...a blog by Richard Flowers

Tuesday, October 09, 2012

Day 4299: FREEDOM FROM POVERTY - A Real Alternative to Welfare


Chancellor George Osborne has announced that he wants to cut TEN BILLION POUNDS from the welfare budget.

I will pause while you throw up.

Right, back with me? OK, here's a reminder of the BACKGROUND. The Government's total spending is, very roughly, SEVEN HUNDRED BILLION pounds every year.

The total amount spent on what we call "benefits" in the United Kingdom is in the region of TWO HUNDRED BILLION pounds per year.

It's the BIGGEST "BIG TICKET" item in the Budget. So you can see why it's such a TEMPTING TARGET for a rapacious fiscal shark like Master Gideon.

(See table D4 of the OBR's report on the 2012 budget [pfd])

Remember, the NEXT biggest item, at about ONE HUNDRED BILLION pounds, is the NHS which is currently granted SACRED COW status, so he cannot find his cuts there.

After that comes Education (FIFTY billions) under the personal protection of the Deputy Prime Monster and Defence (THIRTY billions) under the protection of a battalion of right-wing Tory Tanks. Nor can he afford to cut the TWENTY-FIVE billion allocated to Scotland with Mr Slippery Salmon's independence referendum coming up.

But it's not THAT easy to cut the welfare bill either.

The Conservatories and their allies in the press have contrived an atmosphere where the word "benefits" is practically synonymous with the word "undeserving", cultivating the idea that there are SWATHES of the country where people sit at home in their PJs rolling about in money while the poor mugs go out to toil.

But that's REALLY not where the welfare money goes. (See IFS analysis [pdf])

About 40% of the welfare bill is PENSIONS. The Government is ALWAYS going on about how pensioners DESERVE their money, and the TRIPLE LOCK means that that 40% is SACROSANCT!

Then about 20% is IN WORK benefits for people on low pay. Remember we are supposed to be all about REWARDING – grit your teeth for this phrase – "hardworking families". So you cannot really gouge that either. About HALF of that (i.e. 10% of the total) is Housing Benefit, which is one of the most important benefits and can make the difference between families being about to afford to work or not. The downside is that it mainly goes to LANDLORDS, rather than the families in need; this is the price we pay for having ridiculously inflated House prices.

The OTHER half is the price we pay for having the minimum wage set below the level where people can survive on it, subsidising low paid jobs for the benefit of employers. There's a serious question that cutting those in work benefits would destabilise the jobs market massively increasing unemployment. But there's got to be SOMETHING wrong with a system (set up by a LABOUR Government, no less) where the Government subsidises employers to pay less than the living wage, essentially allowing companies to increase their profits at the taxpayers' expense.

Another 20% of benefits are for having children (child benefit and child tax credit). For all the fulminating in the Daily Hate Mail end of the press about FECKLESS SINGLE MOTHERS TM, we've already seen what happens if you try tinkering with Child Benefit and the Chancellor might as well write his political suicide note on the same headed paper as try THAT again!

So that's a good 80% of benefits going to people who for various reasons the Government won't or can't upset. That money, like in BULLSEYE, is safe. To half of them you've promised perpetual increases; and the other half you are relying on to keep the economy afloat!

So it comes down to the 15% which goes to the sick and disabled. Nothing quite so "sick" as cutting benefits to the disabled, you might very well think, and frankly with people already DYING this is where we need Captain Clegg to stick to his promise that up with this we will not put.

And only about a measly 3% goes to yer actual UNEMPLOYED people. Gideon could abolish Job Seekers Allowance entirely, and still fall well short of his target.

(That, incidentally, leaves 2% change, most of which is Winter Fuel Allowance and free TV licences, also for the elderly.)

If, like Master Gideon, you are scheming to carve out another TEN BILLION (i.e. a whole 5% of the amount we spend), then it begins to look very VERY hard to FIND that kind of money.

The message of this is that we really need to think VERY MUCH MORE RADICALLY.

The idea that I'd like us to THINK about is the CITIZENS' INCOME.

It's important to understand that while this idea has a LOT of GOOD points going for it, there are some pretty serious drawbacks too and that's why it needs careful THOUGHT.

In its simplest form, the Citizens' Income is a fixed payment to every adult in the country and a flat tax rate on all income.

The ADVANTAGES are simplicity and universality. Instead of a complex mix of means-tested and universal benefits, everyone receives the same Citizens' Income. Because it is universal, it improves take-up so that the benefit is more likely to reach those most in need. Because it is simple, people are not put off by forms. Because there is no withdrawal or taper of the benefit, everyone who is able to work and chooses to do so is better off for doing so. Because it favours neither couples nor individuals, couples are not worse off for staying together but nor are they penalised for splitting up. Because everyone gets the same amount, there is less grumbling about "undeserving". Because we all share in the national income, we are all, to coin a phrase, in it together.

As a smaller advantage, the bureaucracy to organise this exists already largely with HM Revenue and Customs and/or the Treasury's tax credits department. You would, in theory, be able to abolish the whole Government Department, Mr Iain Drunken-Swerve's DWP (Department of Worship and Prayer). Having said that, cutbacks have left HM Revenue and Customs very understaffed, and so we might be better served by retaining DWP staff as part of the new unified tax authority.

The DISADVANTAGES are: firstly, that the unified tax rate has to be set quite high to make the figures balance and this looks like a tax rise (particularly since it would combine the 20% income tax and 12% national insurance bands) – actually most people on lower incomes are better off, but it LOOKS like a tax rise; secondly, although MOST benefit recipients would receive more, there is a disproportionate LOSS of income for certain sections of the community, for example those large families who receive Housing Benefit; thirdly, the flat tax rate, unless set very high, will be an effective tax CUT for those on the highest incomes (although you could retain a 45% top rate to avoid this problem at the expense of slightly less simplicity).

I'm going to work through a bit of MATHS here which you might want to skip over, but it's important to "show my workings" and show how close it all comes to adding up.

The office of National Statistics says that there are 29.56 million people IN WORK in the United Kingdom. With an average salary of about £26,000, that makes a TOTAL EARNED INCOME of more than SEVEN HUNDRED and SEVENTY-FOUR billion pounds.

A single flat rate of tax of 40% (replacing income tax and national insurance for all employees) would therefore raise THREE HUNDRED and NINE point SIX billion pounds.

At the moment, Income Tax and National Insurance together raise roughly TWO HUNDRED AND FIFTY BILLION pounds (See table D3 of the OBR's report on the 2012 budget [pfd]) and, as above, benefits cost around TWO HUNDRED BILLION. This means that the taxes on income raise an excess of FIFTY BILLIONS which is spent on all the other things that Government spends money on. In order to keep up government spending, we should retain this excess. Therefore we have TWO HUNDRED and FIFTY-NINE point SIX billion pounds to distribute.

Given that the population of the UK is 62.6 million (and excluding approximately 10.8 million who are under 18) that would be roughly equal to FIVE THOUSAND POUNDS for EVERY ADULT IN THE COUNTRY.

Currently, the Liberal Democrats are pursuing fairer taxes by raising the personal allowance to £10,000. Under this Citizens' Income scheme, EVERYONE earning less than about £30,000 would be better off. In particular, and as opposed to raising the personal allowance, EVERYONE NOT EARNING ENOUGH TO PAY TAX would be better off.

Here's the BIGGEST PROBLEM then: five thousand pounds per year is LESS than the current basic State Pension and so almost certainly a NON-STARTER. However, it MIGHT be possible to have a higher Citizens' Income IF we were to retain the EMPLOYER'S element of national insurance.

So, the main things to think about before we were to consider a Citizens' Income would be:
• what would be considered a fair rate for the unified tax rate, and should we retain the top rate of tax so as not to be giving the biggest tax cut to the people with the highest incomes?
• what is a reasonable level for the Citizens' Income, if the minimum we could set it at is the current state pension rate – or the targeted £140 per week pension – should we be aiming at more than that?
• what would an impact assessment of the withdrawal of housing benefit say, and would be possible or desirable to retain some element of housing benefit?
• should we retain Employer's National Insurance (which Conservatories describe as the "Jobs Tax")? Might we have to to make the books balance?

A Liberal economic plan should also be looking at how to make sure that employers pay a FAIR wage, through proper enforcement of minimum wage and working time directive legislation, so that people do not NEED State subsidies.

If we COULD make this work, I think this would be an EXCITING and RADICAL departure from Labour's idea of welfare being a Government that graciously gives to those they deem the deserving poor towards a COMMON WEALTH where rather than grudgingly giving to the needy we all share in the nation's prosperity, combining the great Liberal traditions of EQUAL HELP for all and Government TRUSTING PEOPLE and empowering them get on with their own lives.


StaceyUK said...

Some ideas put forward here from the disability community about how as a society we can tackle this problem. and

Andrew Ducker said...

Part of the point of a citizen's income is that it removes the need for worrying about wage levels. You give a person enough money to not starve to death, and then they can negotiate with other people to pay them more to spend on whatever they like.

So bringing in a citizen's income removes the need for a minimum wage - which means that employers can no longer argue that employees are priced out of the market and they can't compete with China, for instance.

Simon Fernandes said...

This is a very interesting idea, which Barry had discussed with me at some length. It's not without its flaws of course, but you list those plainly enough here.

It's just the kind of thinking about the fundamentals, rather than tinkering with the edge of the current systems, that we really need. Sadly, I can't see either of the other two parties signing up to it.

Still, if I were a Lib Dem member, I'd definitely vote for you to be on the FPC, because at least one major party clearly could do with this kind of thinking enshrined in policy.

Bob The Fish said...

I think if you were going to pay people a certain amount of money for existing, then you'd have to pay *everyone* that money, including the under 18s, although you'd pay the money to their parents until they were 18. Kids are expensive, and one person might be able to survive on £140 a month (although that's tight, my 1-bedroom flat is cheap at £350 a month and, taking in to account Council tax, that would leave me with £177 a week for all my bills, clothing and food) add having to feed and clothe a couple of rapidly-growing human beings in there and suddenly that's not an amount you can survive on. And that's before you take in to account things like school books, saving for university, etc.

P.S. what happened to the Doctor Who reviews? I was looking forwards to your thoughts on the last 2 episodes.

Bob The Fish said...

Sorry, £40 a week, £177 a month.

Millennium Dome said...

Hello Mr Bob the Fish,

My reasons for excluding the under 18s are entirely pragmatic: if you include an additional 10.8 million people in the scheme it costs an extra FIFTY-odd billion pounds, or the ENTIRE EDUCATION BUDGET.

But, you are right that this should be open for debate - that's part of my point. I'd certainly agree that I should probably have said everyone over 16 rather than 18, in line with out votes at 16 policy.

Where I would disagree is the idea that children's citizen's income should be paid to their parents. You would be commodifying childhood, and creating a terrible incentive for people to "knock out a couple more babies" for an extra ten grand income rather than going to work. It would not need many people to do that to make the system unviable - you have to realise that this only works with the good will of most of the population wanting to go out to work rather than just get by on the bare minimum of the Citizen's Income alone.

I don't argue that raising children isn't expensive, but a Citizen's Income isn't going to make that problem go away any more than the current system does. The problem, as now, is really only alleviated by getting into employment (and I'd agree that not every family can take that route out of poverty).

Millennium Dome said...

Regarding Dr Who, reviews for the last two episodes will arrive... eventually.

It's all, I'm afraid, a matter of time: it can take a good two or three hours to write a review. Unfortunately I was away at Conference the week of The Power of Three (and worse wiped out by a cold) and then having to play catch up at work while doing my normal full time job and campaigning for the FPC elections all at once have slightly got in the way of finding a free evening to do the write ups.

So... eventually...

Bob The Fish said...

Sorry this is so late in coming, but I did write a reply and thought I'd posted it, but it got lost in one of those glitches that happen on the internet so rarely. I didn't have the heart to re-write it all, and life got in the way since. But I still think it needs to be said, so here I am.

If there isn't enough money for your proposal to work and ensure that kids of poor parents aren't worse off then they are currently (bearing in mind that a quick google for child poverty in the UK throws up figures such as 1/3rd of all children currently living under the poverty line in the UK at present (although I'm not sure I'd measure poverty the way they are, however, I've certainly seen figures which indicate that a surprising number of families can't afford to feed their children 3 meals a day, although I can't put a figure on that at present, I'm afraid. Suffice to say that I think that 1 family in that position is not something any society worth its salt should be willing to let happen)), then your proposal is simply untenable. The same goes for if it relies on good will that you don't believe that people actually possess.

I gave you my financial situation above. As I said, my flat costs me £350 a month. Now, it's not a particularly nice flat, and I sometimes look at renting a better flat, but I can't find any other flats on the market in my area for less than £450, which would really see me struggle on my minimum wage income. You certainly couldn't have kids in my flat being, as it is, one-bedroom, and not having either any heating or insulation of any kind. So, if we're talking about a flat which it would be possible to have kids in you're looking at at least £450 a month. Or, in other words, after rent and Council Tax, £77 a month. That's £17.76 a week, or £2.53 a day. I'd struggle on my own with that once you take in to account food and electricity. Now imagine that I had 2 kids to feed on that as well. I simply couldn't do it. Do you honestly think that you could?

If you're proposing a system which you believe has the potential to be better than the current one, then it absolutely has to ensure that more children get to eat 3 meals a day, not fewer. Otherwise it's not a better system, it's a worse one.

My previous, lost, post made these points better, and didn't seem so hectoring, so I apologise for that. I'm certainly not meaning to come across harshly, and I'm definitely not trying to put you down. I'm also not trying to put down the fact that you're applying a different kind of thinking to problems such as this, as I think it's admirable, but I think that the flaw that I'm pointing out is a major, major one which, if it can't be overcome, makes this proposal utterly untenable.

Millennium Dome said...

Mr Bob, I don't think you're hectoring, you have an important point, but I don't think you are being entirely fair either.

Given that I have specifically identified housing benefit as a problem with the Citizens' Income suggestion, and suggested a couple of possible work arounds for raising additional tax necessary to cover the approximately TWENTY BILLION quid it would cost to retain it, you don't need to keep bashing me over the head with the fact that housing costs are a problem.

You say that you would be left with £2.53 a day. But that assumes that your housing is costing you nothing under the current system. If your housing is NOT being paid for by the current system, then it's not a fair comparison to deduct if from the Citizen's Income before passing judgement.

The relationship between Housing Benefit, child benefit, employment support, pensions, or even income from a job is complex.

This is why these proposals need RESEARCH, see who will be better off, who will be worse off, is there a net redistributive effect, can we avoid situations like the one you describe arising, and how does that compare with current outcome.

One thing I will say though:

"If there isn't enough money for your proposal to work and ensure that kids of poor parents aren't worse off then [sic] they are currently [...] then your proposal is simply untenable."

That is utopian.

When considering a system as vast and complex as the UK tax and benefits system I guarantee you, ANY fiscally neutral change you make will leave someone's kids worse off. It surely must – you are rearranging the way that the benefits are shared out: someone has to get less if others are to get more.

If one group of children went from £10 a day to £9 a day so that another group could go from nothing to £9 a day would you say that that was "untenable" because the former group were marginally worse off? I think you would not, but that is what you have written.

There's no way to get this perfect, it's just too complicated. I'm not always a fan of Bentham's utilitarianism but on this occasion surely the pragmatic aim must be to maximise the benefit for the largest number of people while at the same time minimising the negative impact on those who lose out.