Hidden Costs of the Welfare State: Employers’ Compliance Costs and the Working Tax Credit

This paper explores the impact of the decision to make the Working Tax Credit (WTC) payable via the employer, until March 2006. A unique survey shows the unequal distribution of compliance costs across firms and industries. It also suggests that the arrangement had some unanticipated results, and may have damaged the effectiveness of the WTC. Some employersʹ compliance costs may have been shifted to employees. So from a social policy perspective administration is policy - the delivery system affects outcomes. However the switch to payments through HMRC from April 2006 does not remove all compliance costs from employers.