Centre for Social Justice Part 5: Imprudence

Here's where we go from the sensible-but-timid to the downright evil.

I'm sure that it isn't news to anybody that saving (i.e. spending less than you earn, i.e. deferring consumption until later to smoothe out peaks and troughs) is pretty much the opposite of borrowing (i.e. spending more than you earn, i.e. accelerating consumption or acquisition in the hope that there won't be any troughs later on). Nonetheless, the CSJ manage to conflate the two in the introduction to Section 4.4 (pages 121 - 129 of 370, zip/pdf):

We have argued that the system is unfair in the amount of support it gives to different groups, and also that it discourages choices which are by and large in the interests of individuals and their children: the choice to work and the choice to stay in a couple when there is a child. Placed side by side, they highlight further the confusion that surrounds the welfare system.

Yup. All good stuff so far. Then they go on to claim that black is white:

There are other aspects which encourage what we might term ‘imprudence’. If a claimant has made some effort to save or to take a mortgage, then that effort is punished with decreased benefit. This effectively sends the wrong message: that one should not save and be prudent with money, as the Government will claw it back.

They discuss the 'savings penalty' at length and explain that benefit claimants who admit to having any savings end up considerably worse off than if they had none. They reckon that scrapping asset-based means testing would only 'cost' £1 billion a year and their final objective is "Over time, the savings penalty should become less stringent"

Wot? Why so timid? I would scrap any form of any asset-based means-testing on Day One, and seeing as the total cost of the welfare system is the best part of £200 billion, we can recover the 'cost' by simply reducing all flat rate benefits by half a per cent (or indexing them up by half a per cent less than inflation), job done. What's not to like?
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So much to the timid. They also discuss the 'mortgage penalty' at length (i.e. the fact that Housing Benefit doesn't cover mortgage interest - which is true; but the present government has invented half a dozen schemes that amount to the same thing - which they cheerfully overlook) and throw in a few irrelevant facts and downright lies in their conclusion (the numbering is mine and is cross referenced to my analysis below):

"... the ultimate aspiration remains home ownership...(1) Given the attention paid to, and historic Government support for, helping first-time buyers secure a foothold on the property ladder (2), it is unfortunate that at the same time it is unwilling to support the lowest earners who are left in poverty as a result (3). Those with low earnings who are trying to get onto, or stay on, the housing ladder are just as in need of support (4) as those in rented accommodation (5). We support reducing the mortgage penalty for low-earning households, not currently eligible for WTC, particularly in the current economic environment.

Objective: reduce the mortgage penalty for low-earning households.

If mortgages continue to be penalised, the Government will increasingly find that low-earners will opt for rented accommodation. This potential surge in the Housing Benefit bill can be avoided through supporting those who want to try to own their own home (6).

OK. Let's look at those irrelevant facts and lies in turn:

(1) Irrelevant. I'm sure a majority would like to drive a new Mercedes, send their kids to private school or go on three holidays a year.

(2) Lie. The government has done its best over the last thirty or forty years to restrict new construction to the bare minimum, in other words, they deliberately want to strictly limit the total number of home owners, and by restricting supply, push up prices for new entrants. Sure, we used to have MIRAS, but all that did was to push up house prices by an equivalent amount.

(3) Irrelevant. If people are "left in poverty as a result", then as a result of what exactly, pray tell? My answer would be "As a result of overestimating their future incomes and their willingness to accelerate consumption by borrowing money". I don't see why any government would feel that it is up to other taxpayers to subsidise them, that creates moral hazard, to say the very least.

(4) Lie. No, they're not "in need of support". I'm completely in favour of having a bit of redistribution that's enough to pay for people's utilities and food and a few quid for the odd trip to the pub or the cinema (of course I'm paying for it, but it's like insurance - if I never lose my job, I'm happy; if I lose my job and get some of my taxes back as welfare, I'm happy) BUT I passionately object to the idea of paying extra so that people can afford to buy/own houses, which, as mentioned is a negative sum game.

(5) Lie. I have already pointed that the CSJ fail to understand the fundamental difference between paying Housing Benefit to private landlords (which is another form of mortgage subsidy, is hugely expensive and should be scrapped forthwith) and some accounting tomfoolery between the DWP and local councils or Housing Associations. The overall cash cost to the taxpayer of keeping people in social housing is negligible (or might even make a small profit).

(6) Lie. There wouldn't be a "surge in the Housing Benefit bill" if we just scrapped Housing Benefit. Sure, everybody has to live somewhere, but seeing as the cash cost of social housing (as badly run as it is) is minimal, why not just use the saving to build loads of new social housing, and run it on commercial lines? As a free marketeer (and Land Value Taxer) I don't really like the idea of letting out state-owned assets at below market rents*, but if they built enough social housing, then by definition market rents would fall anyway, so ultimately, social rents would be market rents, making a sizeable contribution to the Exchequer. What's not to like?

So, as I predicted, the Tories are just as bad as Labour and will do anything to prop up house prices and protect the hallowed home-owner, remembering always that for every low income family who can only keep their homes because of subsidies, there's slightly more than one other family who ends up priced off the ladder (and who has the dubious privilege of being forced to pay for the, er, dubious privilege).

* To avoid hardship cases, those on low incomes could have the rent they pay capped at twenty per cent of their income, i.e. they would live 'rent-free' and pay an extra twenty per cent PAYE on their earnings, which, administratively, is an absolute doddle. I have thought this through, you know.