Tax Credits and In-Work Poverty in the UK: An Analysis of Income Packages and Anti-Poverty Performance

an article by Rod Hick (Cardiff University, UK) and Alba Lanau (University of Bristol, UK) published in Social Policy and Society Volume 18 Issue 2 (April 2019)

Abstract

This article examines the relationship between tax credits and in-work poverty, drawing on the findings from a major national study on in-work poverty.

We present an analysis of

1. the income packages of working families and 
2. the performance of tax credits in relation to anti-poverty objectives, drawing on data from the Households Below Average Income survey between 2004/5 and 2014/15.

Our study generates five novel findings, including

• that tax credits reduce the poverty gap of recipient households by two-thirds;
• that tax credit cuts post-2010/11 have served to focus payments on single parent families and households with greater numbers of children; and
• that tax credits make up just one third of the social security income of working households.

We argue that understanding in greater depth the interaction between tax credits and income adequacy amongst working families is necessary to provide a firmer foundation for an effective assault on in-work poverty.

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