Wednesday, 27 August 2014

Benefit cap fun

1. From The Telegraph, June 2012:

The Prime Minister was expected to unveil plans to set benefit payments on a regional basis during a speech in Kent today.

He was due to say: "We are looking at whether public sector pay should be more responsive to local pay rates and that is something we should look at for benefits too."

However, the remarks were cut from the final version of his speech setting out plans to overhaul the “out-of-control” benefits system.

I don't know why he cut that bit, but I do remember that The Daily Mirror and other left wing sources were up in arms about this at the time. Having regional benefit levels is a terrible idea of course, but it's one of those dumb ideas which keeps coming back to haunt us.
2. The Tories actually did something sensible (not realising what they were doing, I assume) and introduced a cap on the total amount of benefits which any household can claim of £500 a week. Clearly, no household gets anywhere near £500 in non-housing related benefits; the only households nominally receiving more than that were those living in expensive areas claiming Housing Benefit (the worst benefit of all, as it actually goes to private landlords and pushes up rents and prices for the working population). Cue much squealing from Labour MPs with seats in London.

So the benefit cap reduces the north-south differential in the amount of welfare payments households which can get; it is the opposite of regional rates for welfare payments; and it is primarily a cap on Housing Benefit. Win win win!
3. The Tory government having otherwise made a complete mess of welfare reform, the Labour opposition continued the journey round the clock of stupidity.

From the BBC, June 2013:

This was the week Labour looked to show it could be trusted to control the welfare bill, with speeches by both Ed Miliband and Ed Balls.

But one aspect of what Ed Balls called "iron discipline" has already run into trouble within the party. The shadow chancellor floated the idea of regional caps on benefits. He suggested the Low Pay Commission could advise on where to set the cap in different parts of the country.

The result could see the current £26,000 benefit cap maintained or raised in London and the South East, but lowered in areas like the North East, Yorkshire, the North West and South West. The argument is that housing costs vary widely across the country, and it would make sense to differentiate.

But the idea has gone down like a lead balloon amongst Labour MPs in the North East.

Northern Labour MPs opposed this for exactly the same reason they had opposed the Tory suggestion of a year earlier; they were saying the right thing for the wrong reasons, but never mind.
4. Now Labour has re-suggested the original shit idea of differential regional welfare caps, but instead of opposition coming from northern Labour MPs, it's coming from southern Tory MPs:

Shadow Chancellor Ed Balls has floated the idea of setting "regional" rates for maximum welfare payments to dilute the strict cap introduced by the coalition.

He has suggested the current £26,000 annual limit on a household's benefit claims could be raised in areas with high rental costs such as London. But new analysis released by the Tories showed that the figure could rise to £54,000 a year in wealthier London boroughs like Kensington and Chelsea...

Tory Culture Secretary Sajid Javid said: "Labour still stand for dependency and benefits as a lifestyle choice. We will do everything we can to prevent Labour turning the clock back."

To a large extent this is Indian Bicycle Marketing, but in a bizarre sort of way, northern Labour MPs and southern Tory MPs have come to the right conclusion here, albeit from completely different starting points.

What is more puzzling is that UK politics is all about keeping rents and house prices as high as possible; this is the government party's main responsibility and its best chance of being re-elected, so why any large party would propose a cap on Housing Benefit is a mystery to me.
UPDATE: Sobers in the comments nominates this family as one which got more than £500/week in non-housing benefits.


Excluding Council Tax and Housing Benefit*, they got just under £500. And families with a disabled parent, an unemployed parent and six children at home are isolated extreme cases.

* Please note that this household lives in a "former council house", so that's £76 a week which Thatcher or Blair are costing the taxpayer.


Lola said...

Every time you write up something like this, or I see similar nonsenses elsewhere my instinctive reaction is think about how this can all be changed. We know it's wrong. People in general when you point out the issues undertand why it is wrong. So why do we go round in circles? Someone, somewhere somehiw must be able to break the cycle of failure.

Mark Wadsworth said...

L, I'm a simplification campaigner if nothing else.

Citizen's Income is better than our weird mix of "welfare" " pensions" " tax breaks" and "subsidies".

Flat income tax is better than our weird mix of "regressive' VAT and NIC and "progressive" income tax.

Land Value Tax is better than our weird mix of regressive council tax and progressive SDLT and IHT and so on.

And so harmonised, national welfare rates are better than all this localised shit.

Simple is good.

At least if it doesn't "work" you only have to tweak one variable at a time, you know, be a bit scientific about it.

Lola said...

MW. Quite. I think that there must be huge vested interests in keeping it complicated.

Rich Tee said...

Lola said: "break the cycle of failure."

The Indian Marketing Cycle of Failure perhaps?

The politicians are simply too scared of the consequences, both for themselves personally and the country as a whole. The political left and the media will target them mercilessly.

I think what will happen is we will muddle along for a few years with things getting progressively worse until eventually we will get a dictatorial leader (democratically or otherwise) and Britain will effectively become a dictatorship, but people will put up with it because they will be so tired of all the chaos.

James Higham said...

those living in expensive areas claiming Housing Benefit

Not just expensive areas either.

James Higham said...

those living in expensive areas claiming Housing Benefit

Not just expensive areas either.

Bayard said...

"so why any large party would oppose a cap on Housing Benefit is a mystery to me."

Don't you mean "propose"?

What gets me is the complete denial of the positive feedback inherent in the whole HB system. It's enough to make one a conspiracy theorist.

Sobers said...

This guy got more than £500/week in non housing benefits:

Only just mind, and he did have 8 kids, but it shows it is possible. If he was living in more expensive part of the world than North Wales, his total benefit income could easily have been a lot higher still.

Lola said...

@sobers. Had a client come to us for mortgage. His pay was about 19k gross. He had six children. When you grossed up the benefits he was paid he was on the equivalent of 60k per annum

Ben Jamin' said...

I thought all parties wanted to narrow regional inequality? Is there any data that shows how HB is spread by region?

DBC Reed said...

All of this scroungers get more off benefits than working bollocks does rather founder on the point that wages are now too low and in too short supply to make any comparison meaningful.You're bound to get more off a paynent system that reflects need than one which represents the demands of invested capital bearing down and land prices pressing up.
Cutting welfare is not going to magic up new well-paid jobs.They tried this in the Thirties.

Bayard said...

"Cutting welfare is not going to magic up new well-paid jobs."

It's not intended to, what's intended is to keep the Daily Mail readers on side by making a great show of cutting welfare, but actually doing almost nothing.

Having said that, cutting housing benefit doesn't hurt anyone but landlords.

Lola said...

DBCR. That's a bit of a confused post.
I agree absolutely that it is wrong to demonise people as 'benefit scroungers', the vast majority are not any such thing. But money is hurled at them in order (IMHO) to enslave them.
Land rents are a (the?) problem. But once you have some way of dealing with the economic rent from land - i.e. LVT/CI - you cut out the need for all sorts of benefits. What that combination also does is to make work pay. Or to put it the other way about employers are able to pay the market rate which people can live off.
On the 'invested capital bearing down on wages' point I flatly disagree. My 'invested capital' in my business enables my employees to have a job. In effect I have invested in them.

Of course 'cutting welfare' is not going to magic up jobs. But the cutting the tax imprests on the profits of private business, which is the only place where the wealth can be found to fund benefits, will lead to an increase in production and 'more jobs'.

The point is you want to maximise production as that will maximise employment. Taking my business again, I really need to employ two more people to drive expansion and deliver better mousetraps, but under a combination of confiscatory taxation plus a regulatory tax burden of about 25% of revenue - I can't. Tax and regulatory costs are destroying jobs.

The trouble will be in getting from here to there. There will be a time gap between weaning us off benefits and releasing millions of state employees (who are also on 'benefits') to find more satisfying and productive jobs in wealth creating private business.

Mark Wadsworth said...

DBC, yes agreed. The unemployed did not cause the economic crisis and persecuting them won't solve it.

B, seconded.

L, agreed. But the real economy can expand surprisingly quickly - most businesses could easily expand by ten per cent in a couple of years, hey presto, that's three million new jobs. Sorted.

Lola said...

MW. Well, yes. I could today now take on at least two people which is >10% of our establishment. Job done.