Thursday, 4 June 2015
Benefits for people in work cost 6x as much as for people out of work
A guest post by Joan Grant of KUWG expressing personal views
So, the Tories won and the election, worse still from out point of view, with an outright majority. We were told before the election that the Tories planned to make £12bn of welfare cuts. IDS refused to tell us what the Tories had in mind. Various ideas were floated and leaked to the press.
Before the election, the Tories announced that they would be freezing benefits for working age people for 2 years. That saves £1bn. They have now announced plans to reduce the Benefit Cap from £26,000 to £23,000. This does not apply to any claimants who receive Working Tax Credits or a disability benefit. This change will save about £100m a year, half a billion over the five years of a Parliament. Half a billion is not insignificant but it is a drop in the ocean set against a deficit which was £90bn last year. And our total national debt is roughly £1.5tn.
Reducing the cap is likely to lead to more evictions as people can no longer afford their rent, especially in London and the South East. Policy advice from civil servants to the Government, states that this measure will plunge another 40,000 children into poverty.
Tories continue to hammer away at claimants who are not in work, as they know that plays well to their base. I believe that the public are not aware of the relatively small sums of public money that we are talking about.
Its an easy mistake to make. You would assume that getting more people into work would mean that the nation saves money. But you would be wrong. Tax credits for people in work, cost 6 times as much as job seekers allowance pad to those out of work.
A graphic can make the point more starkly than words. Job Seekers Allowance (for those out of work) costs about £5bn a year (shown in purple). However, tax credits (for those in work) cost £28bn (light blue). Tax credits in my humble opinion were one of Labour’s worst ideas. They subsidise low pay at tax payers expense. Employers large and small pay workers the minimum wage safe in the knowledge that the workers’ pay will be topped up by tax credits.
Government Spending on Means Tested Welfare Benefits in Billions
I am someone who thinks that we as a nation do need to tackle our debts/ Given how much tax credits cost, one might have thought that they were a good place to start. I fail to see how it makes any sense, economic or otherwise for low pay to be subsidised like this.
I wonder if one of the reasons why people have become disillusioned with Labour is that it has not done enough to support low paid workers effectively. Labour’s policy going into the election of wanting a minimum wage by 2020 was a really damp squib. The minimum wage will be that amount by 2020 anyway. The minimum wage needs to be £10 in London and £8 elsewhere as of now. The Living Wage is already £9.15. Labour seems out of touch with reality on the ground.
Osborne will be introducing a budget in July, so we will find out then what further cuts he plans to make. AHe will also be taking away Housing Benefit from young people. This measure will also cause hardship and save very little money. All the experts say that it will be hard to make further cuts, without doing something “radical.” Iain Duncan Smith apparently wants to overhaul Child Benefit which costs £12bn but Cameron won't let him.
What we do know is that pensioners will not be have to make a contribution. Their benefits remain protected. It is also becoming clear that Labour will support the reduction of the Benefit Cap. Labour think they lost the election because they were too left wing. They are now is now falling over themselves to show that they can take “tough” decisions. Rachel Reeves is quoted as saying “Labour supports a benefit cap to ensure people are always better off in work than on benefits and we will support a reduction in the cap to £23,000 to ensure this principle is met.” Andy Burnham made similar comments which were reported in the Mirror on Saturday 30th May. The SNP which has a clear anti austerity stance, will be opposing this measure.
This is likely to be the depressing shape of things to come for the next 18 months or so, until the Tories split over Europe.
The one alteration I have made repeatedly for consistency and 'house style' in the submitted blogpiece has been to change the abbreviations for billions and trillions. Joan has used B for billions; I have used bn; and whereas Joan has spelled out the word 'trillions' in full, I have used the abbreviation tn.
£1bn = £1,000,000,000
£1tn = £1,000,000,000,000