Dear Mr Spiers
I note from an article in the Daily Mail on the Universal Credit/Single Unified Taper that "A withdrawal rate of between 60 and 65 per cent is being debated, according to sources."
Obviously, you are not allowed to tell me whether or not this is correct etc, but allow to me to point out (as I possibly did not emphasise enough in my original submission of early August)...
1. Means testing of benefits is exactly like taxing income, so we have to think about the Laffer Curve.
2. I believe that the revenue maximising tax rate on lower/median earners is about 60%.
3. Therefore the cash-cost minimising benefit withdrawal rate must also be about 60% of income.
4. Unless people earn very little indeed, their employment income is liable to Employer's NIC at a marginal 12.8% (or 13.8% next year) which we can round to 10% for the sake of this discussion. This is of course legally borne by the employer but economically it is borne by the employee - a 1% increase in the rate leads to a 1% fall in headline wages (all things being equal).
5. Therefore, the cash-cost minimising withdrawal rate after deducting the 10% Employer's NIC must be about 50%.
6. 50% is a very convenient figure, as the PAYE system is already geared up to deducting tax/Employee's NIC at a flat rate of 50% of cash salary (ignoring bands, personal allowances) under the K-code system.
7. So we could achieve a cash-cost minimising withdrawal rate of 60% overall AND obviate the need to have a separate system of means testing by paying people their Universal Credit and giving all adults in the claimant household a K-code for PAYE purposes - the benefit withdrawal would be dealt with via the PAYE system, more or less for free as far as the taxpayer is concerned and at minimal extra hassle for the payroll department.
I look forward to your response and remain
Mark Wadsworth
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UPDATE: from today's Evening Standard:
However, according to the Times, Mr Duncan Smith has now persuaded the Treasury to let him claim up front “a large chunk” of some £9 billion of potential savings (1). His new system would carry a guarantee that anyone taking a job would be better off than if they were on the dole, through being allowed to keep more of their benefits.
But over the summer it emerged that the senior Treasury official responsible for checking his calculations, Claire Lombardelli, did not believe his sums were credible. (2) The Chancellor has made clear the cost of benefits must fall, even if it means putting off major reforms on the grounds that they would be expensive to introduce (3). Cutting welfare is vital to his plan to cushion other departments from cuts. (4)
The Department for Work and Pensions said: “We are working closely with the Treasury... We are all agreed on the urgent need to reform the welfare system and help more people into work and off benefits.”(5)
1) Correct. The DWP have running costs, i.e. civil servants' salaries of £9 billion. That's our next port of call.
2) Well she would say that, wouldn't she? See (1).
3) That's a pretty twattish thing for a Chancellor to say: "I'm sorry darling, let's put off that roof repair that will cost a few hundred quid, even if it means that we'll get a bill of thousands of pounds later on, once all the woodwork is nice and rotten."
4) An inevitable knock on effect of reducing the marginal withdrawal rate is that more people will be working, so they'll be claiming less and/or paying more tax, so the overall cash cost goes down. At the same time, the incomes of low earners will go up. Win win. What's not to like? As to "cushioning other departments from cuts", I'm not sure that there'll be any departments left once my Bloggers Cabinet is finished.
5) Well they would say that, wouldn't they? See (1) and (2). Let's see how good they are at helping themselves into work once the whole welfare system runs itself.
All That’s Wrong
3 hours ago
11 comments:
Have they ever told you that the world really loves a smart arse?
WE know that you're right, but the Political Class and their lackeys aren't going to like simplifying things since the Voter might then just suss out how useless they really are.
L, indeed. My pleasure in life is annoying people. But
a) IDS' heart really is in the right place, and he is stumbling blindly towards a CBI system (he just doesn't know it yet) and
b) it is his CIVIL SERVANTS who are holding him back (reading between the lines). The officials at the DWP claimed a year ago it would cost £5 billion and take 3 years to phase in a UC/SUT system, when as a matter of fact it would cost naff all to implement and could be done within a few months, as outlined in my post.
Once people start coming off benefits and into work, the economy will do better, the claimants will be happy and the taxpayer will be happy, and IDS will go down in history as the greatest welfare reformer since Beveridge.
MW - What we really need to do is to get access to IDS. Trouble is that's almost impossible.
(I'm trying to get at Mark Hoban to put him right about the FSA/CPA/RDR etc etc etc - but he just won't play. He just will not recognise that blokes like us, actually doing it on the ground, know a shed load as to what's what than any of his ivory tower self agrandising quangoistas).
MW
Lola took the words out of my mouth - or direct from my keyboard.
In other words THEY KNOW BUT THEY DON'T WANT TO KNOW. Moreover even if, as you assert, IDS's heart is in the right place, they'll sabotage his efforts as they sabotage everything which either "wasn't invented here" or undermines their power.
Pace my previous role as liquidator of the DfID but don't you think that the apparatchiks there have always known that most third world aid is poured straight down the plughole which leads direct to UBS? Don't you think that the FCO functionaries know that the UN, for instance, is a sink of corruption and a source of evil in the world? Don't you consider that all at the FCO know that the EU is expensive, dysfunctional and acts against British interests as far as it can (and given the detritus who run the FCO that is very far indeed)?
Of course they do. But it's not a question of knowledge, you see, it's a question of motive: and the motives are power (vis-a-vis both the UK taxpayer and, in the case of DfID, the recipients of the "aid") and keeping an undeservedly overpaid job, no matter how useless and counter-productive to those who pay their wages that job might be.
Umbongo - I see that you've read 'The Rise of the Politcal Class' too?
It's all about power. We, the proles, are here to be exploited.
Lola
Actually I haven't read it but I've read Orwell and his (or rather, O'Brien's) picture of the future was a boot stamping into a hunman face for ever: the boot was (or is) worn by an Inner Party apparatchik (whose spiritual father is working in Whitehall or Brussels as we speak).
Umbongo '1984 is a warning, not a manual' seems to sum it all up rather well. (Not mine. Read it somewhere).
U, yes of course 'they' know. But the electorate doesn't, so until and unless I become editor of a mainstream newspaper, I'll have to make do with 'blogging.
There was a fine article in today's Evening Standard about the DWP efforts to sabotage IDS' reform ideas, I shall update.
"What we really need to do is to get access to IDS. Trouble is that's almost impossible."
Can't you find one of his constituents who might be willing to help?
B, I messed up here.
When I moved two years ago, I assumed that he was my MP and wrote to him vis a vis welfare reform which he passed on to some numb nut Labour minister at DWP who wrote back with the usual waffle. IDS cover letter to me was relatively scathing.
I would have kept up contact with him but then I realised that he was the MP for a neighbouring constituency and so I left him alone after that. Maybe he wouldn't have minded, but it's too late now - he's in the 'bubble'.
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