Centre For Social Justice

Talking sense:

At the core of the CSJ’s recommendations are measures to make work pay, and reduce the working couple penalty. The report concludes that under the present system, claimants are no better off – and sometimes poorer – if they quit the dole to take on low-paid jobs, typically those paying up to £15,000 a year. Winners from the shake-up would be low-earning households working fewer than 30 or 16 hours a week. But some higher earning families on more than £30,000 a year and receiving child tax credit would lose modest amounts of money...

The report says that some 6 million people of working age in the UK are claiming out of work benefits. But the deterrents to joining the labour market are huge and are built into the current system.

One obstacle is the participation tax rate – the amount of income lost by a claimant taking a low paid job. This can be as high as 90 per cent. The result is many people turn down jobs or fail to apply for them because they calculate – often rightly – they would be worse off as a result. The complexity of the system, which operates 51 different benefits, is a linked deterrent because if claimants take a job and then lose it, they may have to wait months before they can restore their income from benefits.

The other key obstacle is the marginal tax rate, which is 70 per cent or more for the majority of low earners. This deters people from taking a better paid post or working longer hours.

To encourage claimants into work, the report recommends more gradual rates of withdrawal of benefits, which would lower the PTR and the MTR and make taking a job and working harder far more rewarding. In place of the various confusing and high rates of benefit withdrawal (the so-called tapers) there should be a single 55 per cent rate at which benefit is withdrawn as claimant income rises.

Households should also be able to keep more of their earnings from work before their benefits are phased out, the report says.

The report calls for an end to the tangle of 51 benefits. It says there should be only two benefits for working age people: Universal Work Credit “earned” through participation in welfare to work schemes, which would integrate benefits such as Jobseeker’s Allowance and Income Support; and Universal Life Credit providing additional income to people with low or no earnings. All workless households would get ULC, which would absorb benefits such as Housing Benefit, Working Tax Credit and Child Tax Credit.

Or at least I think they're talking sense, the emphasis on simplification and reducing the PTR and MTR to 55% might (or might not) be a good step on the direction of a Citizen's Income-style welfare system. It's a 370-page document, for crying out loud, it might take me a while to find and read the important bits.