UBI is nothing radical, it's just an administrative tidying up exercise

Some people are against the idea of any welfare payments whatsoever, there's no point in debating with them, they have missed the whole point. Most people are vaguely in favour of welfare in some forms or in general but oppose UBI.

* The hard left vaguely grasp that UBI is negative taxation, so they want it means tested and focused on low-income recipients; that means that higher earners pay more in tax and/or receive less in UBI (modest tax rebates). I suppose that's intelletually coherent, even though expressed badly and not really thought through.

* The hard right are more in favour of the contributory principle, which is the opposite of means-testing and pointless. If you take this to the logical conclusion, you might as well just tax people less when they are earning and expect them to save up for the bad times. Most will, some won't, tough.

*Then of course there are the outright authoritarians with no grasp of maths or logic who support both means-testing AND the contributory principle.

* Many UBI supporters make a different glaring - and rather embarrassing - error, which is to assume that this would be a radical overhaul and/or would require additional taxes.

Nothing of the sort. The UK's tax and welfare systems, if viewed in the round, are already pretty close to UBI, so the easiest way to introduce UBI is by administrative stealth. The DWP and HMRC could simply merge all working age benefits into a single benefit and do claw-backs via PAYE. They can keep the old names and attach different conditions if they want to maintain the pretence and keep the authoritarians happy, but really it's just UBI.

Let's take a few major working age benefits. How different are they really?

* Income Support and Carer's Allowance are to all intents and purposes the same thing, just with different qualifying conditions. £60 to £75 a week for a single adult. No time limit.
* Statutory Maternity Pay is up to £151 a week for 39 weeks.
* Student Loans are £8,000 - £12,000 a year for up to three years. These loans are supposed to be repaid via a savagely higher tax rate if you are over certain income thresholds, so combine the worst aspects of debt and higher taxes. Maybe only half ever gets repaid, so they might as well just give students £4,000  a year and tell them to keep it.
* Working Tax Credits for lower earners. This is largely smoke and mirrors. To qualify, you have to work a certain number of hours i.e. earn a certain amount of money i.e. they are paying some PAYE and reclaiming a similar amount in WTC. In net terms, it pushes up the tax-free personal allowance up to about £15,000.

What do all these have in common? People who (probably) aren't earning much get a bit of extra money. People are all people; money is just money.

They could simply set the weekly rate for all these benefits at whatever £ amount is required to keep total expenditure on all these groups constant, probably somewhere in the region of £80 a week [see footnote] and pretty much abandon all the qualifying conditions. If you get this £ amount correct, it would of course require no increase in tax rates on earnings (which are far too high anyway).

As to means-testing, if the purpose of this is to minimise total expenditure, then we have to remember the Laffer Curve. If the clawback rate is too high (overall clawback rates of 80% - 100% are not uncommon) then people who can only reasonably expect to earn minimum wage £10 an hour gross won't bother. If the clawback rate is too low, then clearly nominal expenditure will be high.

So why not set the official clawback rate at 40%-odd, which is
a) close to the tax-raising/expenditure clawback maximum on the Laffer Curve and
b) happens to be total clawback PAYE rate, including income tax and two layers of NIC, for basic rate taxpayers? We wouldn't need a separate means-testing system. UBI claimants just get a BR PAYE code (with an extra tick in the box for 'liable to NIC on all earnings') which means they get 40%-odd deducted from their wages at source.

For mothers with young kids, it's a two-edged sword, the weekly amount would be maybe half as much, but they could extend the qualifying period of 39 weeks up to 36 months (or until youngest child has reached school age or whatever), and also roll the Childcare Element of WTC back into Child Benefit and make Child Benefit £50 per child per week (instead of a miserly £20-odd for most people plus £60-odd WTC for the lower half), so overall, what they lose on the swings they gain on the roundabouts.

Once people have wised up to this, claimants wouldn't go through the bother of... claiming pseudo-SMP and having to provide children's birth certificates; claiming pseudo-Carer's Allowance and providing details of the elderly or disabled person they are 'caring for' for 35 hours a week; claiming pseudo-student grants and providing proof of what course they are doing at what Uni etc.

They'd just all go for the pseudo-WTC/Income Support option by ticking the box saying "I expect to earn a gross wage of less than £1,250 a month for the remainder of this tax year", provide home address, NI number, copy of passport or driving licence (for checking identities - the only possible fraud in a UBI system is multiple claims by one person) and job done.

And if pseudo-WTC claimants are lying and they know they are earning more than £15,000? So what? Most would be stupid to do so, as the extra PAYE/NIC they would have deducted would be slightly more than their pseudo-WTC. Some people would voluntarily do this if they know they will be working part-time, seasonally, on zero-hours contracts etc. At least they have some regular income, however small - the fact that they extra earnings when working are a bit less than otherwise is a price worth paying, a kind of self-insurance.

Of course, there are some people who currently don't bother working because their spouse or partner earns enough for both of them, they could claim as well. Again, so what? This is much the same as a transferable personal allowance, assuming the couple pool their income, it's like giving the working partner a double-personal allowance (most countries still have joint-taxation of couples). And if claimants 'waste' their £80 a week on going to the beauty salon or dining out more often, that's good for the lower paid people in beauty salons and resturants (so they'd be paying more tax and the government gets most of it back indirectly).

To keep the authoritarians and meddlers happy, they could make the forms seem really complicated, do occasional spot checks and occasionally throw some claimants under the bus to generate the required headlines for the bloodthirsty Daily MailExpressGraph crowd and the Guardian/Mirror hand-wringers. This is all smoke and mirrors - apart from genuine admin screw-ups, the worst that can happen is they stop somebody's pseudo-Carer's Allowance or SMP and pay them pseudo-WTC instead.

And because the claw back rate is relatively low, they can generate a lot of positive statistics showing how many claimants are actually working and how much this saves the taxpayer. That should keep most people happy.

Here endeth this week's rant. Why do so few people undertand all this?

Footnote: Quite how high you think the weekly £ amount 'should' be depends largely on where you sit on the political/economic spectrum and whether you would roll in housing related benefits. I personally would go for about £120/week and scrap Housing and Council Tax Benefit. If you are hard right, the weekly amount would be £zero.

The Laffer Curve

From today's City AM Forum (I can't find the article online yet, so I had to copy type. Please forgive any typos.)

By Harry Phibbs, a journalist at ConHome:

Hammond's virtue signalling on low wages is hypocritical

... There are alternatives the government could take that would help the low paid, and would also help reduce unemployment, rather than endangering jobs.

The first priority should be a sharp rise in the threshold for national insurance contributions.

Employees have to hand over 12 per cent of their earnings to the government on anything over £166 a week, so somebody on the national living wage working a 40 hour week has a significant tax bill [not to mention the 13.8% that the employer has to pay].

Raising the threshold would require the chancellor to find some savings in state spending. That's more challenging than just imposing a requirement on someone else and claiming the credit for it. But it would not be impossible to achieve.

Another priority to address is the Universal Credit earnings taper rate. Changing this would help make it more rewarding to be in work, rather than on welfare.

Before the Universal Credit reforms, people who accepted work really did end up with less money. This is no longer the case, but the taper rate means that for each £1 earned, 63p in benefits is [sic] lost. That is simply too steep a taper. After all, the Laffer Curve applies to the poor as well as the rich, so reducing the taper would reward work just as tax cuts do.

There is something awfully hypocritical about Philip Hammond and the government decrying "unacceptable" levels of low pay by employers, then grabbing a chunk of a salary so that it is even lower when it finally gets to the employee."

I've been saying all this for over a decade, but it's reassuring when others say it. The 67% overall marginal rate on wages over £100,000 a year* seems too high too me, but far less troubling than the 80% or 90% overall tax/taper/withdrawal rates faced by people on wages up to £20,000.

* Do the maths, this is mentioned even less often.

Universal Credit and Support for mortgage interest

From New Policy Institute:

Why is the safety net [Support for Mortgage Interest] less effective for owner-occupiers [than renters]? Firstly, “the Government believes that taxpayers should not in effect be helping people to acquire personal assets through any potential long-term rises in house prices.”

It is not clear whether this still applies when Help to Buy gives support for those acquiring personal assets.

And we might add, when taxpayers help Buy To Let landlords pay off their mortgages by subsiding rents.

This House of Lords/Working Tax Credit thing...

... reminds me of something that happened three years ago.

From the BBC:

MPs have overturned a series of defeats inflicted on the government's welfare reform bill in the House of Lords.

The coalition won seven key votes in the Commons, rejecting amendments made by peers and reinstating their original proposals into the legislation. These include plans for a £26,000 annual limit on total household benefits, including child benefit.

Ministers say they will use a rule known as "financial privilege" to ensure Parliament approves the cap... The measure, which the government says it will also apply to Lords amendments on employment and support allowance (ESA), relates to the principle that the Lords cannot oppose tax and spending decisions agreed by the Commons.

So surely the same principle applies to the reductions in Working Tax Credits..?

Throwing the baby out with the bathwater

From the BBC:

What is the government doing?

Ministers want EU migrants to live in the UK for four years before they can claim benefits. However, without EU treaty change such a move could be deemed discriminatory and breach EU law.

Not a problem, says the government, let's kill two birds with one stone and f--- over some random group of younger people as well, few of them bother voting and those that do certainly don't vote for us.

One option is to implement a four-year residency rule for all benefit claimants. This could mean Britons, even if they had lived in the UK all their lives, from their 18th birthday would be ineligible for the benefits for four years until they reach 22.

The changes would affect working tax credits and housing benefits. About 50,000 UK citizens under the age of 22 receive tax credits. Most of them have children. The proposal is currently being discussed by ministers and senior officials.

And as we well know, it was the 18 to 22 age group which caused the financial crisis... seven or eight years ago.

We own land, give us money!

From the BBC:

But Mr Osborne also announced:

* The benefits cap - the total amount a family can claim a year - will be cut to £23,000 in London (the BBC understands the cap will be £20,000 per household outside of London)

Very few households get anywhere near £20,000 or £23,000 in non-housing related benefits, so by an large, this is a cap on Housing Benefit (a good thing, in and of itself). But as most MPs own buy-to-lets and a disproportionate number of those are buy-to-lets in London and many of their tenants receive Housing Benefit, they decided to cut back Housing Benefit a little bit less in London.
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This bit either shows he is either stupid, lying or not prepared to say what he means:

Mr Osborne confirmed he would be seeking to make cuts to tax credits for people on low incomes, which had become a "very expensive" system, costing £30bn.

Very little of that £30 bn is actually Working Tax Credits, which would indeed be unnecessary if they increased the National Insurance threshold and the personal allowance for income tax.

The bulk of the £30 bn is Child Tax Credits, the bulk of which go to non- and very low earners. If he wants to cut Child Tax Credits, why doesn't he just say so? That might or might not be a good idea, but this is the bookend to him removing Child Benefit from households where one parent earns over £50,000. So basically he is now clobbering parents all the way up the income scale.
----------------------------
Their policies on social housing are all over the place:

Under the planned changes to housing subsidies, local authority and housing association tenants in England who earn more than £30,000 - or £40,000 in London - will have to pay up to the market rent, Mr Osborne will say.

Those are hardly ridiculously high salaries, so what he is saying is "Get a job and we will not just punish you with income tax and NIC, we'll punish you with higher rents as well" thus creating a whole new set of break-even calculations.

And wasn't their recent bright idea to sell off as much social housing as possible? Will the Right to Buy be restricted to people who earn less than £30,000 a year?

If 'no', then middle and higher earners' best strategy is to simply exercise their Right to Buy (which might be the thinking behind this) and makes a mockery of the whole thing - if these people don't deserve a discount to the market rent, why do they deserve a much bigger discount if they buy?

If 'yes', then their best strategy is to work part-time for a year, then exercise Right to Buy and then go back to work full-time.
----------------------------
But at least it is all for a good cause:

Extra money from those living in local authority properties will go straight to the Exchequer.

The Budget will also confirm the end of inheritance tax on family homes worth up to £1m.

Welfare reform: wilfully misleading reporting by the BBC

From the BBC:

But ministers claim that the welfare reforms, far from pushing people into poverty, are helping them escape it by encouraging them into work. The number of workless households is at a record low and the proportion of lone parents in work is at a record high of over 63%.

We will have to take those statistics as a given; the flip side is that terms of employment (low wages, zero hours contracts etc) at the bottom end are worsening.

It won't have been easy for many, but the offer of working tax credits if you are employed for more than 16 hours a week has encouraged tens of thousands of lone parents into jobs. That is what welfare-to-work policy is all about.

Nope.

1. Labour introduced Working [Family] Tax Credits back in 1999. Why would it suddenly start working now?

2. The extra you can receive if you work 16 hours a week is not necessarily the headline figure of £1,960 a year, because it is reduced by 41p for every £1 you earn over the first threshold of £6,420 a year.

For example, 16 hrs x £10 x 52 weeks = £8,320.
£8,320 minus £6,420 = £1,900
£1,900 x 41% = £779
So in this case, the WTC you get is £1,960 minus £779 = £1,181 = £22/week.

3. Your Housing Benefit and council tax rebate is also reduced, probably by more than £22 a week, plus hours of hassle filling in the forms, minus the expense of travelling to work, organising child care etc.

4. And all this compares to £73.10/week Income Support a lone parent can claim if not in paid employment, plus probably most of their rent and council tax paid for them.

5. What also riles is the notion of "tens of thousands", there are five million working age households claiming some benefits or other (as well as seven million pensioner households, of course), "tens of thousands" is not statistically significant.

"Work is the best route out of poverty," the Prime Minister has said. But David Cameron is not the first PM to make such a claim…

6. It's a truism.

7. Fair play to the Tories for increasing the personal allowance for income tax to alleviate the poverty trap slightly, but they haven't increased the threshold for National Insurance, which is just as important, so this is a gimmick.

8. For some reason, the Tories appear to have singled out Working Tax Credits as something which they'd like to reduce significantly.

First rule of Working Tax Credits club...

… don't talk about Working Tax Credits unless you know about Working Tax Credits.

Ben Jamin' politely pointed out here that with a flat tax on incomes of 20%; a flat tax on housing you own of 3.5%; and a flat Citizen's Income at current Income Support rates, a low earner on £13,500 a year paying £90 a week in rent would be about £4,460 a year better off compared to the current tax/welfare system. You can check his workings here.

Numpty Ingliz replied: "No, that is wrong, as there is £52.68 per week in working tax credits you would lose."

Well, firstly, the YPP tax reform proposals which Ben is basing all this on takes Working Tax Credits into account. We're not completely stupid.
-------------------------------------------
Secondly, no single earner receives anywhere near £52.68 a week Working Tax Credits, it is mathematically impossible.

From here, 2014-15 rates:

Basic Element (16 hours or more) - £1,940
30 hour element - £800

That adds up to £2,740, which is indeed £52.68 a week. What our numpty overlooks is this bit further down…

Income threshold - £6,420
Withdrawal rate - 41%.

So if you earn a steady £13,500 a year, you lose the lower of

a) £2,740 (the most you can theoretically get), and
b) £13,500 minus £6,420 = £7,080 x 41% = £2,903.

In other words, you get no Working Tax Credits whatsoever. Nothing, nix, nada.
-------------------------------------------
On £13,500, you are also paying £1,365 in PAYE (income tax and Employees' NIC); and suffering/paying Employer's NIC (£765) and VAT of approx. 10% of your earnings (£1,350), comes out at £3,480. Let's assume that Council Tax is economically borne by the landlord, or that makes our system even more favourable.

Under the flat tax system, a single earner receives a flat CI of £72.40 x 52 = £3,765 and pays £2,700 in flat 20% income tax, net tax paid negative £1,065.

All of which means that our low earner tenant in this example is £4,400 to £4,500 a year better off (depends slightly on how much Employer's NIC is borne by employees). Which covers his £90 a week rent, so there's no need for Housing Benefit, which in this case would only be a few quid, let's not bicker over small change.

Suffice to say, our low earner is not only a lot better off anyway but a) he doesn't have to fill in endless stupid forms or worry about benefits being clawed back etc and b) his marginal tax/withdrawal rate is 20% and not around 50%.

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.

Nope.

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.

Ed Mililband and The Parable Of The Talents

From Matthew 25:29 and 30:

For unto every one that hath shall be given, and he shall have abundance: but from him that hath not shall be taken away even that which he hath.

And cast ye the unprofitable servant into outer darkness: there shall be weeping and gnashing of teeth.

From the BBC:

Unemployed young people could be denied out-of-work benefits unless they agree to training, Ed Miliband is to say.

In a speech, he will say those aged 18-21 should get a means-tested "youth allowance" rather than Jobseeker's Allowance, if they train in key skills...

Mr Miliband will also propose an increase in Jobseeker's Allowance from £72 to £100 a week for those who had been in work for the previous five years - rather than the current two years.

Or as Frank Zappa put it "And the meek shall inherit nothing".

Indian Bicycle Marketing

From The Guardian 12 October 2013:

Labour will be tougher than the Tories when it comes to slashing the benefits bill, Rachel Reeves, the new shadow work and pensions secretary, has insisted in her first interview since winning promotion in Ed Miliband's frontbench reshuffle.

The 34-year-old Reeves, who is seen by many as a possible future party leader, said that under Labour the long-term unemployed would not be able to "linger on benefits" for long periods but would have to take up a guaranteed job offer or lose their state support.

Adopting a firm party line on welfare, the former Bank of England economist stressed that a key part of her task would be to explode the "myth" that Labour is soft on benefit costs, and to prove instead that it will be both tough and fair.

From the BBC 26 March 2014:

MPs are set to vote on plans to introduce an overall cap on the amount the UK spends on welfare each year. Welfare spending, excluding the state pension and some unemployment benefits, would be capped next year at £119.5bn.

The idea, put forward by [Tory] Chancellor George Osborne in last week's Budget, would in future see limits set at the beginning of each Parliament. Labour leader Ed Miliband has backed a welfare cap but some party backbenchers are expected to vote against the plan.

"A Citizen's Income would be unaffordable"

Is one of the daftest arguments I have ever heard.

The point is, of course, that the Citizen's Income is a tax rebate, so however much tax the median/average/typical household pays in to the central pot to fund the CI, they will get exactly the same amount back. So for the vast majority of households, the gain or loss from running a CI is merely a percentage of the difference between their income/spending* and the CI level.

This gain or loss will always be lower than the gain or loss under the current bizarre combination of contributory and means-tested benefits (which are diametrically opposite concepts and cancel each other out) where the majority do the paying in and a sizeable minority receive the pay-outs.

For example, if we assume that the personal allowance for income tax and the NIC primary threshold are reduced to zero and rolled into our fiscally neutral CI (meaning = no change in tax rates), somebody in work pays £3,021 more in income tax and NIC (using 2014-15 rates) but receives £3,700 a year in CI and ends up £679 a year better off.**

How can anybody in their right mind say that they wouldn't be able to afford to be £679 a year better off?
----------------------------------------------------------------
* Most working households pay more in National Insurance and VAT than in income tax. A sensible tax system would replace NIC and VAT (the worst taxes of all) with Land Value Tax anyway, in which case, the cost/benefit to an individual household of the CI system is the difference between the rental value of the home they choose to occupy and the rental value of the median home. The median household will always break even, and for most households it would be plus-minus a couple of thousand pounds a year.

** There are people who earn less than the personal allowance, of course. Under current rules they are entitled to Working Tax Credits and there will be some very marginal cases (i.e. those who do just over 30 hours a week, and how on earth they police this I do not know) who would end up £10 a week worse off - if they continued working exactly the same number of hours.

But they are relieved from the grief and hassle of filling in endless forms, having to worry their award might be clawed back, having to worry about what happens if their hours drop below 30 hours a week, signing back on to the dole again etc. That costs the taxpayer nothing, saves the taxpayer a few bob as we no longer need so many civil servants, but is worth a fortune to the individual claimant; if they spend another two hours working instead of dealing with/worrying about all this bureaucratic crap, they are ahead of the game, as is society in general.

I read it as far as far as the first glaring error and decided that he was a twat.

From City AM Forum:

BRITAIN’S tax credit regime was introduced by Gordon Brown in an attempt to boost the living standards of the low paid. But by topping up pay, this effective state wage subsidy has worrying long-term implications for the worst off and the economy.

Tax credits suppress natural market pay rises, encourage overmanning (particularly in non-growth sectors), and thus depress productivity growth. And they cost a fortune. Few employers would increase pay when the state effectively does this for them. Tax credits also discourage people from improving their skills when it makes little difference to their take-home pay…

OK, yes, Working Tax Credits mean significantly higher marginal tax rates on low earners, whatever your political persuasion, that must be A Bad Thing.

This was precisely what happened under the “Speenhamland System” in the early nineteenth century. Agricultural workers’ incomes were topped up out of the poor rate, encouraging over-employment in the sector. When the system was abolished in 1834, a substantial movement of labour into the new industries of the day followed, leading to an economic take-off over the next 20 years…

No, as badly designed as the Speenhamland System might have been, what drove people into shit jobs in factories was The Enclosures and the withdrawal of the Speenhamland System, i.e. the choice between just about staying alive and starving to death.

Tax credits have had similar results.

Case not proven. It's a shit system, nobody's disputing that, the "depressing wages" is a minor irritant compared to all the other faults.

The cost has ballooned (to £28.7bn in 2012-13), wage increases have been suppressed, and productivity growth has been poor.

Oh fuck off.

If you actually bother to read HMRC's Annual Report & Accounts 2012-13 note 10 on page 118 (it took me three minutes to find as it's a searchable pdf) you learn that the £28.8 billion can be broken down into Working Tax Credits (wage top-ups) of £6.4 billion and Child Tax Credits (which is mainly a bung for unemployed single parents) of £22.4 billion.

We also learn that £2.8 billion out of that £28.8 billion is treated as 'negative taxation', i.e. some marginal people have PAYE deducted with one hand and Tax Credits given back with the other, which is surely a sign that the personal allowance is too low; bump that up a bit and there would be less need for Tax Credits in the first place; and if withdrawal rates for actual unemployment benefit were lower, there'd be no need for them at all.

Twat.

The Daily Mail on top form

From The Daily Mail:

The government’s flagship benefits overhaul is costing £225,000 per person to introduce, new figures show.

The much-delayed Universal Credit combining six benefits into one has so far cost £612million. Iain Duncan Smith once claimed 1million people be receiving the payments by April this year, but with just six months to go there were only 2,720 signed up.

The Universal Credit project has suffered a series of setbacks, with ministers forced to admit the target of having all new and existing claimants on Universal Credit by 2017 will be missed. Labour claimed that if the project had stayed o track the cost per person signed up by now would be only £612.

Great news for Wonga shareholders!

At the back of my mind, I had been thinking about this whole Wonga thing about lending money to high-risk borrowers, i.e. welfare claimants.

If you lend money to a welfare claimant, who doesn't have two brass farthings to rub together, you would struggle to get your money back, which is why Wonga have colossal write-offs equal to nearly half their headline interest income (company accounts 2012).

But there is one body who can easily gets its money back, and that is the government which is paying those benefits in the first place - it can recoup such short term loans by knocking them off future payments (the 'right of set-off').

So I was thinking, the government could make a massive dent in Wonga if they made it easier and simpler for welfare claimants to get small advances, e.g. to buy a second hand washing machine for £100, which would save them from having to spend £5 or £10 a week at the launderette. How you filter out people who will take the money and spend it down the bookies, I do not know, that's their problem. If they spend it on booze and fags, then the government wins out anyway, because three-quarters of what they spend comes straight back as VAT and duty.

(They could do exactly the same thing with payday loans, if people are too embarrassed to ask their employer to give them an advance or pay them weekly instead of monthly, or indeed daily instead of weekly, the government can get its money back via PAYE codes).

It turns out, that the government/local councils do exactly this via the Discretionary Social Fund (e.g. Brighton)…

… which is now going to be axed.

Random snippets

1. Reader's Letter Of The Day from The Metro (page 14):

If the unemployed are made to pick up rubbish, what will happen to those already employed as street cleaners?

Or are they also destined for the dole queue?

Trevor Beake, Kent.

2. The Homey-In-Chief Emeritus on top form:

IT is time for Americans to decide: do they want to be a social democracy, Eurozone style, with high levels of tax and public spending, or do they want to be a small state society, with low taxes and low levels of public spending?

That's the point.

"The Americans" have decided, and they decided long ago. By and large, taking federal, state and local government, US tax and spend levels are not wildly different from European levels.

Obama was re-elected recently and Obamacare (for all its faults) has been duly authorised, despite the desperate attempts of the US medical-industrial bloc to prevent it.

If you judge a policy by its detractors, then Obamacare looks like a good thing to me (although trying to make employers pay for it is stupid, they ought to pay for it out of general taxation or taxes on land values, or the government could just set up its own hospitals and provide free treatment).

And as Obama explained patiently yesterday (the first speech he ever gave which was intelligent and incredibly funny), the expenditure has already been authorised and tax levels have been agreed, so approving the "debt ceiling" is largely a formality (spending minus tax receipts = deficit, end of):

"Think about that. If you buy a car and you've got a car note, you do not save money by not paying your car note. You're just a deadbeat.

"If you buy a house, you don't save money by not authorizing yourself to pay the mortgage. You're just going to be foreclosed on your home. That's what this is about."

3. From the FT:

Some of Britain's leading mortgage lenders have expressed misgivings about the government's latest "Help to Buy" initiative, leaving the state-backed banks Royal Bank of Scotland and Lloyds as the only pair to have endorsed the scheme.(1)

Help to Buy, launched in April, was originally designed as a government loan scheme to support buyers of new-build houses. But the second phase of the scheme, fast-forwarded to this week from its original launch date of next year,(2) offers a government guarantee for higher-risk mortgages on any kind of home.

Many bankers are wary of the uncertain capital treatment that will be applied to the mortgages and the risks that will be created by low deposits and high loan-to-value ratios.(3)

1) Is it a coincidence that only the two banks directly controlled by the UK government* are joining in the fun?

* As opposed to the UK government, which is indirectly controlled by the banks.

2) They are starting to panic, this must be a good sign. But going by the success of all the fancy schemes which both Labour and Lib-Con governments introduced over the last five years, it won't be.

3) If only they'd thought like this ten or fifteen years ago, when the bubble was just starting. Query whether they actually think like this now, or whether this is just a plea for more generous handouts?

"Osborne in 'work for benefits' plan"

From the BBC:

Homebuyers who receive long term taxpayer-backed loans under the Help To Buy scheme will have to undertake work placements in return for their benefits, under changes being unveiled by Chancellor George Osborne.

From April, people who have not repaid the interest free loans within three years will face three options, including community work, or face losing benefits.

Mr Osborne unveiled the "tough love" plan at the Conservative conference.

Labour said it was proof the coalition's main house price support schemes - largely modelled on the schemes introduced by the Labour government five years ago - had failed.

In his speech to the party conference in Manchester, the chancellor is expected to say that while the government will not "abandon" long-term borrowers, no-one will be able to get something for nothing.

Fun with numbers: the optimum marginal withdrawal rate for welfare payments

HMRC publish a useful table showing the number of taxpayers by each band of income and type of income (Table 3.4 from here).

You can knock out all the pensioners and add on another 13.5 million working age people with an assumed income of nil to bring it up to 39.2 million working age people (aged 18 to 64).

Then, assuming no changes in behaviour and that you want to stick to the current total annual welfare spending bill (incl. Housing & Council Tax Benefit plus value of the personal allowance for this age group) of £160-billion a year (figures from the Citizen's Income Trust booklet from here), there's a trade-off between how much the basic welfare payment is and what sort of marginal withdrawal rate you need.

For example, you could simply give every adult £4,100 as a combined tax rebate-sum-welfare payment and have done with it. Or you can have a higher base amount but then to keep spending down you have to have some sort of income-based withdrawal rate, which acts like a second layer of income tax as far as work incentives are concerned.

By trial and error, we arrive at the following figures:

£4,100 - no withdrawal required
£5,000 - 5% withdrawal rate
£6,000 - 12%
£7,000 - 20%
£8,000 - 30%
£9,000 - 45%
£10,000 - 65%
£11,000 - 100% (for every £1 you earn, you lose £1 in welfare)

Clearly, in terms of cold-hearted incentives, the flat rate £4,100 is best. Very few people will be able to/be paid to sit round doing nothing and there is no disincentive to working and earning more. But a lot of people (possibly most people) who are out of work aren't really to blame and you can't let people starve either, even if they are. Ho hum.

The £10,000 with a 65% withdrawal rate is pretty much how our welfare system is set up (the £10,000 includes e.g. income support + Housing and Council Tax Benefit) and clearly this is a piss-poor way of doing things. The Housing Benefit just goes straight to landlords as higher rents, it creates a poverty trap, disincentives work and erodes social cohesion.

So for a start, we could get rid of the ear-marked benefits like Housing and Council Tax Benefit and have a single welfare payment (aka Universal Credit), if some or most of it goes on rent, then so be it.

Now, the reason why means-testing is so particularly damaging is because it is on top of income tax. If we had no income tax (or NIC or VAT) at all (and everything were funded out of Land Value Tax, fuel duty, bank asset tax etc) then I can see the argument for having a higher basic welfare payment and means testing.

As a fair sort of compromise, we could go for £7,500 a year (£150 a week, same as the Pensions Credit rate, thus eliminating another set of complications) and a 25% withdrawal rate, so if you claim it, then you have 25% income tax deducted at source from your wages etc. If you don't claim it (out of principle or because you earn so much that you wouldn't get anything anyway), you just get paid out gross.

I guess this ought to keep the proper Red Socialists happy (those who want to "focus welfare spending on the most vulnerable") and also keep the Blue Socialists happy (the Home-Owner-Ists), because assuming two people sharing a home and a full-on LVT-only tax system, their combined £15,000 welfare payment would be enough to pay the LVT on about two-thirds of all homes. They might choose to use up their whole welfare entitlement on a detached house in a cheap area, a terraced house in a nice area, a semi-detached in a very nice area or a flat in an expensive area, that's their decision. If they have little earnings capacity, they can move to a small flat in a cheap area and have enough money left over to pay for basic living costs.

Just sayin', is all.

"I'm a believer" declares himself proud of his achievements ... and is still happy to quote "industry figures" ...

But one suspects this "everything is firmly on track, but we are doing some of it at a slower pace than we might have suggested to make sure it is all done properly" is, with a post summer recess "getting ready for 2015" reshuffle in the offing, written to try and forestall yet another round - as was the case at the last reshuffle - of renewed whispering from his close colleagues that the great man has obviously achieved much but risks suffering from burn out and deserves to be given something quieter to do...

or possibly suggestions from some of them, with an eye on exactly how much of that deficit has been trimmed by 2015 and how bad it might look if on top of not having addressed that to any great degree they have also failed on the "welfare revolution" and "curing unemployment", that "measured against his own promises he has failed and has to go, now, before the whole project goes pear shaped..."

Questions have been raised about whether the dramatic pace of our reforms is too difficult to implement. But these doubts ignore my department's proven track record of delivering change and show a lack of ambition from the people raising them. Look at what has already been achieved.

We promised a benefit cap and it began, on time, in April in four London areas. It will be completely rolled out by September. We introduced the new personal independence payment as planned and on time. Automatic enrolment started last year, and now 1 million people have been registered into a workplace pension. People are using our Universal Jobsite website for more than 5m job searches a day. Our Work Programme has launched and the industry tells us that so far 321,000 people have found a job through it.

I am proud of this record. But my main concern about the delivery of our reforms is that we bring them in safely. I have no desire to follow in the disastrous footsteps of the last Labour government and rush out changes to meet an artificial timetable, only to be forced to scramble to sort it out when it goes wrong.
I find it nothing short of amusing that the opposition is now calling for universal credit to be delivered faster.

While I welcome its support for this radical transformation – following its rejection of all our other reforms – I won't take lessons from a party that brought us tax credit chaos and oversaw the decay of the welfare system".

The Spokesperson is of course obliged to report as "fact" what the Boss says "he truly believes to be true .."

The DWP said "there is no doubt that this department is pursuing and delivering an aggressive reform agenda. We've already successfully launched the benefit cap, universal credit and the new personal independence payment, and the work programme has got over 320,000 of the hardest to help into jobs. We're bringing in our reforms safely and responsibly, and our ability to deliver these changes cannot be questioned following our well proven track record for delivery."

To take one of those claims at random the suggestion that the Work Programme has really got 320,000 of the genuinely "hardest to help" into real long term jobs is a real lulu .... knowing what we do about the WP if they had claimed it had got 320,000 of the easiest to help into genuine long term real jobs we would probably be justifiably suspicious.