Natalie and Caroline Dynamic Benefits tutorial 1

Hi Natalie and Caroline.

Over the next few weeks and blogs, I shall bombard you with excerpts from Dynamic Benefits. Of course, I think of myself as supplying you with helpful information, and I hope that is how you receive it. Several of my blog posts have been re-tweeted by @boycottoworkfare, and hits on those blogs reached dizzying heights, (well, they were for me) but now, with over a hundred followers already, my last post has, a week later, only received 37 hits. So I might as well concentrate on you two. I know Natalie glances through my blogs, and I am appealing to you, Caroline to do the same. If either of you has actually looked at Dynamic Benefits I apologise, but I guess that pressure of work makes that unlikely. So during the next few weeks/blogs I shall give you some of the bits you really need to internalize –and start using in the media.

Before I start, I must address Caroline’s insistence that detailed, watertight Citizens’ Income costings are essential. You can simply stick to quoting Dynamic Benefits. But once you have grasped how crucial the principle is in relation to the fight with IDS, I think even you will find that reference to the CI is appropriate as the natural answer to which discussion will inexorably lead. In any case, like Natalie last week, you will get the CI flung at you. But what you see as traps – and I understand why – I see as opportunities. I refer you to my blog last week when Natalie was cross examined by Carolyn Quinn, and my suggestions as to how it could have gone.

Dynamic Benefits Pages 4 – 7

Benefit Reform

. . . the biggest barrier to those entering work for the first time is the benefit system itself. . . .

All engaged on this report were seized with the importance of finding a better system which would support social reform.

Time and again our review received anecdotal evidence from lone parents about the trap of the 16 hour working week. In dramatically reducing financial incentives to work less than 16 hours (through non-qualification for the Working Tax Credit), or more than 16 hours a week (through very high benefit withdrawal rates), the Government ensures lone parents face only one sensible work option – 16 hours. Those who find themselves in circumstances where working less than 16 hours per week would be the right option, find that the financial reward is negligible; and those who want to work more find that it is not worth their extra effort to progress towards full-time work. Such an inflexible and complicated scenario creates system churn as lone parents must fit their lives around the two viable options – not working, or working 16 hours. This disrupts the lives of claimants through the loss of self-confidence and delays in receiving key entitlements such as Housing Benefit, when they change their circumstances. Crucially, it also fuels a highly influential word of mouth message that progression into work simply isn’t worth the hassle. In its recent report on child welfare, Doing Better for Children, the OECD also recognises this, concluding in relation to single parent benefits that “There is little or no evidence that these benefits positively influence child well-being, while they discourage single-parent employment.”

Such targeting and tweaking has created further losers, most notably couples with children who as a consequence have to work many more hours to reach the same level of income as lone parents.

Income Source v Income Level

The problem is that this piecemeal system has now become so complicated and cumbersome that it is almost impossible to predict how it will respond. Today, there are 51 separate benefits which create a myriad of tax traps and special rates for different groups. Positive life choices are penalised – such as couple formation, buying a home or saving money. These issues are often caused by one of three problems arising from the present system: 1. It creates a series of disincentives to work; 2. It imposes penalties on constructive behaviour apart from work (such as  marriage and cohabitation, saving, and home ownership);3. It is very complex – making it costly to administer and reinforcing dependency.

It is fully accepted that being in work is good for us all, beyond the importance of the income it delivers. Government research has found income source to be more important than income level in determining levels of social exclusion. Earning money through gainful employment has many life changing advantages – people in work have better health; they develop strong social networks; and they become living proof to themselves and others around them of a link between effort and reward.

However, whilst recognising there are life changing benefits for someone who is employed, we must also recognise that few of those out of work would look upon work as a moral choice, rather a practical one. For them, employment and career progression above all has to pay and if we understand that this is part of what motivates those already in work, why do we seem to expect something altogether different of benefit claimants?[my (blog) emphasis]

Under the present system, entering work or progressing toward full-time work simply doesn’t pay. In real terms it often leaves claimants no better off, or even disadvantaged, for much more effort.

Participation and Marginal Tax Rates

For claimants in part-time employment who are seeking to work more, the marginal tax rate (MTR) – a measurement of what proportion of a small rise in earnings would be lost to taxation and benefits withdrawal – can be as high as 80% or 90% for every additional pound earned. Fuelling such high MTRs are some of Europe’s highest benefit withdrawal rates – up to 100% for every additional pound earned in some cases.

For out-of-work claimants we measure the participation tax rate (PTR). This identifies the relative financial incentive to commence paid employment at a given earnings level, in comparison to remaining on benefits. Too often PTRs are extremely high, meaning tangible income will hardly increase if they work, and therefore the rational option is to stay on benefits. Why should we expect people out of work to behave differently to those in work? We know that those already employed respond to the effect taxation has on their earnings. If they perceive that working longer hours brings no tangible benefits, then they don’t commit to the extra hours. Both Government and businesses set their work conditions to incentivise productive behaviour.

However, when it comes to the unemployed, Government lazily assumes people will take work out of a sense of obligation – enforced or voluntary. That is why Government has, over a number of years, produced a complex system which, rather than moving people to financial independence, instead entrenches economic dependency and ensures claimants remain net receivers in society rather than contributors. Crucially, however, the proposals contained in this review will ensure benefit claimants gain from entering work, or from working more hours.

We recognise that incentives, not values alone, shape human decisions. Our reforms will remove the financial roadblocks to entering and sustaining work. They will also steadily move benefit recipients towards their full employment potential.

The review is presented in the context of other recommended support for those seeking work, or more work, as outlined in Breakthrough Britain – such as tailored support, training and personal mentoring.

[end of  Dynamic Benefits quotes]

Most of the foregoing would not look out of place cut and pasted in a treatise entitled ‘The case for a Citizens’ Income’. But these same passages are being used to legitimize the government strategy in the eyes of anyone not actually being crucified. That is what most of the anti IDS forces – and I include you two in this –seem not to have grasped. You have to highlight and confront MEANS TESTING. Incidentally, @boycottworkfare has got the message. That is why he has re-tweeted some of my posts.

More next week.

Oh yes, in case I have whetted your appetites for the horse’s mouth, so to speak.

Dynamic Benefits (2009)


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.