How Succesful Has The Welfare State Been in Its Aim of Reducing iInequality in Society - Coursework Example

how successful has the welfare been in its aim of reducing inequality in society? Prior to the dawn of the new millennium, the United Kingdom adopted a new policy aimed at addressing the issues surrounding poverty and the working poor in Britain. Seeking to understand the issues surrounding these pieces of reformist legislation in the wake of controversial publicity, the following aims to provide a thorough and comprehensive overview of both the Working Family Tax Credit and the Child Tax Credit. These are two important examples of the various ways in which authorities in London have sought to reduce inequality in British society by appealing to the working poor and those with limited income and small children. Despite positive steps at expanding the welfare state to reduce inequality in British society, the Working Family Tax Credit and the Child Tax Credit, revised since 1999, have been seeped controversy. What intentions did the Government have when it formulated this policy? To what extent was the implementation process a success or a failure? Seeking to address these questions and many more as they relate to social assistance reform in the United Kingdom, the following will provide a thorough yet concise overview of the issues surrounding these controversial measures. With an eye to providing a thorough understanding of social assistance reform in the United Kingdom, we now turn to an overview of the impetus to implement the Working Family Tax Credit and the Child Tax Credit (Redston, 2006). Introduction Unemployment is an issue which is frequently in the news and is becoming more and more a cause for concern due to the ramifications of the global credit crunch and ensuing economic crisis across the world. According to the Daily Mail, the true cost of unemployment in the United Kingdom stands at an astonishing £61 billion per year (Daily Mail, 2007). Seeking to encourage people to work, even if their salaries were low, the British government has implemented numerous measures to encourage a productive labour force. With the aim of addressing income inequality through welfare reform, the United Kingdom undertook an overhaul of the social assistance system and the means through which low paying individuals in Britain could claim tax benefits as part of the recent reform. Under the assumption that low income workers deserved tax credits from the central government, current Prime Minister Gordon Brown undertook a thorough review of the credit tax system under the stewardship of Tony Blair and sought to establish a means test for social security benefits. Accordingly, the Working Tax Credit and the Child Tax Credit were created to provide benefits to working families who were struggling to make ends meat. The economy is modern Britain has changed significantly in recent times and the industrial base of one of the Western world’s most productive industrialized economies is gradually changing. Accordingly, Britain’s service sector has increased signficantly as have the demands of an increasingly information-based economy in the twenty-first century. As a result of the natural evolution of capitalism, many former industrial workers are witnessing a decrease in their overall standards of living. This trend is not exclusive to the United Kingdom but has been witnessed throughout the modern developed world from Manchester to Detroit. Furthermore, the government of the United Kingdom has sought to address some of the challenges associated with a changing economy and the Working Tax Credit and the Child Tax Credit are just one of the ways in which the government has sought to address these issues. We now turn to a more in-depth overview of the key reasons for these credits from the perspective of the government and Her Majesty’s Revenue and Customs (Blundel et al, 2000, 76). As important components of Her Majesty’s Revenue and Customs (HMRC), the Working Tax Credit and the Child Tax Credit were anti-poverty measures which were predicated on the belief that minimizing personal income tax by providing credits to low income families would help these families overcome the challenges associated with poverty and would also help stimulate the economy. According to a recent article in the well-respected journal, Institute for Fiscal Studies, there were a variety of stated goals for the Working Tax Credit and the Child Tax Credit. Among the intentions for those who designed the tax credit, he tax credits sought to improve work incentives, encouraging people without work to move into employment’. Thus, the tax credits served to not only provide a fiscal push to low income families but also sought to help motivate those who were underemployed, to move into full employment. Were these aims a success? The successes and failures of the Working Tax Credit and the Child Tax Credit will be discussed further along in this analysis. Accordingly, the important motivation for Her Majesty’s government was to encourage people to work and thus “make work pay” (Blundell and Read, 1). Thus, one of the major hopes for those who crafted the Working Tax Credit and the Child Tax Credit system was that it encourages families in which no one was employed to seek work. Through these tax credits the government was essentially saying that any sort of employment is better than no employment at all; if you are a low earning worker with a family and children, we will offset your tax burden. Thus, in addition to its attempts at alleviating poverty in Britain, these tax credits also sought to provide incentive for workers to enter the labour force, despite the fact that many of these workers would be working for low paying jobs. While altruism played a role in the creation of both the Working Tax Credit and the Child Tax Credit system, it is apparent that the macroeconomic goals of increased employment and decreased unemployment played an important role in the formulation of this policy. We now turn to an important research question and ask, to what extent was the implementation of these tax credits process a success or a failure? Policy Critique From the standpoint of a thorough policy critique, it could be argued that while the results of the implementation of the Working Tax Credit and the Child Tax Credit system are debatable with respect to the goal of increasing labour force participation, the implementation of this reform was an abject disaster. Accordingly, the implementation of this tax credit scheme was fraught with difficulties. First and foremost, this credit system operated within the tax system calendar which limited the flexibility of the payment system. Thus, the entitlement calculation could not properly be made until a full twelve months until after the credit was made. This led to a series of confusions since the credit entitlement is based upon the previous year’s income and that as circumstances change, there is likelihood that a claimant may actually owe the Revenue authorities money the following year for overpayment. This is precisely what happened to many families under this tax scheme. Accordingly, as a system which seeks to encourage employment and the introduction of previous unemployed or underemployed people into the labour market, the implementation of the Working Tax Credit and the Child Tax Credit system were major hindrances to the success of these anti-poverty measures (McLaughlin, 2005, 163-169). Initially, this tax scheme was impeded by a series of overpayments which one day have to be repaid by low income workers, many without the means or savings to repay the overpayment. According to the Office of National Statistics, nearly 10% of all payments were overpayments, accounting for nearly £2 billion worth of overpayments. Controversy continued as the computer system currently being employed for the tax payments crashed resulting in delayed payments and the whole debacle led to a series of public apologies to low income families as well as to the British parliament (Brewer, 2006, 669). According to the Shadow Conservative Chancellor at the time, George Osborne, "It is a scandalous that a system meant to help people is causing so much hardship and distress, to the point where people are having to borrow money from loan sharks to repay money sent to them in error," (Blair apologises, 2009). Due to the fact that overpayments were endemic, that the system was based upon an inflexible taxation schedule and that retroactive repayments had to be made by some of the poorest segments of society with little to no savings to repay the government, the implementation of the entire tax credit scheme was marred in controversy. Furthermore, Prime Minister Tony Blair conceded that the system was mismanaged and that it caused undue “hardship or distress” to some claimants (Blair apologises, 2009). Concluding Remarks At the turn of the century, the government of the United Kingdom sought to adopt a series of new policies which were designed to address the issues surrounding poverty and the working poor in Britain. It is important to note that the Working Family Tax Credit and the Child Tax Credit affected approximately 10 million families and 6 million children thus having wide ramifications through in the United Kingdom. Accordingly, the reformist legislation contained in the Working Family Tax Credit and the Child Tax Credit had the dual purposes of alleviating poverty while at the same time encouraging people to work and earn an income. If the income was small and one had children to look after, the government would help offset some of the costs associated with life and rearing a family and provided tax credits to low income earners. According o Richard Blundell and Howard Reed in their article “The Employment Effects of the Working Families Tax Credit” published in the Institute for Fiscal Studies, this credit led, either directly or indirectly to the employment of approximately 30,000 people within the United Kingdom. Accordingly, their experiment found that “participation rates among single mothers to increase by around 2.2 percentage points...Our simulation results indicate a small increase in overall participation of around 30,000 individuals,” (Blundell & Reed, 2001, 1). From this perspective then, the Working Family Tax Credit and the Child Tax Credit may have been somewhat successful in increasing labour market participation and encouraging people to work (Blair apologises, 2009; Tax Credit Casualties, 2009). Despite some of the positive results associated with these tax credits to low earners, it is important to remember that the implementation of these policies were major hindrances to their overall success. Accordingly, the inability to properly streamline the process as well as the nearly £2 billion in overpayments will forever tarnish the reputation of this tax scheme. The decision by the authorities in London to seek retroactive repayment in the following year did much to discredit the policy and the shoddy implementation of a series of tax schemes which aimed to provide financial support to some of the most vulnerable citizens of the United Kingdom. Controversial publicity ensued once the issue of massive overpayments came to the fore and the both the minister responsible for managing the program as well as the Prime Minister publicly apologized for the total mismanagement of the implementation of this policy. While the impetus for the introduction of these anti-poverty measures was a mixture of altruism and macroeconomic policy-making, the results were clouded by the awkward and irresponsible implementation of these measures. The issues of overpayment and calls for retroactive repayment unfortunately targeted some of the poorest and most vulnerable members of British society. It is for these reasons that calls for tax credit amnesty were raised and why the overall implementation of this tax credit system will forever be clouded in controversy. While the intentions of the government may have been positive, it is readily apparent that the implementation of these measures was an abject failure. Accordingly, these examples demonstrate that while the government tries, it has not been successful at alleviating poverty in the United Kingdom. References Blair apologises for tax blunders. 2005. Updated 22 June 2005, Available at http://news.bbc.co.uk/2/hi/business/4112480.stm (Last accessed May 04 2010.). Blundell, R. et al. 2000. The Labour Market Impact of the Working Families Tax Credit, Fiscal Studies, 21(1), pp. 75-104. Blundell, R. & Reed, H., 2000. The Employment Effects of the Working Families Tax Credit, Institute for Fiscal Studies, (April), 1-4. Brewera, M, et al. 2006. Did working families tax credit work? The impact of in-work support on labour supply in Great Britain, Labour Economics, 13(6), pp.699-720 Chapman, J 2007. “The REAL cost of unemployment is £61 billion per year”, The Daily Mail. Last accessed May 04 2010. http://www.dailymail.co.uk/news/article-426074/The-REAL-cost-unemployment-61-billion-year.html McLaughlin , E. 2005. The Rise and Fall of the UKs First Tax Credit: The Working Families Tax Credit 1998–2000, Social Policy & Administration, 35(2), 163 – 180. Redston, A. 2006. Dealing with tax credit overpayments. Updated May 31 2006, Available at http://news.bbc.co.uk/2/hi/business/4119028.stm Tax Credit Casualties (TCC). 2009. Available at http://www.taxcc.org/ (Accessed 31 October 2009). Read More