse it gets. We all remember the Scottish referendum and the SNP gangs. The left’s view of free speech is that they are all for it provided it agrees with them. The tactic, therefore, is to make as much noise as possible now before it becomes evident that the tax credit and other changes are seen to be a good thing.

The principle opposition is simply politically motivated and the government just think they can sit it out.

Some people, however, will be worse off even after they have done all they can and the other beneficial changes have come into force. However it simply isn’t possible to make benefit changes without this happening, which is one reason why they are referred to as “difficult decisions”. It is certain, though, that the numbers of people with little room for movement will be much smaller than those being bandied about now, but they will still exist. Mitigating the effects of the changes with alternative benefits would neutralise the whole project, so some form of tapering to allow people time to amend their lives would seem to be the best option. Tax credits have to be reformed but some synchronisation of the whole package would have been a better and less troublesome option.

We’ll have to wait and see, of course, to truly judge the effects but one salutary thought is the need to begin to pay down our massive debt. The interest is forecast to be £60bn a year by 2017, and increasing up until 2020 until we can run a surplus.

If by 2020 we are in surplus and start to pay off our debt at a rate of £20bn per year it will still take 100 years to clear it. Even now our great, great, grandchildren will be paying for our profligacy, so continuing to add to the debt by maintaining this overspend, is lunacy.

The political argument against reform is also moribund because a society encouraged toward welfare as opposed to aspiration simply isn’t what most people want.

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