Saturday, 24 April 2010

A Fairer Benefits System?

Time to reform benefits?

In the UK we are rightly proud of our benefits system and that nobody needs to starve.

I believe that the time has come for it to be improved and made much simpler, fairer and cheaper to operate. For some time now I've been mulling over and chatting with people about how we could make our benefits system operate much more efficiently. Of course someone else might also have had the same ideas as I have, in which case I would be interested to know who they are. This is the first time I've tried to write it all down in one place, it's a bit ragged around the edges but I hope the principle is clear.

The Current Problems

As I see it, here are the main issues we face right now:

  1. Poverty Trap. People currently claiming benefits have no incentive to work, because of the way that benefits are withdrawn once you get other income.
  2. Fraud. There are apparently many individuals claiming benefits while working, maybe to get around point 1 above.
  3. Stigma. Those claiming benefits are clearly in a position where they are looked down on by others and suspected of being idle or useless.
  4. Complexity. There are very many benefits and the number of forms, procedures and rules associated with claiming are a hindrance to having a smooth efficient system and, no doubt, a cost.
  5. Cost. According to one article, we're paying out nearly £200 billion a year in benefit handouts, and none of that money actually encourages people to work.
The Current System

All of these flaws come from the way our current system divides the potential workforce into, essentially, two types of people. Namely:

  1. Workers. These people are in employment (although they may claim benefit as well if they are on a low income). They also have another benefit, which we refer to as a "tax free allowance".
  2. Non-workers. These people are purely on benefits which aim to meet their most basic needs. We refer to these benefits are "means tested" because if you are earning above a certain level (often a very low level) they are lost.
Really there is a third group: People who are returning to (or trying to return to) being workers after being non-workers. Often people in this group are worse off than non-workers because they have got to the point where their income level removes a benefit. There are attempts to solve this problem but they seem to cause wrinkles in other places. They might not get the full benefit of the tax-free allowance because they may not be earning enough to use it.

Proposed New System

Here is the main principle of this system, which attempts to solve these problems:

Pay everyone the benefit.

At first this seems self-evidently stupid - people who are earning large amounts of money don't need a benefit, so why give it to everyone? However every tax payer already does effectively get a benefit - the tax-free allowance, which some technically do not need, they may also get some other non-means-tested benefits, such as child benefit.

The point of doing this is:

Giving the benefit to everyone means that there is never a stage when you lose income.

so that:

The universal benefit becomes a platform on top of which your other income from working is added.

So how would this system work?

As I've pointed out earlier, every worker in the UK has a tax-free allowance. This is the amount of their salary that they don't pay tax on. Note that if a person's tax-free allowance is £6000, and the basic rate of tax is 20%, then the real benefit to them is £1200 per annum. Effectively the state gives each taxpayer this amount back in their salary.

So my first step would be to effectively remove the tax free allowance - fear not better things are coming in its place.

Now, some people in the UK are claiming benefits because they are out of work. The actual amount you can claim depends on the number of children you have, your National Insurance situation and other circumstances. People may also be claiming benefits such as housing benefit to cover the cost of renting accommodation while they are unemployed.

So my next step is to get rid of all these kinds of benefits.

Having got rid of all the existing benefits, I propose that we replace them with:

A universal payment.

So instead of either giving people a tax-free allowance or benefits, we give everyone a lump of money each month. This could be payed directly into the individual's bank account, just as the current child tax credits and working family tax credits are. The actual amount of payment would need to be worked out, however I propose that the amount would be somewhere between the current average benefit payout and the effective benefit gained from the tax free allowance. I suggest that following principles are applied:

  1. The amount wouldn't really be enough to live on in the long term. The idea is to encourage families and individuals to take some work at least to make up the shortfall, so the expectation is that there is no "benefits for life" situation and that just about everyone will need other income.
  2. There will be an increase in revenue from taxation (because of the removal of the tax-free allowance) but a net cost to the exchequer because the benefit is paid to workers. This would be met by (a) the fact that more people would be brough into the taxation system who were previously not working (b) the reduction in payments to those previously on the older style of benefit (c) savings in administration of the benefits system (d) if necessary a small increase in the rate of tax (this wouldn't be bad for poorer working families because effectively their tax-free allowance has already increased)
Now although I call it a "universal payment" it wouldn't necessarily have to be the same for everyone. I'm thinking specifically of people with disabilities or illness who cannot work. For those people I believe there should be a sliding scale based on their ability to get any kind of work, so someone who really couldn't work at all could have a large benefit which would cover all their needs, potentially forever, whereas someone with a minor disability or illness who could work part time, or even full time but would require help to do it, would have a smaller payment.

The principle though remains that every adult would be entitled to this benefit in their own right [see below for some variations as to how this could be calculated]. So a student could see this as a grant, a working single parent could see it as help with childcare, etc etc.

Benefits of the system

Here's what I think the benefits would be of using this system over the current one:
  1. It eliminates the poverty trap - every extra £ you earn gives you an increase in income and so encourages people to take any low paid work that comes along
  2. It enables people who are unemployed to quickly get back to work
  3. There are no forms or procedures associated with unemployment or needing to prove that you are looking for work before you can claim benefit
  4. It eliminates fraud - everyone is entitled to the payment, so nobody can claim it fraudulently (maybe except by inventing a new person somehow)
  5. It simplifies the whole system tremendously
  6. It takes away the idea that some people are spongers - in this system every able-bodied gets the same benefit
  7. It encourages everyone to take responsibility for their own financial situation
  8. Everyone easily knows where they stand
  9. Nothing changes when you go in and out of work
  10. I think it would make the job market more stable and make it easier for employers to recruit to some types of job
Possible flaws:
  1. Obviously the sums are not done - I'm hoping someone with a better grasp of financial modeling could work on this
  2. There might need to be some interim arrangements and/or phasing in as some people are very reliant on their current level of benefit and might get a shock
  3. I'm not sure how the housing element should be catered-for. Maybe child benefit would need to be increased, so that families who need larger accommodation are not disadvantaged too much by the system.

Having said that I don't really know how much the benefit should be set at, I'm just going to give a possible example . Apparently median earnings in the UK are somewhere around £2000 per month.

Let's suggest an amount of £300 per month as the universal payment for adults, and make child benefit be £100 per month per child. This means a family of 4 gets £800 in benefit. In order to reach the current median earnings the two adults would only need to earn another £1200 between them.

To put it another way, the amount of benefit they get is similar to having an extra full-time minimum wage worker in the family.


By and large, people can make choices about how they want to live. Given a system like this some might try to live in squalor on the basic benefit and not work at all. I think they should be allowed to do that if they want. I'm fairly sure that the vast majority will soon start to see that a little bit of extra income here or there will help, and so will soon start contributing tax to the system.

I think the whole thing stands or fails on what the taxation system would have to look like for people who earn in order to accomodate the new payment. However with benefit payouts in the realms of hundreds of billions of pounds per year, the potential savings from the reduction in these are enormous.

Thursday, 22 April 2010

First they ignore you...

Day 1 of being a Liberal Democrat has brought some amazing stories.

First off, Nick Clegg has been attacked by the Telegraph for being entirely open and transparent about his finances.

If that wasn't good enough, 5Live this morning reported that Nick has also been attacked for writing this excellent article for the Guardian in 2002. Anyone who thinks they have a problem with that article should read it first and then decide if they are not really Basil Fawlty.

I have to say that I didn't expect such a violent reaction to the revelation that I (and many others) have joined the UK fastest-growing political party, but we can always take heart from the words of Gandhi (I think):

"First they ignore you, then they ridicule you, then they fight you, then you win."

Wednesday, 21 April 2010

Why I didn't join the Lib Dems (and why I did)

Time to cut straight to the chase. I've just joined the Liberal Democrats (at least I think I have, the confirmatory email has not arrived yet). First thing to note is that was cheaper than I thought - only 10 quid - bargain (although I could have spent up to 250 - we'll see if they are worth it first). Who would have thought you could be a fully fledged political animal for only a tenner?

So "Why the Lib Dems?" you may ask. Good question. In the light of recent events I should say first what the reasons are not.

1) Vince Cable. Hailed as the man who predicted the credit crisis and helped to fix Northern Rock, I certainly have a lot of time for Vince, and he could be a good reason to vote Lib Dem, but not to join them, not on his own.

2) Nick Clegg. He seems like a good chap, if he wasn't I might have been put off. But I've been eyeing up the Lib Dems since long before he came on the scene. So I haven't just been converted by his recent gains in the Prime Ministerial Debates, although I'm looking forward to more of them.

3) A love of orange. You can't miss it, but I prefer green, as a colour.

4) Dislike of a two party system / the need for change. Again I think this is a strong reason to vote for a strong third party, but not necessarily to join it.

So here are the reasons:

1) Freedom / Privacy. I value freedom, I value privacy. I'm fed up of people wanting to track me. It's bad enough when it's supermarkets but when governments do it then I really objects. It being election time it's hard to get past the fluff, but the Lib Dems aren't afraid to tell you on their web site that they are generally in favour of people having as much personal space to what they want as possible. I feel quite strongly that this should be the main idea in many aspects of society, including education, parents and local and national government. Laws should exist to stop people hurting each other and to make society work better, not to impose unnecessary restrictions on people. Have a read of The Freedom Bill and you'll see what I mean. Most of what this Bill does is repeal laws. We have too many laws, let's get rid of a few!

2) Greenness. I may write about the Green Party later, and I have a lot of time for them, but of the 3 main parties the Lib Dems have taken green issues on board a lot more than the others. Global warming isn't the only issue, by green I'm thinking really of being frugal with our limited resources - I want some oil left for my kids to use.

3) Ability to debate rationally. I'm generally impressed with the way the Lib Dems conduct themselves. They aren't actually afraid to agree with people from other parties. I think this is a good basis for political debate in the future.

4) Electoral reform. They seem to be the only party that is prepared to grasp the issue of our stupid voting system. Of courses this coincides with them being a smaller party and currently disadvantaged by that system, but it's also a fundamental view of mine, that everyone's vote should count the same, not just the ones belonging to people in marginal constituencies.

So there we are, that's what I did and that's why I did it. Anyone think I made a big mistake?

Why to join or not join the Conservatives

In order to be objective about the Conservative Party I have to meet head-on the irrational baggage I'm carrying from over 20 years ago. I mean, things that Thatcher did in the 1980s shouldn't really have anything to do with this election should they, really?

But somehow they do matter, and much as I don't want to, I do keep thinking of David Cameron as, in some way, the (perhaps slightly wayward) child of Margaret Thatcher and Norman Tebbit. Not my idea of family values, really.

On paper there are things about the Conservatives I should like, but when I do concentrate on what he's saying and try to understand where he's coming from, then his plan is obvious: he's trying to reinvent the Conservative party and make it electable. At this present time he will say anything to try to get more votes, this is understandable, but it has come at the expense of his message.

To my mind the Conservative Party have been even harder to turn around than the Labour Party of 1979, and 13 years since they were last in power I still couldn't support them. This isn't entirely Cameron's fault, of course, as he's only been in charge the lasts few years, but that's why I won't be joining the Conservatives, or even voting for them this time.

Why to join or not join the (NEW) Labour Party

As a university student in 1992 I was desperate for Labour to win. Correction: I wanted the Tories out. We had an election night party and stayed up to the wee small hours filling in coloured squares on our makeshift results chart. It had seemed too good to be true to think that Kinnock could oust Major, and it was. Despite 13 years of Conservative government the British public could still remember mistakes made the last time Labour were in power and so a few glitches in the campaign were all it took to send them into the wilderness waiting for their moment to come again.

But 1997 saw that moment when a certain Tony Blair stepped over the threshold of number 10 and D:Ream promised that things could only get better. To be fair, things did get better for a while. Looking back to that time, I remember many improvements in public sector services, including health, in which I worked. I also recall one of the lowest pay rises I ever had. On balance those first few years were Labour's best chance and although they delivered to some extent they couldn't keep up to their promises.

But who would have known that Tony Blair would turn out to be George W Bush's messenger to the UK? 9 years on from the terrorist action of 9/11 we're still paying the price of rushing into two wars without any idea of what we were really achieving and how we were going to finish them.

But this is the main reason I can't support the Labour party: I don't think the party really knows what it is any more. There are some very sensible Labour back-benchers, and some of them make it to the front bench for a while before being squashed by the party machine. But on the whole the current government carries far too much baggage to be trusted.

Recent issues, like the Digital Economy Bill have shown that the party is more about big business than the average family.

To join a party you have to believe in something it believes in, if you can't tell what that is, you can't join.

Which Party to Crash?

So, which party should I join? Here seem to be the options, viable and otherwise:

1) (New) Labour

2) Conservatives

3) Liberal Democrat

4) Green

5) UK Independance Party

6) British National Party

7) Any others I've missed?

More on this story later.

Election 2010

In case anyone out there in the UK hasn't noticed, there is an election forthcoming.

It looks like it might be the most interesting election in my adult life.

Here's where I'm not

For the first time in my life, and after 22 years as a floating voter, I'm seriously considering joining a political party.

Just to be clear from the start, I'm not doing it for any of these reasons:

1) So that I can "make a difference". I think I can do this perfectly well without joining a party, and may be be less constrained by having to fit in.

2) To find a wife - one is enough already.

3) To become an MP. I can think of better things to do at this stage in my life.

4) So that I can spend all my time convincing other people that the party of my choice is right. For one thing I doubt they will be right all the time, and for another I'm already willing to have political discussions anyway.

5) To get some political opinions - I already have plenty of those.

So why would I do this? Mainly:

1) So I can see if it changes the way I think about politics.