The Welfare Problem

A very neat little story from Frank Field showing where the problem really lies:

The guy I buy my coffee from in the morning has run the franchise also for ten years. Every day during this time at least two and may be as many as five young people come in asking for a job. Not once has any of those young people been British.

There is simply something wrong with the incentives for those currently able to claim welfare. Quite what would be the subject of an entire book, rather than a simple blog post, but it\’s obvious that there is something wrong when people out of work are not beating the streets looking for it.

My own maunderings on the subject revolve around the marginal tax rates faced by those who would indeed move from benefits to work: I\’m sure it\’s possible to construct scenarios where someone would lose money, ie face a greater than 100% marginal tax rate, by moving from benefits into a low skilled job. Certainly, rates of 90%, 80%, are common at certain points on the income distribution.

Being someone who thinks that incentives really do matter, my thoughts therefore concentrate on how to remove those disincentives. The simplest method seems to be a citizen\’s basic income. Simply hand out to everyone the bare minimum necessary to keep body and soul together. You might tax it back way up the system (over median income perhaps), but this way the marginal tax rates faced by those at the bottom would be massively reduced, to 30 % or so (income tax and NI).

The biggest objection to this is probably the one that, well, if people got money without having to seek work, won\’t they just sit there on the cbi? Say "Ta!" and do nothing? It\’s possible, and certainly there would be some who did so. But there would also be others who responded to the much lower marginal tax rates by working….perhaps only part time, but working all the same. Which effect would dominate is at present unknown and it does, in forecasting which will, rather depend upon your view of human nature.

Are they, in the majority, feckless wasters, who with enough for the cider and the tabs will do nothing? Or rational economic actors who will, with reasonable incentives, start to work?

Our problem is that under the current system we can\’t tell: for few rational people would work rather than take benefits with an 80, 90, greater than 100% marginal tax rate. Being the cheery sort of soul I am I think that a cbi would lead to a rapid expansion of those looking for work: your view, driven by your view of human nature, might differ.

22 comments on “The Welfare Problem

  1. “The biggest objection to this is probably the one that, well, if people got money without having to seek work, won’t they just sit there on the cbi? Say “Ta!” and do nothing?… “

    Well, we already have people doing that under the current system!

    “Are they, in hte majority, feckless wasters, who with enough for the cider and the tabs will do nothing? “

    Some of them. But this would weed out those who are not, and have just made the ‘rational’ decision that it isn’t worth working due to loss of benefits.

    Then we can really get tough on the feckless, who’ll have nowhere to hide!

  2. The obvious way to prevent people sitting around doing nothing is to demand they work 40 hours a week like the rest of us. Why are we paying people to be idle anyway?

    I see the unemployed splitting into two groups – those that won’t work and those that won’t work at the wages currently offered. I say screw the first group. Top up the wages of the second. So instead of paying people to be idle, we pay them to do a job that otherwise would not be done. We simply abolish all other forms of benefits. If people want money from the government they can go out and work like the rest of us.

    There are people who are obviously sick but I might throw in a requirement that every local authority must find anyone who wants a job a job they can do. Ask the Churches to make work for the really hard cases. No doubt a few charities would do likewise.

    Problem solved.

  3. The problem with this argument, surely, is that migrants can also claim benefits. In fact, Polish parents can claim child benefit even for children still in Poland. So the problem of marginal tax rates applies to them too, at least to some degree. Yet they are still asking Mr Field’s coffee supplier for jobs.

    Why? It must be at least in part a question of attitude. That’s why no purely economic fix, like a CBI, can possibly work.

    Tim adds: Not quite. Incomers have to pay NI for a year before they can claim. At least, that’s what that article implies.

  4. If you set the CBI at a sensible level, say £60, it is not enough to keep b&s together so the ‘won’t work’ brigade will either get jobs or starve to death.

    As to the impact of marginal rates on employment rates, we do not have to speculate; we have a large sample group of the population who are not entitled to any significant means-tested benefits and just pay tax/NI at normal rates (with a tax free personal allowance).

    They are called married mums with a husband who works. 80% of them are in work.

    As opposed to our comparison group, single mums, who face marginal rates of 74%-plus up to an average income, about 44% of whom are in work.

    http://markwadsworth.blogspot.com/2007/10/google-search-effect-of-tax-on.html

  5. You have to be a little bit careful as well in looking at trends over time. The IFS found a marked reduction in the number of working parents who faced marginal tax rates of 80%, 90% and 100% than in 1997. I don’t know whether this is reflected in the statistics for number in work.

  6. “Tim adds: Not quite”

    I did hedge my comment with “it must at least in part…”.

    Attitude is a factor in almost everything. Look at how Ezra Levant’s campaign of “denormalization” of the Canadian Human Rights Commissions is working – an important lesson in how to campaign, in my opinion. Levant is a conservative who is, without any compromise, winning his argument and his battle, and every (classical) Liberal and Conservative should be following his progress with interest.

    The equivalent here is the concept of denormalizing the idea that it is acceptable to claim benefits when you could be working. Ultimately, that’s what needs to be done.

  7. “The equivalent here is the concept of denormalizing the idea that it is acceptable to claim benefits when you could be working. Ultimately, that’s what needs to be done.”

    You sound like you are talking about instilling a ‘work ethic’…? Do you really think it can be done in 21st Century Britain?

  8. Julia M, Yes, and yes. Not in everyone, of course, but the idea that a work ethic is irrational has become normal. I think Levant is demonstrating that it isn’t impossible, in fact might even be quite surprisingly easy, to reverse contemporary attitudes.

    Ann Widdecombe’s TV programme was an attempt to do this, and I think she had an effect.

  9. It’s certainly going to be an uphill struggle, with the prevalence of the ‘Government owes us a living’ crowd…!

  10. The trouble with the Citizens’ Basic Income is exactly the same as the problem with current welfare payments, namely that you’re taking money that I have worked for and giving it to people who haven’t, with no requirement that they even pretend to be looking for work. It’s just dole with another name. How is this justifiable?

  11. Didn’t we do this subject a couple of weeks back?
    Nevertheless:

    Let’s go back to the last sentence that Tim quoted:

    “Not once has any of those young people been British.”

    My girlfiend was doing this exact job when I met her. For a 37 1/2 hour week – that’s 5:30am-1:30pm(& getting changed on her own time) 5 days a week one of them on the weekend – after tax, NI,rent & travel to work costs she was left the enormous sum of £35. With that she had to buy food, clothing, laundry etc etc. Forget going out & entertainment. If she wanted those luxuries she had to do overtime or a second job.
    That’s a competative wage in the catering industry.

    If you want British kids to compete in a labour market that’s open to the third world then let them compete on a level playing field. By all means stop their benefits. But also abolish workplace discrimination laws. Let the law turn a blind eye if they want to beat up or kill members of ethnic groups who they feel might be after their jobs (or maybe just don’t like).
    The reason that so many jobs are taken by immigrants is that for the immigrant it’s an improvement on where they’ve come from. If you want to incentivise British kids to take the same jobs you need the same incentives. Would you really be happy with that.

  12. Surely the real problem is that now Labour have managed to get more than 1/2 the country either working in the public sector or sponging off of it, why would they want to get people off of benefit (unless they go work in the public sector, which means no change but more cost).

    Z.

  13. I’ve just seen a remark on Ms McGargle’s blog that’s interesting. Anyone know the British equivalent?
    “By the way, when you read the persistent poverty statistics – that 4% that is impoverished decade after decade (as opposed to the new immigrants and graduate students who are counted among the poor now) – half of that is the various mentally disabled. “

  14. Welfare recipients essentially have all the benefits of a socialist system of wealth redistribution whilst maintaining the right to self-determination present in a liberal society; the worst of both worlds for everyone else. The effect is to essentially gild the cage in which many of these people live. Any system of welfare reform – the CBI, abolition etc – will only work if it points out the fact that it is indeed a cage in which the welfare recipient lives.

    Thats why I think the following should be done:

    1. New unemployed get 10-12 weeks paid benefit at a higher rate than present.
    2. After 10-12 weeks paid benefit this is changed to non-monetary support; directed food vouchers for fruit & veg, meat portions and limited luxury contributions (no alcohol or tabacco – one thing I dont agree with is state-mandated assisted suicide). This process could be administrated by the major supermarkets with the logistical infrastructure already in place & who would be happy to secure the business.
    3. Future monetary awards paid as “stipends”, pre-agreed by a welfare officer for interview requirements, training etc.

    I believe over-complicating the welfare system and showing it as the temporary support it SHOULD BE would have a much better impact on benefit abuse.

  15. @ PJ – how would allowing natives to murder non-natives level the playing field? At the moment, a Pole and a Brit have the chance to make disposable income of £35 in catering (actually, they have a chance to make a hell of a lot more if they choose to live in cheaper accommodation). That seems extremely level.

  16. john b, now I know you work for the public sector. Or don’t work at all.
    Reality is that it is impossible to find accommodation in the London area for much less than the £90 pw she was paying. Knock that & the cost of a 3 zone Travelcard off the weekly take home of someone on the minimum wage of £5.52 ph & that’s what they get left with.
    Would you want to work those hours & come home to a crummy bedsit for that?
    However there are, since we had such an easygoing immigration policy, plenty who will. The outlet of a well known coffee chain operating in a London main line station was employing, last time I heard, two Algerians, a Moroccan, a girl from Brazil & another from Colombia. Now, I can imagine that for someone from the favellas of Rio £35 is a step up. But what have you got to make of a leafy suburb of Surrey before the same incentive applies? the same sort of place?

  17. I think I have the germ of a business plan. The government says it’s willing to pay private companies up to £50,000 per unemployed person they place in a job, provided they keep the job for more than 18 months. So, split the proceeds. £10k to the employer, £10k to the formerly unemployed, and £30k to me. That should flush out whether incentives work. And with 100 people on my books, that’s £300k over 2 years. Kerching! I’m incentivised.

  18. Every approach to getting folk off benefits is doomed to failure, as soon as you remember that all it takes to claim a shower of benefit payments is…..

    … a baby.

Leave a Reply

Name and email are required. Your email address will not be published.