By Judith Ugwumadu | 11 September 2013
The government’s tax and benefit reforms have strengthened people’s incentives to be in work despite falling wages, the Institute of Fiscal Studies has found.
Today’s report examines changes to existing personal taxes, benefits and the integration of six existing benefits into Universal Credit. It considers reforms that have been implemented since the government took office in May 2012 or that are due to be implemented by May 2015, at the end of its term in office.
Stuart Adams, senior research economist at IFS told Public Finance: ‘What we’re finding is that if the government wasn’t introducing any tax benefit reforms, the fact that earnings are falling means that these effective tax rates will be going up.’
‘In other words people [will] have weaker incentives... where there is no financial gain to work,’ he continued.
‘But the tax benefit reforms are going in the other direction, they are strengthening work incentives and giving more people a gain to be in work.’
A Department for Work and Pensions spokeswomen welcomed the IFS’s findings. She said: ‘Universal Credit will further increase work incentives, especially for those held back the most by the current system, and this will benefit families and the economy.’
‘We are pleased that the IFS find that our welfare reforms will support people into work.’
Last week the National Audit Office warnedthat plans to launch the Universal Credit across the country over the next four years were ‘overly ambitious in both the timetable and scope’, suffered from weak management and should be reassessed.
However, Prime Minister David Cameron yesterday told MPs there was no need to be ‘religious’ about the timing of the implementation of the flagship policy.