Benefitting Everybody

Today, I was back in the DHSS Jobcentre. My main job only lasts during the academic term, and it’s paid only on hours worked – not on a salary. I’ve gone onto the JSA, but luckily I have a bit of on-the-side work to be doing. I declare the money earned from this, and as long as the work doesn’t go over 16 hours a week (it’s unlikely to stretch that far), this is deducted from the benefit payments (apart from £5, which I can keep).

Let’s generalize from this to think about our benefits system. An unemployed person on income-based JSA, considering whether to take on part-time work, will be £5 better off if they do so (and still have to go through the soul-destroying process of turning up at the Jobcentre, filling in endless prying forms etc.) In the absence of strong social norms that it is better to work than receive benefits, even if you’re worse off; a rational person may well weigh up benefits and costs and decide an extra fiver isn’t sufficient incentive. Either they won’t bother to take on the work or they’ll do it and not declare the income.

This will always be the case with conditional benefits. If out-of-work benefits are withdrawn when people start earning above a certain amount, then a person will think, “I may earn money if I take this job, but my benefits will be taken away, so I’m not much better off. Why bother working?”*

Governments may then decide, as they have in the UK, that they should pay in-work benefits to those in low paid jobs. This increases the benefit of the unemployed person taking the job (although it reduces the taxpayer’s money saved from the person coming off of out-of-work benefits). The trouble again, though, is that these in-work benefits are withdrawn when a person starts earning more. Putting ourselves in the shoes of someone on in-work benefits considering working more hours or taking a promotion, they may again think, “I may earn more money, but my benefits will be taken away, so I’m not much better off. Why bother?”**

So it seems you will always face trade-offs with targeted, conditional benefits. I would prefer a radically simpler benefits system.

Let’s have a Citizen’s Income. Every law-abiding British citizen would receive a certain income from the government regardless of circumstances – working, not working, sick, well. I can think of several benefits (excuse the pun):

  1. It would be very simple. Our current benefits system is very complex (especially the way it interacts with the tax system). This makes it easy to play the system and creates perverse incentives. Let’s replace nearly all existing benefits with a Citizen’s Income.
  2. There would be less disincentives to work. If  you are out of work and are offered a job, you’ll still keep the Citizen’s Income if you take it. Every penny you earn (after tax), you keep. The unemployment* and poverty** traps disappear.
  3. There would be no holes in the safety net. The many people who are entitled to benefits but don’t claim them would be reached. It might marginally reduce those who go into unsuitable work, like prostitution, since it gives them a lifeline while they hold out for better alternatives.
  4. It would reduce the stigma and the them-versus-us spirit that pervades debates over the welfare system. It would be an acknowledgement that we all face risks in our lives and we should pool these risks.
  5. It would be less intrusive. The government wouldn’t be nosing into our private affairs and bossing us around.

Of course there are objections:

  1. It’s something for nothing. Yes, but I think what people object to in the current set-up is that some other people can get something for nothing, while they have to work hard for everything. Under this system, everyone can get something for nothing. Besides, people are strangely selective about who they dislike getting something for nothing. Few seem to object to posh kids getting large inheritances (instead they make them Prime Minister), or people seeing their house price rocket for no effort on their part.
  2. It’s expensive. It would be, but so is the current welfare budget. I haven’t said how much the Citizen’s Income would be***. But I propose that it would replace most current benefits and the current allowances for Income Tax and National Insurance. It would be much simpler to administer, and could largely be automated. We wouldn’t need to employ huge bureaucracies to investigate people’s circumstances and fill in forms, which would save a lot of money. And I suspect that there are plenty of savings to be made in other items of spending.
  3. People wouldn’t bother working. I suspect this would be less of a problem than it is now. I think vanishingly few people really want to live off a few tens of pounds a week, and many more would be more active in looking for work if they knew they could keep much more of what they earned.

It’s a simple, radical idea, which I suspect will never be taken up. Which I why it’s worth publicising the idea.

.

*This is the unemployment trap. The incentive for the out-of-work to get work is poor.

**This is the poverty trap. The incentive for low-paid workers to earn more is poor.

***There are many different proposals out there, for example here. It suggests a different amount for different age groups at a cost of about £200 billion, which is similar to current welfare spending:

Citizen's_Income

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One response to “Benefitting Everybody

  1. Pingback: Understanding the Minimum Wage with Supply and Demand | Steven Clarke's Blog

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