Wednesday 11 March 2015

Another fine mess you've got us into

In Moneyweek, James Ferguson points the finger at welfare for workers, the brainchild of our late, unlamented Prime Minister, as being largely responsible for getting the UK into the mess that it's in.

Britain has strong GDP growth and low unemployment. But we also have zero growth in productivity, or real (after-inflation) wages, or growth per person. And how can the government spend the equivalent of 43% of GDP (high by
historical standards), yet food banks still exist? And why, when we have one of the lowest relative poverty readings in
the OECD group of wealthy nations, do we suffer from extreme perceived inequality?

..income inequality is flat to falling – yet perceived inequality is high and rising. Why? The key reason is that benefit spending per person in the UK has soared by 60% in real terms over the last 15 years. That’s a huge and perhaps
unsustainable shift (given our chronic deficit). And why is food bank use rising, even as unemployment falls? Because these new benefits are largely going to workers, rather than job seekers.

The majority of the £215bn (12.5% of GDP and 28% of all government spending) welfare spending bill goes to the retired (£87bn). But the next largest chunk goes not to the unemployed (who receive just £8bn), but to the employed (£76bn). Supplementary payments to boost earned income include tax credits, income support, housing benefit and other allowances.

It must have seemed like a good idea at the time to top up the earnings of the politicians’ favourite group, “hard-working families”. But the structure of these in-work benefits creates economically destructive incentives.

To qualify for tax credits, a couple must work at least 24 hours a week between them. So the cynics among you won’t be surprised to learn that not only does a third of the working population work part-time (nine million people in total) but that the average hours worked per person is just over 12 hours a week – ie, 24 hours per couple.

Part-time work pays £11.24 an hour on average. That’s an annual post-tax income of £14,250 for a couple. At this level, tax credits alone would boost household disposable income for those with three children and childcare costs to £35,203 – before any other welfare entitlements, including housing benefit. For a full-time, salaried worker to earn the same disposable income, they’d have to be on £48,500 – almost double the average.

Why put in a six-day week in a semi-skilled job when you could do a couple of hours a day on an easier job and potentially earn almost twice as much?


So next time you hear someone blaming the unemployed Romanian gypsy immigrants with twelve kids living in a mansion on housing benefit for all the country's ills, remember who is really responsible.

23 comments:

Lola said...

I think that I have posted previously that I came across this in about 2003 when a married bloke with 6 children came to use for a mortgage for a house move. His actual pay was about £15,000 p.a. but with benefits his gross equivalent was about £56,000 p.a.
I knew it was all going to end in tears.

Mark Wadsworth said...

Working age welfare spending has gone a bit over the last 15 years, but not by a huge amount, it is fatuous copying the Tory line and blaming everything on the unemployed/cost of working age welfare.

However he is right about very steep marginal withdrawal rates, have a citizen's income and get rid of them.

DBC Reed said...

Remember who is really responsible?
I would have though the employers are pretty much responsible.They get the taxpayers to make up the wages they are too tight to pay in full (and too weird to understand that they have to keep levels of demand sufficient to sell goods and services).
They also benefit from all the cheap, trained labour that emigrates here under the EU arrangements which originated in trading agreements between mature economies, not economies traumatised by being transferred out of the Soviet bloc with fuck all planning.
People have this fantastic belief in the ability of the free market to self-adjust, when ,as the Pope says, there is not the slightest evidence that it ever does.
Cui bono?
@B I did not know that Gordon Brown was dead -bit of a facer that.

Lola said...

MW. Yes. But. Unless 'working age welfare benefits' are funded by CI - which by definition is universal - they distort the labour market and people, quite rationally, game them.
IMHO the welfare state is a disaster and simply a system to gerrymander as suits whichever party is in government. Brown wanted to create the client state to secure his vote, hence working age benefits. Thatcher wanted to create the home-owner-ist state with discounted/subsidised right to buy.
Same horse different jockey.

Lola said...

DBCR I am sure that you are charming and nice to children and dogs and don't beat your wife (unless she requests it of course), but there is definitely something up with your logic and/or observations.
Do you go to MW Leicester Square YPP drinkies ever?

Bayard said...

DBCR, Sorry, yes, it does read like he's dead, when it's only his prime ministerial career that's finished.

"I would have though the employers are pretty much responsible.They get the taxpayers to make up the wages they are too tight to pay in full"

Perhaps you would like to read the post again. What James Ferguson is saying is not that employers are not paying full wages, but that employees aren't working full time. You can pay over the average wage for a job as an employer and you employee's take home pay will still be derisory if they only work a few hours a week. Is it better to have three people working part time or one working full time and two on the dole?

Given that this idea was first tried in the C18th and was a failure then, it seems unlikely that the whole thing was a horrid miscalculation. Much more likely it was a cynical exercise to buy votes (from employers and employees alike) and to get the unemployment figures down. That's what politicians do.

"Working age welfare spending has gone a bit over the last 15 years, but not by a huge amount,"

Are you challenging the 60% increase figure?

Shiney said...

@DBCR

Do you employ people? Have you ever run a private sector business?

No... I thought not.

Henry North London 2.0 said...

So did he get the mortgage?

L fairfax said...

@Bayard"Given that this idea was first tried in the C18th and was a failure then, it seems unlikely that the whole thing was a horrid miscalculation. Much more likely it was a cynical exercise to buy votes (from employers and employees alike) and to get the unemployment figures down. That's what politicians do."
I don't know they can be that stupid.

Although tax credits are a bad idea. Giving pro single parents (as well as semi pro single parents) as much money as we do is quite a bad idea. I realized this when I got my first full job paying close to the average and I couldn't afford the same level of housing which a pro single parent I knew got for free. Sadly attacking pro single parents in the UK is almost as dangerous as attacking the Islamic prophet in a Muslim country.

Mark Wadsworth said...

B: "Are you challenging the 60% increase figure?"

Very much I am, this is tedious Tory propaganda. Working age welfare spending as a % of overall govt spending or GDP has barely increased since the late 1970s.

The only biggie was Child Tax Credit, introduced in the late 1990s, hence why the author selectively compares spending with 15 years ago.

But his point on marginal withdrawal rates is quite value and a good argument for lower withdrawal rates, or indeed no withdrawal rates i.e. a Citizen's Income.

Bayard said...

"The only biggie was Child Tax Credit, introduced in the late 1990s, hence why the author selectively compares spending with 15 years ago"

Well, of course, he could be referring back to when the government last balanced the books, but I have to admit you appear to be right and total welfare spending hasn't gone up at all in real terms. However, that must mean that the unemployed are getting a lot less than they were since Working Tax Credits were introduced in 2003.

Also, being wrong about the total welfare bill going up doesn't invalidate his points about the distortions introduced by WTCs and the fact that the much vaunted UK economy's "growth" and fall in unemployment are essentially phoney.

So no, this isn't "tedious Tory propaganda", in fact, it's pointing out that two of the Tories' top "achievements" in power are no such thing.

But I wish people like this would get their facts right.

Bayard said...

L fairfax, Someone's got to raise the next generation of taxpayers and the relatively well-off are not doing their bit in this respect. It's only the badly-off single parents who are keeping us from the "demographic timebomb" (oh, and the hated immigrants too) and single parenting is a full time job. There are always going to be some people unemployed, so they might as well do something useful like bringing the workers of the future.

L fairfax said...

@Bayard
That statement is so wrong
1) Single parents are not badly off until they are in their 30s they are better off than many people who work. I work in IT and it took me six years to afford similar housing to pro single parents I know (of course nowdays it would be longer).
2) If we have immigrants to stop the demographic timebomb - why do we need single parents as well?
3) Many pro single parents bring up the pro single parents of the future. Which of course should not be a shock to anyone, many children follow their parents career. There was an article I saw on line recently about a pro single parent who was pleased that her daugher was going to do the same, rather strange I thought - who would write about a GP whose daughter becomes a GP?
4) In other countries single parents do it without any money e.g. Spain etc. I am married to an immigrant and my sister in law was a single parent without any help from the Government in her country. As of course happens in Spain, Italy etc.

Lola said...

HNL2.0 No. I walked away from it. On principle. Sent him off to the Nationwide. Heard no more.

Thing was he was a really good Dad. Great kids. Loving wife. Proper bloke. But he had been enslaved by this daft system. He did have six children which helped the claims, of course. And at least two of those were moonlighting as hairdressers for good cash. Probably another £10,000 p.a. coming in from the black (aka real) economy.

Bayard said...

LF

1. Well, yes, but that's after the biggie, housing benefit is taken into account. This is a problem with housing benefit, not with single parents.

3. Only 50% of the children of single parents are even likely to go on to be single parents themselves, because single parents are almost entirely mothers.

4. "As of course happens in Spain, Italy etc." the countries with the worst "demographic timebombs".

L fairfax said...

@Bayward
Well done for ignoring this bit
" If we have immigrants to stop the demographic timebomb - why do we need single parents as well?"
BTW most of the third world don't chuck money at single mums but don't have a demographic time bomb.
@"Only 50% of the children of single parents are even likely to go on to be single parents themselves, because single parents are almost entirely mothers."
True but the boys are far more likely to be criminals
http://www.bbc.co.uk/news/education-22820829

BTW I don't dislike single mums - I just don't want to give them my money. Do you want to give me money? I would guess not but that doesn't mean you dislike me.

Bayard said...

LF, I ignored that bit because it's a matter of personal choice. You dislike the state giving money to single mothers (presumably you'd rather leave them to starve, sell their children or go on the game, as they do in the third world). Other people would prefer immigrants to stay out of the country. I don't care either way.

"the boys are far more likely to be criminals"

Poor people are more likely to turn to crime than rich people. Who'd a thought it? They're probably more likely to join the armed forces, too, or does that come to the same thing in your book?

L fairfax said...

" You dislike the state giving money to single mothers (presumably you'd rather leave them to starve, sell their children or go on the game, as they do in the third world). "
Any proof that happens in Spain or Italy?
They do have single mums there just less.
As I have said before pro single mums are not poor. The ones related to me live in parts of London I can't afford to live in.

@"They're probably more likely to join the armed forces, too, or does that come to the same thing in your book?"
Good ad hominen attack there, sure sign of desperation.

Bayard said...

"Any proof that happens in Spain or Italy?"

No, but it does happen in the third world, and you were holding up the third world as a shining example to follow.

"The ones related to me live in parts of London I can't afford to live in."

If you are saying these single mothers are rich enough to support themselves financially without working, but are still getting state handouts (apart from child benefit), then I'd agree with you, it's a waste of state funds. However, the vast majority of single mothers would be on the dole anyway if they weren't single mothers, so it's six of one and half a dozen of the other.

"Good ad hominen attack there"

Not at all. I know people who think that being in the armed forces is worse than being a petty criminal on the grounds that very few petty criminals actually kill anybody.

L fairfax said...

So to summarize
a) Single mums in the west don't become prostitutes if they don't get lots of money from the state
b) We don't need them because we can have immigration instead


So why give them loads of money?

Of course in some cases the desire to pretend to be a single mum to get lots of money has led to people lying to the social workers about their baby abusing boyfriend (Baby P case). So the money sometimes harms children.

About
"However, the vast majority of single mothers would be on the dole anyway if they weren't single mothers"
How do you know that to be true? If that career path weren't so rewarding how can you tell what they would do?
Japan has less pro single mums and less unemployment so your premise has proved to be false there.

L fairfax said...

Of course if tax payers were paying less tax then they would have more time to make children so how do you know that the current system is not causing the demographic timebomb?

Bayard said...

"So the money sometimes harms children."

Yeah, lets all go round reinforcing our prejudices by extrapolating from single cases.

"However, the vast majority of single mothers would be on the dole anyway if they weren't single mothers"

Sorry, I should have said, the vast majority of single mothers on benefits...

You still haven't informed me whether single mothers get state aid simply because they are single mothers and would not otherwise qualify for it. If they don't than why should you object to them getting state aid if they would be getting it whether they were single mothers or not.

Do you call a single mother who supports herself without working and without the aid of the state a "pro single mum"? and if so, what on earth have you got against them?

L fairfax said...

@"Yeah, lets all go round reinforcing our prejudices by extrapolating from single cases."
If you think Baby P was a one of case, please watch the news more.

@"You still haven't informed me whether single mothers get state aid simply because they are single mothers and would not otherwise qualify for it. If they don't than why should you object to them getting state aid if they would be getting it whether they were single mothers or not"
They should not get more because they made themselves dependant on the state. They should get JSA and a room

"Do you call a single mother who supports herself without working and without the aid of the state a "pro single mum""
If English your first language?
A pro x is someone who lives of doing (or being x). If someone supports themself by not working they are not a pro anything (quite lucky IMHO).

Please answer my question
a) Single mums in the west don't become prostitutes if they don't get lots of money from the state
b) We don't need them because we can have immigration instead

So why give them loads of money?


It is the loads of money I object to and people calling them poor (although thanks to the benefit cap they are no longer rich, thankfully)