Tax-credit debt trap warning

A new report from the Institute for Fiscal Studies (IFS) claims that rather than encouraging people to get a job with the prospect of promotions, pay rises and the means to clear debt, many people are staying on benefits.

“These reforms are discouraging people from working more hours or getting better-paid jobs,” said report author Mike Brewer in the Daily Mail.

“The government has used tax credits as a way of delivering pretty substantial sums of money to very poor families with young children. It cares less about whether that also reduces incentives to work.”

Around six million people receive tax credits on benefits to help lift them out of poverty.

However, the IFS claims that due to high levels of taxation and national insurance, many people are finding that they are worse-off working to start with.

Yet in the long-term, people could be jeopardising their overall prospects for employment and, ultimately, their ability to clear debt.