Monday, 31 December 2012

Not a good start to 2013 from Mr Ian Duncan-Smith

I do really wonder who is advising Ian Duncan Smith. He is using some very spurious statistics. He is looking like a man possessed. He is on a mission and has decided not to listen to those he no doubt regards as 'on the wrong side'.  Like all missionaries he won't rest until we are all converted or damned. Some say: Stop! You are making a big mistake! But he knows what is best. He is rescuing us all from damnation. He says he has 'brought back fairness to welfare.'

Mr Duncan Smith makes the extraordinary claim that tax credits increased by 58% ahead of the 2005 general election. Working Tax Credit introduced in April 2003 was the first national in-work financial support introduced in the UK designed to help people in work. It was designed as an incentive to 'make work pay'. It wasn't seeking to drive people back to work by cutting benefits for those unemployed or disabled. On the contrary, it was keeping people in work by increasing income. So what of Mr Duncan Smith's claim?

Between their introduction in 2003 and the 2005 general election working tax credits were increased in line with inflation. I doubt any government would win an election with an inflation rate of 58%! So Mr Duncan Smith is talking nonsense. So what could he mean by claiming that they increased by such rate? Perhaps he is referring to take up.

Tax credits at £23.7bn are the biggest slice  (27%) of the welfare cake, followed by Housing benefit (16%) and child tax credit (12.8%).  Incidentally, unemployment benefit is just 1.2% of the welfare budget; so much for 'shirkers' dragging us all down! The true cost of working tax credit however is not the headline figure. To get a true cost we would have to subtract the increases expected in other areas of the welfare budget if it was to be scrapped. Welfare budgets tend to reflect financial needs; housing, food and groceries, heating etc. These costs don't go away because a government may chose to cut a particular part of the welfare budget. IDS talks of wasted spending and fraud. No doubt the system has its share of fraud, as does the tax system in general. But does WTC work?

One of its aims was to 'make work pay', to act as an incentive so that people were not trapped by losing benefits if they chose to work.  IDS says it doesn't work. It is difficult to estimate the extent to which it does. How many people chose to take low paid employment rather than remain on unemployment benefit. I suspect few people really choose to be unemployed. That is a convenient myth fostered by the government to divide us into virtuous workers and sinful 'scroungers' and 'skivers'. Ed Miliband put them straight at PMQs by reminding Mr Cameron that the biggest slice of benefits goes to those in work and not the unemployed.

The problem with any system that subsidises low pay is that it provides less incentive for employers to pay decent wages. Companies like Starbucks take advantage of the British taxpayer by paying below the minimum. As such they are a subsidised business but pay little or no tax. A staggering 5 million workers receive below the minimum wage. That is the problem. That is what we should be addressing. We should be addressing the issue of low pay at its source.

All workers should be paid at least a living wage; a wage that covers essentials of food, housing, heating and clothing. The way to drive welfare dependency down is to increase the well-being of people. Simply cutting benefits drives them deeper into poverty. In the end it is all counter-productive. For the sake of cutting one slice of the welfare cake, the government ends up increasing the slice resulting from poor housing and ill health. They perpetuate the vicious cycle of poverty. I have little hope that the missionary zealots in the government will recognise this. But it is my New Year message to Mr Duncan-Smith, Mr Cameron and Mr Osborne.

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