Creditworthy: Assessing the impact of tax credits in the last decade and considering what this means for Universal Credit

Published on Welfare & Tax Reform

Creditworthy assesses the direct and indirect impacts of tax credits, finding that there is no evidence that tax credits hold down low wages. The analysis discredits the assumption that tax credits, available to low and middle income families, enable employers to pay lower wages.

Tax credits reach around six million families, providing substantial support for households on a low to middle income. Many assume they reduce wages by increasing the number of people willing to work for low pay and discouraging recipients from moving into higher paid roles.

  • Wage growth is no lower in the part of the earnings distribution where people receive tax credits.
  • No evidence that workers receiving tax credits have seen lower wage rises than those not eligible for the benefit on the same pay.
  • The authors also investigate the changing nature of child poverty, finding that a growing number of families with children living in poverty contain someone who is in work. While child poverty has been falling generally, there has been a sharp increase among male breadwinner families: even with the expansion of tax credits over the past decade, such families are not escaping poverty.