Saturday, February 16, 2008

Gentle Differences On Welfare

(Author's Note - as ever, and particularly given this post's subject matter, I should point out that I am not 'The Devil's Kitchen'.)
History repeats itself the first time as tragedy - and then sometimes it just repeats itself.
This may seem strange, but there are remarkable similarities between modern Saudi Arabia and imperial Spain. One relied and the other relys too heavily on the flow of one asset for economic survival. In Saudi's case, of course, it's oil; in Spain's case, it was New World bullion. As the bullion teat dried up, Spain's previous failure to diversify led to its decline. The same thing will eventually happen in Saudi Arabia when the oil either runs out or is purchased from elsewhere.
By the same token, there are remarkable similarities between, of all things,, the reconstruction of postwar Iraq and the most notorious episode of the so-called 'Highland Clearances', that of Strathnaver, and they're rooted in administrative over-reliance on economic theory. The State Department wonks who thought that spontaneous order would just break out once the Iraqis were free, free, free were just as wrong, wrong, wrong as Patrick Sellar, a devout disciple of the bits of the 'Wealth of Nations' that he liked, was when he thought that crofters settled on parcels of land too small for their subsistence would just divide their labour and prosper; no questions asked. It didn't happen then - it's a pity anyone thought it would ever happen now.
I join wholeheartedly in DK's call for the abolition of the welfare state; yet one cannot help but wonder just how this is to be done.
The creation of Incapacity Benefit, the King of Benefits, is a sin for which those responsible should one day answer. That "...1m currently (receive) incapacity benefit" makes one wonder just how any government can formulate an employment policy, and in consequence an economic policy, when it connives at the concealment of such enormous unemployment; yet every British government that has held office since Incapacity Benefit was created has attempted to do just that. In my experience it is not the case that once you're on Incap you're on it for life, and there are those who cannot work, and they cannot be left to starve; but it must be reformed.
If Incap is the King of Benefits then Income Support is the Queen. It is Income Support and its predecessors, and the benefits that flow and have flowed from their receipt, that have created the culture of the pregnant teenager soon to become grande dame of yet another perpetually workless household. Maybe I've gone native; but I have the greatest sympathy for those young women who try to break their dependence on Income Support, because the state does not make it easy for them.
Working Tax Credits and Child Tax Credits are a joke, if only because they seek to mimic the effects of tax cuts without cutting taxes.
Child Benefit discriminates against parents with more than one child. Why should one child be worth £18 per week, but two worth only £30? What's the point? Does not compute.
As for Housing Benefit, it sometimes seem that eligibility for this most quicksilver of all benefits is determined by an algorithm with all the mathematical sophistication of a tombola.
And precisely why does receipt of Income Based Job Seekers Allowance qualify you for stuff that you don't get if your eligibility for JSA is Contributions Based?
And yet, and yet, and yet...
Welfarism is now so deeply embedded in the psyche of some Brits that its immediate overnight abolition would be impossible. It must be changed; but gradually, and with as much sensitivity as can be mustered.
For reform to happen, there must be actual jobs recipients can go to; sad to say, the prospect of being screamed at by your fellow citizens in a call centre in order to earn £12K a year isn't much of an inducement to getting out of bed in the morning - particularly if you go to work not knowing if your job will still be in Burnley in a month's time, but in Bangalore instead. Change must be holistic, and must involve trade-offs.
Immediate abolition would, to all intents and purposes, amount to one part of the nation severing itself from another. Now, there may be some who say this would be a good thing, and that they couldn't care less; but there are examples of societies which have been cut in two overnight, on ideological grounds.
My fear is that should the welfare state be subject to sudden, radical reform, that the British themselves would be subjected to an experience not unlike the Partition of India on their doorsteps.
That would be a chance of economic improvement for which the opportunity cost would be just too high.


asquith said...

What do you think should be done then, Martin? I'm left wanting more at the end of that :)

Anonymous said...

There's no point in offering them 'real' jobs until they have real skills. An illiterate generation is useless for anything but the most menial of work, and our lack of border control has meant that those jobs have been filled already.

To be honest, if wages in my industry had fallen by 50% (from an already low level) to a point where I would lose money by leaving welfare and working, you'd have to be a madman or a saint to take it. Why work 40,50 hours a week for less money than you'd get sitting on your arse?

Anonymous said...

An interesting and thoughtful piece Martin, but I cant help but echo what Asquith has said above. How is this reform to be achieved? Welfarism is ingrained in the culture of parts of our Country. That reform is essential is unquestioned, but how?

A good post though, thanks.

Anonymous said...

Clearly, the incentives to work would be much stronger if we had a sensible tax system. Rather than fiddling at the edges by knocking a penny or two off the basic rate, the government should raise the threshold so that those earning much below the median wage pay no income tax. As late as the 1950s, the average working man paid no income tax. It is a disgrace that this pernicious tax now intrudes on just about everyone.

Funding this move could be achieved through the abolition of most tax credits – an intrusive and inefficient means of accomplishing the same ends as avoiding taxing people in the first place, by cutting the public sector bureaucracy associated with such complicated mechanisms and by increasing VAT to 20% and extending it to items that are currently exempt. The latter would have the beneficial effect of making the current levels of welfare payments less attractive to the recipients.

Given the difficulties of getting people off a benefit, I think the obvious – if counter-intuitive approach – is actually to create a new benefit for the 100,000 or 200,000 or so people that are genuinely disabled. This would be a more generous supplement to incapacity benefit, but would be payable only to those that pass a strict and independent (ie not conducted by their own GP) appraisal. The existing incapacity benefit would then be allowed to wither, with no increases whatsoever for inflation.

Anonymous said...

When these unskilled people choose not to work they are being sensible.

Whenever people do not 'behave' according to the politicians prescription it is because the system is badly designed.

These people have been let down by a 'progressive' politically correct schooling system that has left them unable to read or count properly. They are therefore almost unemployable.

It is compounded by the fact that on the very low wages they would get their marginal tax rate is in the region of 75% - 90%.

The solution is to 'pay' people to work rather than pay them not to work. Anonymous 01:03 and I agree here. But rather than increasing income tax personal allowances I would endow children with an i/t personal allowance and make all personal allowances transferable to/from children/parents/spouses.

At the current rate of about £5000 this means a family of two parents and two children could earn £20,000 before paying income tax.

Since the tax/benefit system is immensely complicated, other adjustments would be necessary. But working/child tax credits should be scrapped.

asquith said...
This comment has been removed by the author.

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