It is clearly absurd for anyone to be better off on benefits than in work.
The solution most commonly proposed (whether explicitly or not) is to make benefits harder to obtain and/or to reduce their level.
There is no particularly strong evidence to suggest these approaches might work. Even if they did, they would lead to the creation of an even larger and more alienated under-class than we currently have, with all the social dangers the follow.
A better approach would be to try to integrate more of the unwaged and low-paid properly into society.
Currently, a significant proportion of our population feels marginalised from society – often with good reason. Those on benefits or on low wages have no prospect of owning a house; and decreasing prospects of finding decent rented accommodation, as the social housing stock declines. They have little chance of saving, and their children have none of the advantages taken for granted by the middle classes. So when they say “There’s no point in voting, they are all the same” they have a point. No party at present has any clear programme for improving their lot.
And yet it would not be all that difficult to address this issue.
Only three steps are needed:
1.Pitch the minimum wage at a level which makes a decent life possible – not a life of luxury, but at least one where the death of a domestic appliance does not mean crisis, and a week’s family holiday per year is not an impossible dream.
2.Keep benefits at a level which, whilst significantly below the minimum wage, enables life to be maintained at a reasonable level until work can be found.
3.End the absurd pretence that income tax rates must be kept at their present (too) low levels.
Of course, if benefit levels were reasonable, and the minimum wage higher, there would be knock-on effects. There would be upwards pressure on pay levels above the minimum wage. But in the end, after a lot of trouble and strife, the outcome would inevitably be a degree of levelling of rewards. Top executives might find they only earned a hundred or so times as much as their workers. Sir Philip Green’s rewards might be seen for the obscenity they are.
And who knows, in a slightly more equal society, it might be just sufficiently more difficult for middle-class people to afford to opt out of state-provided education and health care, for them to devote their energies instead to making sure state provision in these areas is as good as it can be.
Will it ever happen? It seems unlikely. But then, so did a Lib Dem alliance with Tory right-wingers. Now, if next time it’s the Lib Dem left which gets into alliance with the more decent elements of Labour ….
Just a thought.
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27 Comments
Some sensible suggestions, but how are higher income taxes meant to encourage people to work and earn more, precisely?
Sure, they can pay for welfare reform, but being taxed more is rarely an incentive to work and earn more (unless you mean if they pay more taxes they have to work more to keep afloat?).
Interesting article, and a welcome attempt to move the debate away from shrill diatribes against ‘scroungers.’
Still, although you hint at it in Steps 1 and two (living wage is indeed crucial), I feel you failed to tackle two aspects of life on the margins of work.
Firstly, when demand in the economy is low, firms will invest less in job creation and pay less for labour. It is absolutely right for the government to take measures to stimulate demand – the central tenet of Keynesian thought – and yet this is roundly ignored. The bank bailout was loudly trumpeted as being a Keynsian stimulus – but by relying on classic trickle-down theory (shore up the banks and they’ll lend so that business can return to normal) it turned out to be nothing of the sort. So to stimulate demand, and hence get people back into work, the government still needs to do the things Lib Dems have campaigned on for years – build more social housing, green the current building stock, invest in green industry – and yes we can afford all of that, if we strike out some Big Ticket expenditure that we no longer need (*ahem* Trident amongst others *ahem*)… My wider point is, people stay on benefits because there is very little secure, satisfying, worthwhile work out there that pays sufficiently well – get demand stoked, for things that will benefit us for generations to come, and folks may well find the jobs they seek…
You also hint at the level of benefits – but specifically it’s the precipitous withdrawal of housing benefit as soon as you take paid work that puts people off taking work all too often – which brings us neatly back round to the old chestnut of building new social housing 🙂
The point about income tax rates is that they are, actually, pretty low. Raising them slightly would not, I think, be a disincentive to work, especially now that the really low-paid are being taken out of paying them anyway.
I might be missing something, but surely all you are advocating is inflation. – Wage (and benefit) rises across the board.
I absolutely agree that trying to bully people into work is the wrong way & already demonstrated to be a failure.
There is another action to add to Stephen’s list which is to remove obstructions to work. I am aware of single parents who are trying to train for real jobs which do exist. They do this because, contrary to Tabloid & Right Wing Tory myth, the vast majority would prefer to work. However not only is the cost of courses high [I’m not talking University here] for someone on benefits but if course numbers drop below a certain level the course is promptly canceled for the next year. Money & effort down the drain. Even if you want to be doorman, & these jobs do exist at £10+ per hour you have to find upwards of £500 up front for training & Licence. Then we have the Criminal Records Bureau grief. I know one single mum with a degree in mental nursing & a job which she can’t do because the CRB can take weeks to process the application despite having been CRB cleared previously. Finally for now we have ignorant staff in job centres [not necessarily their fault] who think that the ability to build a computer from bits in less than half an hour does not qualify you to get work in IT because you don’t have the ‘degree’ and that to be able to fluently read write & speak a foreign language is not a skill.
These are all real cases for which I could provide chapter & verse & they are not a handful of exceptions. This is mainstream stuff that needs sorting – urgently.
Shifting the burden of the council tax from people to property with a 1 percent council tax on property value and a 50 pound per week reduction per occupant would restore the possibility of working. Housing is too expensive because there is not enough incentive to sell or rent out empty property. With the leacherous property owning class there is no posibility for working people to own a home or even afford rent. Benefit levels are too low (forget the domestic appliance many on benefis cannot afford to visit a laundrette). Don’t mention the millions of homeless families. Don’t mention the brain drain (Britain is an unfair place so if there is a possibility of a good working life it is abroad where property is affordable). We need to TAX EMPTY PROPERTY. And if the owners cannot pay then the homes must be taken over by the council and rented at an affordable rate with a secure tenancy – or simply given to the homeless so they can renovate themselves and finally enjoy owning a home.
This would pay for itself and end homelesness. BUT do the coalition care – NO they would prefer to make people homeless and screw the poor. Lib Dems who care should support a Labour run coalition and DAM the tories who care only for themselves.
When I first read the title of this article I must admit I thought ‘oh god here we go again, another right wing inspired rant’, however I was pleasantly surprised. very refreshing thank you
The word “progressive” is in at the moment. Could we not have income tax bands that truely are progressive, instead of the VAT rise?
ie 10%, 20%, 30%, 40% and 50% bands
The main revenue raiser from such a change in the short term would be because people would be shunted into the 30% band at say an income level of £30k.
Squeals aplenty I’m sure, but at least we wouldn’t be attacking the poor and the vulnerable.
MY medical prognoses is Paraplegia due to lesion of the spinal cord, I’ve no control over my bladder and bowel.
yet this is not good enough now for me to be defined as disabled, which is a shock really.
SO before the welfare reforms I started to look for work, I found one job in ten years, which was taken off me an hour before I started the company said they were worried about my wheelchair stopping people from shopping.
So I go down to my job center each week, every week but I never seen anyone, I get given three jobs to go for, this can be brick laying, window cleaning or tax driving. Except I cannot drive because my license is personal only I cannot pick up pay feeing public due to Paraplegia.
Window cleaning from a wheelchair, difficult, pushing trolleys around Tesco.
So what the hell do you want me to do, I piss my self and I shit myself, I have to use a bag to collect my urine, and I wear a pad which looks more like a nappy yet I’m now deemed fit to work doing what.
Liberal my ass you have become the Tories.
I agree that the minimum wage should be raised to incentive people to work. But how can you argue at the same time that:
increasing minimum wage would increase the propensity to work
increasing income tax which would surely have the effect of making people less likely to work.
Further to Coldcomforts point about the the staff in Jobcentres; in my experience few people want to work there, with the result that the workers fall into 3 groups.
First, bright, young, well educated types who are their temporarily as a way of gaining experience & promotion. They are never there long enough to learn about Jobseekers real problems.
Second, bored, tired, middle-aged hacks trudging towards retirement. They often have understanding but lack sympathy, imagination or energy.
Third, bullies who work there because they love the opportunities for bullying. A small minority but they can do a lot of damage.
Sorry to sound so bitter & negative but I can see a possible solution, pay the staff more & cut their workload. This can be done at the same time as saving money by scrapping the Fortnightly ritual of signing on.
I very much agree with the need to improve incentives to work, but I don’t think what you’re suggesting will work.
Maybe a small increase in the minimum wage would be okay. But I fear if we raise it too much, it’ll increase unemployment. This is because some businesses will relocate their work overseas, and others, if they have to spend more money on wages, will employ fewer people, and spend more on equipment to make those people more productive.
I’d agree with raising income tax, and I’m afraid if we want to raise significant sums, that means the basic level of tax.
While I’d like to raise benefits, I don’t think that helps with incentives to work. The real disincentive is that for many on benefits, they lose 90% of anything they earn in clawed back benefits. For some, it’s over 100%.
To tackle disincentives to work, we need to reduce the rate of clawback. That’s extremely expensive, it would be a daunting political challenge, but to reduce disincentives, it needs to be done.
Of course, in the present dire situation of an enormous structural deficit, and a coalition with the Conservatives, this is extremely difficult. But it’s good to think about where we’d like to end up. And there are some in the Conservative party who would like to do something like this.
Nice to read a piece that talks beyond the deficit. Would that we were there already.
At the low wage end there is little incentive to work because the system punishes you for working.
eg. I know someone who recently took a job earning £48 a week. To take it she has to give up her income support, reapply for housing benefit (due to a circumstances change) and ditto council tax benefit.. both of which may be refused or take 2-3 months to be decided, and the best outcome is about a £10 a week income drop.. by working. That doesn’t include the increased costs due to travelling to/from work and the cost of uniform which as to be paid out of her own pocket. She wants to work so is prepared to go through with it.. but the incentive to avoid the hassle is huge. It’s completely understandable why many people simply won’t do it.
Really the system needs a massive overhaul. How about being able to earn (x) before benefits are cut, and the cuts being banded in such a way that (x)+(benefit) is always more than benefit alone. Give people some incentive.
Paul Bright I don’t know where you live but have you thought about 1% per thousand for council tax? I have a very small two bedroomed property and already pay £1,700 pa, At 1% this is likely to put my tax up to £3,000pa.
Stick my home in the North of the country and the value would drop by half. You may well say, move, but having lived here all my life, why should I?
Have you any idea what the word lecherous means? Look it up. This sounds like a posting of pure envy and vitriolic envy at that.
Big, big double standards here, Tax empty homes, that is already an option. Councils can also take over properties if they remain empty that is already an option – but why should they be ‘given’ to anyone? There is one answer to getting your own home and that is the way that many of had to do it. Give up drinking, smoking, going out, cars and any idea of fancy furniture. Put the money in the bank and do what working class people did in the past SAVE. This is why this country has reached the pathetic state it is, To many people think they are owed a living.
I hope this coalition survives. I think they should be given a fair chance. It took the Labour Government 13 years to drive this country into the ground. Have the decency to give this new venture the chance to see just what they can do. One thing is for sure, they cannot do any worse than the last.
Thanks to all who have commented on my piece.
It is refreshing to see that I am not alone in not having forgotten the concerns Lib Dems had before the coalition’s formation changed the agenda, even if my proposed solutions don’t get universal endorsement.
I suppose the fundamental points I was trying to get across are that :
1. We should never be content to see any group marginalised from mainstream society (unless of course they consciously choose to marginalise themselves);
2 . Providing incentives to get off benefits must entail making working pay better than not working – but this can and should be done by improving the situation of those on low wages, rather than reducing benefits;
3. That improving the situation of those at the bottom must mean taking something away from those who are better off, via income tax increases – which is not to say that I don’t also advocate getting rid of Trident etc.
Steve Marshall
A nice, socially aware, aspirational idea, but economically questionable; how under such a scenario would you avoid significant inflationary pressure and a devaluing currency?
Andrew, I think the answer is simple in theory, though fiendishly difficult to implement. The principle is that the total pay bill remains constant. But it is differently (more fairly) distributed, with less at the top, more lower down and obviously adjustments in the middle, too. If that could be pulled off, there is no reason why it should be inflationary.
What has bedevilled social policy throughout my (by now rather long) lifetime is the misconception that poverty can be wiped out without any sacrifice from the better off – classic trickle-down theory. I remember, many years ago, sitting in a seminar at LSE listening to an elegant explanation from a very prominent academic of how trickle-down economics could transform Latin America’s situation. He ended, though, by saying that unfortunately the one thing wrong with the theory is that it doesn’t actually work.
I agree with you about the importance of incentivising work and supporting the worst off. However there are significant problems with your proposals. Basically life is just a lot more complicated than that. In order the problems with your proposals are:
1. Assuming you mean this a considerable increase on the minimum wage now, it would significantly increase unemployment and push up the deficit at a time of economic weakness. One of the main reasons unemployment was lower than expected through the recession is that wages in the private sector have hardly gone up at all for the last 18 months.
2. Again assuming you mean by this a considerable hike in benefits would just push the deficit up even higher. We’re £150 billion in the red as it is. There is no money left.
3. Horribly unpopular and would just put a greater burden on people already squeezed by everything else.
All three of these suggestions could work, but they are only really possible in good economic times, when we have the money and stability to absorb the costs. Blame Labour for squandering that chance over the last 13 years.
“it might be just sufficiently more difficult for middle-class people to afford to opt out of state-provided education and health care”
Not sure how this is supposed to happen. Magic?
I’m not sure how hiking the minimum wage, pushing up unemployment, inflation, and hiking the budget deficit, with all the economic problems that accompany it is going to encourage middle-class people to abandon private schools and healthcare.
Again, I wish it was that simple. But I fear it is just not. And Labour had a decade of economic plenty in which to make major change. They did virtually nothing. I see no reason to think why they would suddenly become amenable to it next time.
Wrong 3 steps old boy. Try these:
1. Scrap the minimum wage – if work is genuinely better than welfare, it must be freed to maximise the prospects and opportunities for full employment.
2. Replace all benefits – and tax allowances – with a subsistence level Citizen’s Income, enhanced for disability or infirmity, but not the arbitrary discrimination of ‘old age’.
3. End the absurd pretence that income tax is progressive. It is all passed on in the price of goods and services, proportionately hurting the poor – especially the unemployed – the most.
Paul Bright hasn’t quite grasped it. The key is to replace income tax and other imposts on jobs with a progressive property levy based on the annual rental value of the site only, not the bricks and mortar and not the capital value. This is established Lib Dem policy for commercial properties, second homes and residential development land. If it included domestic sites too, empty homes would no longer be an issue and construction jobs would boom.
Government should recycle unearned income – not penalise productive labour through deadweight tax.
Good to see Georgist’s alive and well. I suspect in practice today it would, as well as helping in the way you say, make the planning system far more corrupt than it already is. A shame that wasn’t mentioned more in the election and made part of the coalition agreement.
Once anyone is out of the scope of ‘benefits’ getting paid an extra pound means one gets 68.5p more in one’s pocket and pays 31.5p more into the communal pot (20% income tax plus 11.5% national insurance).
It is perfectly possible (though needing great change) to make that apply to those who are on benefits and also to those getting paid over 50k (when NI drops to 1.5%).
The rates of the minimum wage and basic benefits are important, but the incentive to work is about how much each extra pound earned puts into the worker’s pocket.
The same sort of argument applies to high earners, such as bankers. If they paid 50% (or even, as in the past, 19 shillings and 6 pence in the pound) every extra pound gives them more to spend. Progressively, it also means they contribute more towards the needs of others.
The basic principle ought to be that anyone who contributes more ought both to benefit and to contribute more.
Given that, the financial pressure, across the earnings spectrum, is to earn more.
There are other issues. I know someone who wanted to train to make a bigger contribution (and earn). She had to take her kids to school. That meant she couldn’t get to the college in time for the classes to start. Because of that, the college refused to take her as a student. In consequence, she suffered from another version of the poverty trap.
Issues like this need to be addressed as well as the purely financial benefits versus wages issue.
Any one got a reply to Roberts touching post…….anyone……………….anyone at all……….thought not.
@r patey
It sounds like an unpleasant and highly unfortunate situation, but I was unaware that we had changed the definition of disabled since we’ve been in government; if we haven’t then you should could perhaps equally direct your criticism at our Labour predecessors; if we have, then I would be delighted if you could please provide a link?
It is clearly absurd for anyone to be better off on benefits than in work.
The solution most commonly proposed (whether explicitly or not) is to make benefits harder to obtain and/or to reduce their level.
There is no particularly strong evidence to suggest these approaches might work.
The declared goal is to avoid a situation in which people are better off on benefits than in work.
One policy which can certainly succeed in achieving this goal is to cut benefits, either immediately, or after the recipient has been on them for some time. It is certain that you can cut benefits far enough to make the recipients worse off than they would be in work. In the extreme case, you could cut them to zero.
You may object to this policy on various grounds, but if you start by saying there is no strong reason to believe it would work, you lay yourself open to charges of trying to deceive others, or successfully deceiving yourself.
At which point – why should people trust anything you say afterwards?
Of course, if benefit levels were reasonable, and the minimum wage higher, there would be knock-on effects. There would be upwards pressure on pay levels above the minimum wage. But in the end, after a lot of trouble and strife, the outcome would inevitably be a degree of levelling of rewards.
Oh I don’t know. I would think that employers would just fire (or fail to hire) people who were no longer worth employing at the new minimum wage level. For everyone else things would carry on pretty much as before, except for the larger gap in “employability” between the lowest paid people in work, and the average benefits claimant.
The average benefits claimant would therefore be slighly less well integrated into society than before.
LDK
Some sensible suggestions, but how are higher income taxes meant to encourage people to work and earn more, precisely?
Well, OK, but can you point to me any City-boy million-pound bonus types who says “Well, I’m only going to work two days this week, because the extra million I could earn if I worked a full week isn’t worth it due to the high taxes I would pay on it?”.
i do work and i earn less working full time to what i do working part time and don’t see any point in being worse off. If i would earn more working full time that is what i would do but thete is no incentive there. i am alot better off then what i was on benefits and would never go back.