LONDON – Most rich countries now have millions of “working poor” – people whose jobs do not pay enough to keep them above the poverty line, and whose wages therefore have to be subsidized by the state. These subsidies take the form of tax credits.
The idea is a very old one. England implemented its “Speenhamland” system – a form of outdoor relief intended to offset rising bread prices – during the Napoleonic Wars. In 1795, the authorities of Speenhamland, a village in Berkshire, authorized a means-tested sliding scale of wage supplements. The supplements that families received varied with the number of children and the price of bread.
But the scheme was criticized for allowing employers to pay below-subsistence wages, because the taxpayer would make up the difference. In 1834, the Speenhamland system was replaced by the New Poor Law, which confined relief to workhouses, under conditions sufficiently odious to force people back into the labor market.
Then, in the twentieth century, the Speenhamland principle was revived – and by none other than the free-market liberal Milton Friedman. In 1962, Friedman proposed a “negative income tax,” whereby people earning below a certain threshold would receive supplemental income from the government, rather than paying taxes to it. The idea was to get people off the dole and back to work. It was implemented as the Earned Income Tax Credit in the United States and the Working Families Tax Credit in the United Kingdom.