[UK] Gordon Brown's poverty trap

from The Sun

By MICHAEL LEA
Political Correspondent

GORDON Brown’s tax and benefits regime is a poverty trap for millions, a damning report claimed yesterday.

People are left with less incentive to work, do overtime or find a better job, warn economists.

Big-earning Brits lose 40 per cent of their income in tax. But two million low-paid workers stand to lose HALF of any increase in earnings to higher taxes and reduced handouts.

Around 160,000 of them keep less than 10p of every extra Pound they earn.

The report — by the respected Institute for Fiscal Studies — gives the lie to the Chancellor’s bid to “make work pay”.

Those on low incomes suffered most from his tax and benefits shake-up since 1997.

Greater means-testing is blamed by the IFS for reducing incentives to work.

If earnings rise above a certain level, workers not only lose tax credits but also face paying more income tax.

Under Labour, someone working extra hours gets to keep 2½p LESS of each extra Pound they earn, the IFS said.

Shadow Chancellor George Osborne said: “Here is the most damning evidence yet that Gordon Brown’s policies are making poverty more entrenched.

“We need a new direction that fixes the broken rungs at the bottom of the ladder of aspiration.”

Ministers have admitted £3billion a year has been lost to fraud and mistakes in the tax credits system. Thousands of hard-up families were overpaid by mistake, then ordered to pay back the money — leaving many relying on charity food parcels.

But last night the Treasury insisted the poor were better off under Mr Brown.

A spokesman said: “This Government has succeeded in halting and reversing the long-term trend of rising child poverty, and since 1997 has successfully lifted 700,000 children out of poverty.

“Thanks to reforms the Government has made to the tax and benefit system, since 1997 families with children are on average £1,500 per year better off in real terms, and those in the poorest fifth are £3,400 per year better off.”

The spokesman said the reforms, together with the minimum wage and the New Deal for the unemployed meant that work does pay. An extra 2.4 million people have got jobs since 1997, said the official.

He added: “Building on this success, the Welfare Reform Bill will seek to simplify the benefits system, further incentivising work while developing people’s skills so that they can boost their earning capacity.”

But Lib Dem welfare spokesman David Laws said: “Labour’s obsession with means-testing and an increasingly complex benefits system has led to reduced work incentives.

“Britain should be a land of opportunity not a state of dependency.

“It is insane that low paid workers can lose over half of any increase in their earnings through tax and the withdrawal of benefits.

“It is critical we simplify the system to make it fairer. Citizens need to know that by working harder they can improve their quality of life.”