DD wrote a column for the FT today, headed It is time for debate on how to cut public spending, it kicks off with some vaguely sensible ideas, although rather than calling for a mass cull of the quangocracy, he waffles on about "pay and recruitment freezes for the entire public sector", but it gets interesting here:
But the big numbers are in the departments, particularly the burgeoning welfare budget, currently heading towards £180bn within two years. Much of this is a direct consequence of Gordon Brown’s badly designed, fraud- and error-prone tax credit system...
£180 billion looks about right, but Tax Credits (as evil as they are) only 'cost' £20 billion in 2007-08 (page 8). Let's first remind ourselves why tax credits are so prone to fraud and error and why are they so damaging - it's because they are 'targetted' (i.e. at lone mothers) and because of the savage withdrawal rate (39p for every £1 of gross income, giving a total tax/benefit withdrawal rate for most claimants of 70p in the £1). So far so bad.
"... he has created a system of benefits that amount to welfare for the well-off. But to provide welfare for the wealthy, the poor will pay. So we should target child benefit solely on the least well off, and replace winter fuel payments and other gimmicks with targeted help for poor pensioners."
Ah right. He slags off tax credits (quite rightly, although he appears to have no grasp of the 'cost') and in the next breath suggests that we make Child Benefit targetted and means-tested, a bit like, er, Tax Credits. And as we know, means-testing has much the same effect as income tax - it reduces work incentives. Let's say that Child Benefits are withdrawn for households earning over £20,000 and is tapered to nil once you reach £50,000, that's equivalent to increasing income tax on most earners with children by about 5% (assuming they've got two kids). Even stupider than that is that Child Benefit (being the best type of benefit we have - universal, non-means tested and non-taxable) only 'costs' £10 billion a year anyway, and fraud and error (because of its simplicity) is barely measurable.
The same logic applies to even more means-testing of benefits for pensioners (I agree that they are gimmicky - all the more reason to roll them into a flat rate Citizen's Pension and have done with it).
Y'see, if DD really wanted to do something about "welfare for the wealthy [for which] the poor will pay" but without further means testing and without increasing income tax rates, then maybe he'd suggest reducing the cap for tax-relievable pension contributions from the ridiculous £235,000 per annum to something sensible like £10,000 a year, and use the saving to cut income tax rates or increase the personal allowance. Or maybe he'd suggest reducing council tax on Band A homes and adding a few new bands at the top end, all the way to Z as far as I am concerned.
And if DD really wanted to shave £9 or £10 billion pounds off the welfare budget, how about replacing it with a Citizens Income style scheme, which would reduce fraud, error and administration costs by £9 or £10 billion, while leaving very few worse off* and reducing everybody's marginal tax/withdrawal rate to the basic rate of tax plus NIC?
But he doesn't want to do either of course, this is just Indian Bicycle Marketing.
What's really worrying is that he clearly has no idea about my specialist topic - tax and welfare reform - so what are the chances that he knows anything about the other topics he covers?
* The only group that would really lose out would be unemployed single mothers, but that's a bonus AFAICS.
The Fart of Doom
4 hours ago
7 comments:
Typical, we enter a state of deflation, and another Tory jumps on the fiscal fingerwagging bandwagon.
Child benefit is a fiddly one and always seem to suffer from the law of unintended consequences.
I'm not going to argue with you on what is clearly your specialist subject - but as far as I'm concerned we really need a tax system which is simpler and more transparent and a benefits system which links the need of the recipient with their willingness to do something about their need themselves.
It seems to me that both the tax and welfare systems are enormously complex. Complex systems are always more prone to breakdown and fraud.
On child benefit - I can't see why it is fairer to pay child benefit to a poor woman rather than a wealthy one. Not only that, won't it just encourage poor women to have more children thus ensuring more children in poverty (and more demands on resources)?
Stan, I completely agree with all of that except this: "a benefits system which links the need of the recipient with their willingness to do something about their need themselves."If people are willing to do something, then they don't need welfare, do they? To the extent that we have a welfare system at all (and IMHO we should), once you have thought it through to the n-th degree, the only sensible way is flat-rate, universal cash benefits (argue among yourselves how high or low they should be, where £nil is an option worth considering), which is exactly what you say about Child Benefit in the last paragraph.
Why do we need a tax system at all?
HM Treasury print the money, and HMRC want money, so why bother us?
HMRC can simply ask HM Treasury for what they want and leave us out of it.
This method works perfectly in Brunei.
Well - partly, Mark. I'm thinking along the lines of Lao Tzu "give a man a fish", etc. The basic upshot of what I'm saying is that if, after you've given the man a fish AND taught him how to fish and still he can't feed himself .... you make him bloody well fish!
How I believe that should operate is that you give someone time limited benefits and if they still haven't found some way to earn a living themselves by then you put them to work in a job. Any job - whether it be sweeping the streets, picking strawberries, painting over grafitti - whatever - in return for their benefits. They don't get the option to say yes or no - they either do it or they don't get their benefits - or they go and get a proper job.
My argument in the last paragraph was not about benefits per se, but about "fairness". To me, it isn't fair to take money off people who have worked hard to earn it and give it to the lazy and indolent for sitting around on their backsides watching Jeremy Kyle - but for some reason, the social liberals do.
Child benefit itself is an anachronism from the time when fathers mostly worked and mothers mostly didn't - which is why it was paid directly to the mother. Is it appropriate today? Probably not. I don't see why we should be paid for having children - doesn't make sense - but I do see a reason for having a tax system that encourages parents to marry and families to stay together (simply because society as a whole benefits).
Stan, indeedy. I'd replace half the welfare system with flat rate unconditional benefits and the other half (i.e. housing benefit) with workfare jobs, that's that sorted.
Child Benefit is very important because it covers the "mothers pay gap" (most mothers work, as it happens) most admirably without any need for 'mandatory pay audits' and all the other crap that Harriet Harperson dreams of.
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