Saturday 18 July 2009

The Benefits Trap. A first hand experience.

From Hektor Reborn, also up at Old Holborn:

And now, the best part. Hammersmith & Fulham is my council. They have an eight year waiting list for council housing, but those on JSA can claim housing benefits. I would be eligible for around £150 per week renting a private flat and £15 per week council tax benefit. All of this is income dependent so if you are earning money you get less benefit. So let's add this up. £64 JSA + £150 Housing Benefit + £15 Council Tax Benefit = £229 per week. Let's call it £230 for simplicity. That works out at £11,960 per year. Not a bad wage (starting salary as a squaddie is around £15,000) for doing 5 minutes work per week.

So, how much would you have to earn to take home £11,960 after paying council tax at £15 per week? About £15,675 by my calculations. The State has decided that there is an income that people need to survive but they still tax you if you earn that much. How does that make sense?

So you have a choice when offered a job worth around £15,500 or less: take it, work hard, earn your own money or do nothing and get the same amount of money. What if you are offered a job for £16,000? You would be better off by £6.63 per week, not £9.61, due to tax. That's not a lot of money for a lot more work. £17,000 makes you £19.90 better off per week instead of £28.85 because of tax.

The State seemingly doesn't want people at the job centre to get jobs (or it would be making them do a lot more), and even if they are offered a job, unless they are offered a good wage (average in the UK is about £25,000)* there is little incentive to take it.

If I decide to move into a flat on housing benefit, I will have a large incentive not to take a job unless it comes with a good [wage]. So, no bar jobs, no part time waiter work, etc. It just doesn't pay. The same goes for the other 2.38 million people.


* The link in the original article didn't seem to work. According to this article:

According to ASHE, "mean" gross annual earnings across all employee jobs in 2008 came to £26,020. You may think that's rather a high "average" salary. And if you look just at the figures for full-time employees, that figure rises to £31,323.

Another way of measuring it is "median" gross annual earnings. According to ASHE, this was the more modest figure of £20,801, across all employee jobs. If you are earning that sum a year, you are "Mr or Mrs [or Ms] Mid-Point" - precisely half the surveyed working population earns less than you and half more. For just full-time employees, the median rises to £25,123.

18 comments:

Anonymous said...

Having been long term unemployed during the Blue Reich (1980-82) I can aver it isn't much fun. BTW I will put you in my Top Ten Mark!

Mark Wadsworth said...

Me too, it's shit horrible, but at least we could have a welfare/tax system that doesn't discourage work (i.e. a Citizen's Income and flat-tax) and a tax/regulatory system that doesn't discourage employment (Employer's National Insurance and National Minimum Wage). Thanks for top tenning me.

Lola said...

I may have posted this before but through my office one day came a Good Dad looking for mortgage advice. His pay was £19,000 per annum. But he had six kids in education (sort of). Once I'd done the sums his benefits on top of his earned income equated to a gross pay of £54,000 per annum. Plus his eldest daughter moonlighted as a hairdresser for cash and I think his wife did the same. Total gross equivalent household income was there in excess of £60K with about £34k/£35K coming from benefits.

Needless to say I did not do the mortgage work.

Furthermore I have company directors of private companies manipulating their income to claim tax credits.....

I have more of the same sort of story, but, why bother?

Brown's 'benefits system' is a scroungers charter.

Lola said...

Oh alright then, a IB/Ill health pension story. I have had various people through our office (we are financial advisers) who are brazenly seeking to find a way to manipulate the ill health early retirement provisions available in the various state employees pensions schemses. Bad backs, stress, aggravated conditions and the like are all cited in support of these claims, and a lot succeed. This galls me not a little as I have various health 'issues' that were I state employee I could easily manipulate to claim an early pension.

Of course there are two views as to who is the mug here. But, unfortunately for my financial well being I have principles. Plus working for the council would send me bonkers anyway.

Lola said...

Sorry to keep going on, but a thought on 'unemployment', or having a job.

I have a view that freedom and markets don't create jobs at all (it goes without saying that the State never creates jobs). What F&M does is provide endless opportunity for anyone to make a living somewhere all the time.

I have been 'unemployed', as in not having a job, but I have never been unable to make a living (of sorts) somehow.

This distiction between job and making a living is critical. It is this distinction that we have to teach our children. If we grow up with this attitude unemployment will go away, mostly.

banned said...

Lola, please do keep on 'going on'.

Mark Wadsworth said...

L, yes, do some more examples. I see examples in Tax Adviser magazines of how people can manipulate the tax credits system, the most famous one being where you can "buy a car for free".

Lola said...

Mark, haven't seen the free car one yet. Enlighten me?

Lola said...

How about thinking about the financial 'regulators' as benefits dependents. They do nothing productive but use their extra legal authority to extort money from various firms for some, often self confessed and financially non damaging, bureaucratic failing or other.

Mark Wadsworth said...

Lola, see Pennywise, comment number 4 here.

To cut a long story, the total tax/benefit withdrawal rate of a self-employed person on tax credits is about 67%. Your tax credits are based on lower of this year's and last year's income.

So if you buy a car that you can write off in full in Year One (low emissions) then you save 67% of the price in tax in year one and another 67% in year two.

In the example I linked to above, they reckon you only get 50% off, but that's just luck on the day of what the exact figures are.

Lola said...

There is the reverse side of benefits dependency. How about this one.

Lady with a hopeless radar for choosing a good father for her children has two children by husband one, who proves unreliable in a rather unpleasant way. She quite rightly outs him and is forced to fall back on benefits because he won't pay maintenance and the CSA are useless. After a time meets a bloke who seems to be OK. Job and prospects. So takes up with him. Unfortunately he ends up beating her. They'd bought a very nice house together which is sold. She is forced to spend down the 'profit' from the sale whilst living in a council house. Still not getting any maintenance from man 1. Eventually takes up with old boyfriend with whom she has child three. He also proves unreliable and is outed. Obviously he doesn't pay maintenance either. Now on benefits with three children. Benefit income net 1500 pcm.

Fourth time lucky finds good man who has income (own business) and is a Proper Bloke and kids all love him. Marries proper bloke and loses all benefits and maintenance making family worse off and putting all costs on Man 4.

I know this lady well and she is not in any way your typical single mum and she has never wanted anything but to have a proper family life.

Two things. We, us blokes, have become utterly unreliable as a consequence of nannying by the state and an absense of example from our own Dads. Two, the benefits system mitigates entirely against respectability and marriage and discourages financial responsibilty by absent fathers.

Finally bloke three was able to run up debts of 35000 with Lloyds TSB. The bank managed to associate lady with these debts (quite how they underwrote such a loan to someone on benefits I cannot understand) and pursued her. Luckily I came across her one day in distress and she confessed about the debt. I read the statements and correspondence and the bank had been creating charging opportunities and taking her benefits when they were being paid into her account. I had a frank and open discussion with the bank. Explained that they were not allowed by law to make charges against benefits payments and we wanted the money back. Made no difference of course. So told her to go bankrupt as the least worst option (an IVA was just not on).

This is the classic trap for mums.
1. Useless men
2. Byzantine, bizarre and benefits system that encourages immorality.
3. Bonkers thieving banks.

Lola said...

And, there's more. What about banks who have leant mortgages to people based on benefits income. Oh yes they do.

Think about it. What does this do? It puts up house prices.

There were a number of lenders, among them some High Street names who would use some benefits in their income calculations. Personally I refused to do this work, politely declining to act in any way.

Lola said...

And yet more. Pensions again. Remember above about how state entitlement employees wangle ERP?

Well what about the obverse. It took me two years, yes two years, to get agreement from the Revenue and the insurer to permit an ERP for an owner director of his own firm to be permitted to take his benefits early from the pension fund he had accumulated with HIS OWN MONEY. This bloke had a history of heart problems and one day on the drive home from work had suffered a biggie. Doctor told him that was it and he must stop work. Luckily he could afford it as he had savings and a substantial pension fund.

Would the Revenue agree? Nope. It took a huge amount of argument and evidence to get them to agree to it. Obviously he was not allowed to be angry - so I was on his behalf.

Mark Wadsworth said...

L, keep 'em coming! I'd hotly dispute this though:

"We, us blokes, have become utterly unreliable as a consequence of nannying by the state and an absense of example from our own Dads."

That's the surprising thing, eighty per cent of dads are entirely responsible (and as violent and as tight-fisted as he was, so was my own Dad) and do not abuse the system (see e.g. Bloke 4). I paid maintenance on the nail on the first of every month for fifteen years.

Your next point still stands, of course.

Mark Wadsworth said...

L, as to the early retirement, a further part of the MW manifesto is that anybody can cash in their pension fund at any time they like, subject to paying the usual flat income tax on what they withdraw.

There'd be no compulsion to buy an annuity or any crap like that (a rule with so many loopholes as to be meaningless anyway).

Lola said...

MW re 'us blokes' Mrs Lola contends that all blokes are to a degree autistic, that is we are all someway along a spectrum from sanity to autism, and blokes are further along it. Now, you as a married man, know full well just how relatively useless and juvenile you are compared to Mrs W. If you don't yet know this ask her to explain it to you.

I am not saying that this is a bad thing you understand. It's just that it makes life, how shall I say, interesting for our lady partners. And personally I am entirely content with my level of autism.

banned said...

Lola, thank you for 'going on'
re "mortgages to people based on benefits income. Oh yes they do."

I believe you ! My cousin was the manager of a group of bank branches, he took early retirment because of the pressure put on him by Head Office to give loans to people that he knew ( sometimes personally ) were entirely unable to repay them.

manwiddicombe said...

I've just been putting together a post on the £1 billion job guarantee scheme and was struck by some numbers.

£5.73 (minimum wage) x 40 hour week x 52 weeks per year = £11,920 (rounded).

That's roughly the same as being on benefits.