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.