Universal credit: better but not good enough

The Government’s flagship welfare system will make work pay while reducing benefit payments to more than 2million households, the Institute for Fiscal Studies has said.
The think tank said that Universal Credit will “strengthen incentives” for people who go into work by ensuring that they keep more of the money they earn.
The scheme is being introduced to help ensure people are not deterred from going into work because they lose extra money they earn from the withdrawal of benefits and additional taxes.
The IFS said that 600,000 people who currently keep just 10p of every extra pound they earn will keep 23p under the scheme.

Yes, that’s better but really, not good enough. How in buggery did we end up with a system where marginal tax rates of “only” 77 % on the poor was regarded as a victory?

The actual answer, of course, is to raise the personal allowance for both tax and both types of NI to the minimum wage.

And would someone shoot the Telegraph subs please?

It also said that the number of people losing two thirds of their income if they go into work will fall from 2.1million to 700,000 under the system.

It’s two thirds of the “extra” income.

18 thoughts on “Universal credit: better but not good enough”

  1. “The actual answer, of course, is to raise the personal allowance for both tax and both types of NI to the minimum wage”

    But that doesn’t seem to solve the problem of benefits withdrawal. For that you need to be weighing up options like an unconditional basic income, or at least a much lower withdrawal rate for UC.

  2. Yeah, it does, because it’s the combination of tax and benefit withdrawal that causes those very high rates. with only one of the two the marginal rates decline to 40% or so: high, but manageable.

  3. If BluLab/ZaNu are on the job–and esp the Chrome-Domed Soldier-Boy–you can be sure the system will still provide lots of opportunity for the sly and feckless to prosper while those who really do need help thro no fault of their own (and have paid in plenty over the years) have their faces laughed in on a regular basis.

    The best form of state Welfare is none at all. Since we now have -what?–several tens of millions of dependants this ideal will have to be returned to very gradually to avoid playing into the hands of the left.

  4. I’m pretty sure that 77% figure doesn’t include employer’s NI, despite the argument about incidence.

    The actual answer, of course, is to stop means testing of benefits. Add a bit onto the headline rate to pay for that. It would make the whole system simpler and cheaper to administer. Especially if we had an unconditional basic income.

  5. @ SJW
    Benefits are paid to those who need it – except for the council house rent subsidy which is given to rich tenants, notoriously including Labour MPs and union leaders paid more than the PM.
    Abolishing means testing means paying housing benefit to billionnaires living in Kensington.
    Of course benefits should be means-tested
    PS If we had an unconditional basic income we shouldn’t need benefits.

  6. @ Tim
    What IDS has done is reduce marginal tax rates below 100%.
    That is progress (but not enough).
    IMHO the maximum witdrawal rate should be less than, or at worst equal to, top rate of tax and NI on the rich. However with tax credit eligibility reaching up to £40k+ of housdehold income you cannot cure it simply by raising tax and NI thresholds – you have to change the taper rate as well. .
    But you cannot reduce the taper rate to 50%, starting from where Gordon Brown left us, without the budget deficit ballooning to 25% of GDP and producing Wilson-Healey style hyperinflation through printing money like Weimar . So we’re stuck with a lousy compromise until the deficit is shrunk to something tolerable.

  7. @SJW

    Stop means testing benefits and add a bit? How much is a bit? You mean a lot. We know how much we can pay in basic income if we abolish everything else and it is pretty measly.

    The reason why we had such high marginal rates was the one-eyed dickhead – Gordon “the moron” Brown. He ended up transferring just enough to the “poor” who were just below 60% of median to just above, but then made it prohibitive to get off benefits. Truly a twat amongst twats.

  8. I see the blokes who pay for all this happy horseshit get no say at all.

    MrEcks is correct. ‘The best form of state Welfare is none at all.’ Charity is not a legitimate function of government.

  9. I note that BBC News headlines a claim that “Universal Credit ‘leaves people poorer'” by selectively quoting bits of the IFS report out of context.

  10. I thought Telegraph’s subs had been shot years ago, along with any journalist more interested in facts than bylines.

  11. All that is really important is if the benefits outweigh the costs of the current system?

    If the new system requires £1M in new taxes but allows other services to be cut saving £5M then it is stupid not to do it.

  12. With this stuff, we are always left trying to meet three goals:

    1) The system must not be too expensive
    2) The system must not discourage work
    3) You cannot have people starving

    The issue is that Gordon decided to forgo 2) and met 1) and 3).

    SJW’s idea fails 1). IDS is trying to balance all three. (Not that UC will work since the systems are terrible).

    So Liberal Yank, actually it will cost too much to do if we try to maintain benefits at the current level. The US solution – which works (kind of) – is to give up on 3) – or rather the US says it really is the role of the state to provide very little indeed.

  13. Since 2) is a cost then it is part of expenses in 1). Excluding the other problems of someone not having a job the lost taxes have to be included.

    So you are saying that it is more expensive than the current system and needs to be put in the bad idea folder.

  14. LY

    If it was easy – Gordon Brown would have done it. Basically, trying to do all three simultaneously is very difficult. In order to keep 2) from being high, you need to make the adjustment very gradual – but this then means that the relatively well off become eligible for quite substantial benefits. Either that or we make the level of support incredibly low and taper this very low level of support slowly, which infringes on 3).

    Everyone knows that 2) is part of 1). The issue is that it is very difficult to get everyone off welfare and in work. IDS has demanded more money from the Treasury for precisely this reason.

    One thing that would help is if we went to regional cost of living and reduced the welfare support outside London (and held London and the South East constant).

  15. Ken

    “One thing that would help is if we went to regional cost of living and reduced the welfare support outside London (and held London and the South East constant).”

    I’m not saying this would be economically silly but it would be politically a very tough one to sell indeed.

    Isn’t most of the difference due to housing? I imagine that gives some way to implement and sell part of it.

  16. I would hope that we never reach a point where no one needs assistance, be it welfare or charity. If I run a business that fails then I don’t deserve to have earned a lifestyle without assistance. Being in charge means my pay should be based on actual performance in an ideal world.

  17. MBE

    Yes, politically very bad, worse than trying to get rid of national salaries for government and NHS workers. It would still be sensible.

    LY

    I dont follow. It’s a safety net – to keep people from starvation. To meet our common obligations to our fellow man. “There but for the grace of god…” etc.

  18. @ ken
    No – if it was easy GB would *not* have done it because that didn’t suit his purpose. What he has done is to make combining the three more difficult by seeking to create a client group for socialism that is so big that Labour would be guaranteed a permanent majority. Higher rate taxpayers getting state-funded benefits – that is insane (but it happened under Brown).

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