Britain's un-elected House of Lords has forced George Osborne to effectively capitulate on the scale and time table of £4.4 billion in cuts to the tax credits system that were due to be introduced from April 2016. The Working and Child Tax Credits monster is a legacy of the last Labour government that had grown out of control over a decade of attempting to bribe an ever increasing number of low paid workers to vote Labour as the budget had mushroomed from an annual cost of £1 billion to £32 billion that first the Coalition and now the Conservative governments have been attempting to get to grips with, and so far failing abysmally to do so.

The proposed cuts in working and child tax credits would have resulted in substantial cuts in tax credits payments starting April 2016 as the following examples illustrate:

Household Income Examples -

£16k income - Cut = £1233+£670 = £1,903

£18k income - Cut = £1233+£810 = £2,043

£20k income - Cut = £1233+£950 = £2,183

£24k income - Cut = £1233+£1230 = £2,463

In today's reality over 1/3rd of recipients receive more in tax credits then they do in wages. Therefore tax credits amount to little more than being an expensive tax payer subsidy for giant employers such amazon and the super markets, which amounts to a direct transfer of tax payer cash onto their balance sheets as profits of £30 billion per annum, as all that tax credits have done to date is to:

a. encourage out of control immigration, as whole villages have moved lock, stock and barrel to the UK to benefit from Britain's welfare state and benefits that typically pay X5 to X10 the likes of payments receivable in countries such as the Czech Republic, Slovakia or Poland.

b. wages to stagnate for over 15 years due the slack being picked up by tax payers as Labours socialist tax credits that subvert market forces, instead encouraging employers to game the system to their advantage as the corporation tax debacle also illustrates how giant corporations such as Amazon are siphoning off billions in profits to offshore entities so as to avoid paying taxes in the UK.

The bottom line that the tax credits system needs to be greatly eroded so as to re impose market forces on the labour market so that employers are forced to pay what the market will bare, rather than today's artificial labour market as effectively the tax payer is subsiding the profits of tax dodging multi-nations.

However, following the House of Lords defeat the necessary tax credits cuts are likely to be greatly watered down by transitional relief that may now reduce the budget cut to barely £2 billion against the planned £4 billion of cuts, effectively kicking the can down the road until AFTER the next general election in 2020, rather than getting the political pain out of the way during the first few years of the parliament.

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By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

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