So Ian Duncan Smith, the new welfare system czar, is going to solve the problem of the dole queues and the £100bn-plus social welfare budget which has defeated successive governments? He clearly has sincerity and commitment, and we certainly shouldn’t write him off as the ex-Scots Guard officer merely trumpeting the traditional mantra of the Tory Right. However, this is an immensely complex and sensitive area pitted with intractable problems just below the surface rhetoric. In particular, if he is to be taken seriously, he needs to answer several critical questions:
1 He says it doesn’t pay to go from dole into work if the job pays £15,000 or less. Actually it’s worse than that: a person on the minimum wage of £5.83 an hour gets just £218 a week or £11,368 a year, and that’s before tax. So is he going to raise the national minimum wage (which seems unlikely, by any significant amount at least) or is he going to cut benefits by some substantial amount?
2 He rightly says that the disincentive of going off benefit and into work is very high, arising from the combination of tax on earnings and the withdrawal of benefits as income rises. This marginal rate of loss (for people on just £200-250 a week) can be as high as 70-90% and even over 100%, compared with a top marginal tax rate for the highest earners on over £150,000 a year (£2,885 a week) of only 40%, recently and only temporarily, raised to 50%. So how will this disincentive impact on the poor be removed? The Tory Centre for Social Justice report proposed withdrawing benefits much more slowly for low earners and ending the rules that prevent out-of-work benefits being claimed if someone works only a few hours a week. But that has two drawbacks: it costs the State a lot more and it’s money that will be used to subsidise too-low wages being paid by employers exploiting their workers.
3 IDS admits (correctly) that both Tory and New Labour governments have pushed people on to incapacity benefit (IB) to get them off the unemployment figures. So the aim is to get people on IB back into work where they are capable of it – a reasonable goal provided it is done fairly, sensitively and supportively. The problem is that we’re in the middle of a deep recession where jobs are scarce, and anyway most of the job opportunities (such as they are) are in the South whilst most of those on IB are in the North (following the widespread industrial closures in the 1980s).
4 IDS is also proposing to merge 8 benefits into just 2 – a considerable gain in simplification. But the problem is that household situations are not simple – they are highly complex and heterogeneous, so greater simplification will normally mean less well targeted and more inappropriate. He would be better advised to examine the adequacy of benefits – how he expects people to survive on job seeker’s allowance of £65 a week (if you’re over 25) or £51 a week (if you’re under 25) – unless of course he intends to starve people back into work.