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

Monday:


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.

Day 3503: Oh God! Have I Turned into a Tory?

Wednesday:


So, here we are, ninety days into the Coalition and life in Government doesn't seem like it's as much FUN as I expected.

Sure if you're actually IN Government I bet it's LOADS of fun, with all those actual levers of power to pull, but for those of us SUPPORTING a Party that's at least kind-of in power, there's a whole load of uncomfortable accommodating to get used to.

Plus we have to put up with being the butt of all the JOKES on "Mock My Week Up" and the "Not Now Show". Yes, play the World's smallest violin.

The problem isn't so much putting up with the jokes – it's not like they've become any less FEEBLE since the "party conference in a taxi" days – it's more finding yourself suddenly shouting at the radio: "no, you idiot, the Government HAS to do this because…" (a sentence that increasingly finishes with a combination of the words: "Hard Labour", "money" and "wasted all the"), and realising with a bit of a SHOCK that you are DEFENDING the Government. Worse still, you actually AGREE with what the Government is proposing!

Case in point:

For a while now, I have been arguing that we should make tax and benefits SIMPLER.

Only blow me if Master Gideon isn't saying we should simply the tax system and if Mr Iain Drunken Swerve isn't saying we should simplify the benefit system.

Oh crumbs, have I turned to the DARK SIDE?!



I think that this is a simple question of FAIRNESS: people should be able to UNDERSTAND what they are being asked to contribute or what they are getting. Firstly, I think that that give people more control over their government if they can see what is being raised. Secondly, I believe that if people can understand their tax more then they are less likely to try and avoid it.

It is well known that UNIVERSAL benefits have a much higher take-up rate: because there is less STIGMA attached (it's something everyone is owed) or perhaps because there are fewer forms to fill in and hoops to jump through. This means that the BEST benefits for reaching those most in need are the ones everyone can get: pension and child benefit.

The DOWN SIDE of a UNIVERSAL benefit, of course, is that there is perceived to be a lot of "waste" spending money on people who "don't really need it".

(Actually, there's a whole road you can go down about "who DECIDES who needs what",; and about how some needs can be disguised by apparent wealth in a partner or family when it's not being shared about; and about inclusivity of treatment if we ARE supposed to be "all in it together" then telling the better off they don't get anything out and have to put everything in is going to alienate your all-important tax base, who in the end have to PAY for the benefits for other people – i.e. you don't want to convince them to vote for something much FURTHER to the right.)

It seems to me that the simplest you can make the system is one called a "Citizen's Income" linked to a "flat tax".

How it works is this: everyone over the age of sixteen gets an "income" from the state just for living here. Then everything you earn, however you receive it whether in cash or shares or moonbeams, is all taxed at a single tax rate. You get NO personal allowances and NO tax credits, but equally you get no withdrawal of the Citizen's Income: you are ALWAYS better off if you do even just a bit of work than if you do none.

You could suggest a system that was something like £100 a week in Citizen's Income, about the level of the current state pension (or 50% more than a lot of benefits), and a tax rate of somewhere in the thirties, let's say 35% for neatness.

Unfortunately I've tried bashing Daddy Richard's calculator and it's just not that easy to make the maths add up.

Hold on to your Carol Vorderman's; here we go:

If there are sixty-two million people in Great Britain, and let's guess that 16% are 16 or under (that's about right), then £100 a week each for everyone costs: (62m x 84% x 100 x 52) two hundred and seventy-one billion pounds.

If the average salary is twenty-five thousand pounds (pdf), and twenty-eight million people (pdf) are in employment, then the total "earnings" of the country is: (25 x 1000 x 28 x 1,000,000) seven hundred billion quid.

So you'd need a tax rate of 39% just to break even.

But what you've got to remember is that the Government DOESN'T just break even on the tax and benefits, it pays for stuff like the NHS and schools and the army out that tax too.

Estimating a bit here, from last year's red book (pdf), let's say the Government CURRENTLY hopes to get in something two hundred and fifty billion from taxes on earnings (income tax and national insurance). It then spends say a hundred and forty billion of that on benefits (which it wouldn't have to do) and a further seventeen billion on tax credits (which would go) leaving it with net money coming in of about ninety-three billion pounds, so that's money you'd still have to raise or else cut something truly eye-watering.

Ninety-three is a bit more than 13% of seven hundred, so you're looking at a "flat tax" tax rate of (39 + 13) more than 52%.

Ouch.

Actually, there IS a bit of a fix for that: those taxes on earnings include the EMPLOYERS' share of National Insurance (that thing that the Conservatories always call the "jobs tax"). Well, if you DON'T abolish the Employer's National Insurance when you create the flat tax, then you can use that to trim the flat rate down a little, to maybe somewhere nearer 45%.

But that's still quite a HARSH tax rate if you are trying to encourage people that work is worthwhile. Almost every other penny they earn goes to the taxman. And it doesn't give you a lot of room for adding a Local Income Tax on top, either.

And I agree, £100 a week DOESN'T sound a lot to live on, either, particularly when you include the cost of housing (although it would be a bit easier for couples who get two lots of £100). Just think about the GRIEF that the Coalition are getting for limiting housing benefit to £400 a week, and then ponder what it might be like to tell people it will be abolished altogether!

Ouch again!

In pure cash terms, almost everyone IN WORK who earns LESS than the National Average would be better off; almost everyone who earns MORE than the National Average would be WORSE off, and perhaps substantially, although ironically the very highest earners (currently paying 50% tax plus 2% NI and with their personal allowance withdrawn) would actually be better off again. A lot of people on benefits could be a good bit better off; but a lot of people could be worse off too – the system is just too complicated to know without a lot of time on the Treasury Master Computer Brain to work it out.

Here, though, is where I think I depart from Mr Drunken Swerve.

If SOME people do not want to work, if they think they can survive on £100 a week… I say good luck to 'em.

My aim is to LIBERATE people. Primarily, I want to liberate them from the ELEPHANT TRAP BENEFIT TRAP that means that it is often worth more to remain stuck in dependency than to go out and better yourself.

What I DON'T want to do is replace one form of TYRANNY with another: to replace dependency on State handouts with some Puritan ideal of compulsory work.

Now, I realise there IS a risk involved in this: if TOO many people decide that work is too much trouble then the whole system will fall to bits. I have to rely on a good half of the population sticking with the British Work Ethic or it all goes kabloohey.

The way I see it, there will always be people who are not able to work: they might be ill or old or pregnant or caring for someone else or any number of things, and it's really not my BUSINESS to make some MORAL statement about whether they should or shouldn't be working.

This system would make sure that they are looked after. A bit.

Equally, there are always likely to be some people who are too lazy to be bothered or clever enough to work the system who want to skive off. And there ALWAYS WILL BE.

So let's not PRETEND that we can devise systems that can stop that. Particularly not systems that are going to have to be run by an underpaid, understaffed civil service. Making the system more COMPLICATED only helps the scammers – if the people OPERATING the system don't understand it (and at the moment it's so complicated that NO ONE understands it!) then how are they supposed to know when they are being conned?

You can't legislate laziness out of existence, nor can you be clever enough to put cleverest conmen off of cadging off the rest of us, at least not without SERIOUSLY penalising the people who really can't work and don't deserve to be punished for the p-taking of a very few others.

So, at the end of the day, I think I've convinced myself that I'm NOT turning into a Conservatory after all.

Which is a relief.

And which can only mean one thing: if I'm not becoming more Conservatory, then the Conservatories must be becoming more LIBERAL.

Maybe there's hope for this Coalition yet.



Now… what do I do with this nice RED LIGHT-SABRE that Mr Balloon has sent me?

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