Increase the National Minimum Wage and slash the benefits bill!

On reason why the welfare bill is so big, is because of the gradual drift since the 1970s towards subsidising low earnings through the benefits and tax credits system.  This was started by the Conservatives under Edward Heath with Family Income Supplement and Rent Rebates, added to by the Thatcher government's mass shifting of public subsidy from bricks and mortar to rents for those on low incomes with the introduction of Housing Benefit and then accelerated under New Labour with the introduction of Tax Credits. 

The Coalition's Universal Credit will just make this worse by reducing the "withdrawal rate" when people earn and the automatic adjustment of benefits through the proposed Real Time computer system will provide a ready workforce which can be called in and sent home when it suits employers - public subsidy not just of low pay, but poor employment practises too.

It stands to reason that if wage levels increase, the amount paid out as public subsidy through benefits and tax credits is reduced and now the Resolution Foundation and the Institute for Public Policy Research have quantified this.  Specifically, increasing the National Minimum Wage would save the public purse a net £2 billion.  It is surprising that there seems to be no government research into this which I discussed in an earlier blog.

Here is a summary of the Resolution Foundation and IPPR research in their press release:

PAYING A LIVING WAGE COULD SAVE THE UK BILLIONS

Introducing the living wage across the UK would save the Treasury just over £2 billion a year, a new study will reveal.

The analysis from the Resolution Foundation and the IPPR think tanks to be published early in the New Year is the most detailed examination yet of the potential impact of the living wage on the public finances. The living wage is a pay level calculated as the minimum hourly rate for a basic but acceptable standard of living and currently set at £7.45 outside London and £8.55 in the capital.

The new analysis suggests that its introduction nationally would add around £6.5 billion to the gross annual earnings of the country’s employees.

However, the report shows that the Treasury would collect more than half of the initial financial gains from a living wage – around £3.6 billion - in the form of higher income tax payments and national insurance contributions, as well as lower spending on benefits and tax credits.

But the study also examines the extra costs to the public purse of paying a living wage to all public sector workers. It suggests that wage costs would increase by more than £1.3 billion – leaving an overall public saving of more than £2 billion.

The report will also look at the possible effects of a living wage on labour demand, recognising that the lower national minimum wage (currently £6.19) is set by the Low Pay Commission to avoid risking jobs and that an immediate shift to a universal living wage across all sectors may not be feasible.

As a start, the report will recommend, all Whitehall departments and London boroughs should pay their staff at least the living wage by April 2015 and explore the costs of paying sub-contracted staff the same rate. The London weighting means that most public sector workers already earn at or above the London living wage, so introducing the living wage for all staff would cost relatively little in the capital but would set a precedent for others to consider following. Only six London boroughs currently are accredited living wage employers -Lewisham, Islington, Camden, Lambeth, Hounslow, and Southwark.

Five million people are paid less than the living wage, three million of whom are women. Yet more than 85 per cent have permanent contracts. More than 3 million households (13 per cent) contain at least one adult earning less than the living wage. Fewer than 45,000 workers have achieved a living wage as a result of recent campaigns.

The report builds on research previously published by Resolution Foundation and IPPR which showed that the cost of paying a living wage would add less than one per cent to the wage bills of firms in sectors such as construction, food production and banking.

Kayte Lawton, Senior Research Fellow at the IPPR  said: "At a time when typical wages have flatlined but prices have continued rising, concerted action to drive up levels of pay for low earners is an essential component in the improvement of living standards. As a first step, making sure that all council staff in London are paid at least the living wage wouldn’t cost very much but would be an important symbol of political leadership. Councils in other parts of the country, like Glasgow and Newcastle, have shown that the living wage can be affordable even though the costs are higher."

Matthew Pennycook, Senior Analyst at the Resolution Foundation, said: "There are significant overall public savings to be made from paying a living wage, on top of the beneficial effects it would have on reducing working poverty. Public-sector employers are well-placed to expand the living wage and to set an example which the private sector can follow."

Workers earning less than a living wage across the country:
32% in the North East (375,000 people)
31% in Yorkshire and Humber (714,000 people)
31% in Wales (344,000 people)
30% in the West Midlands (617,000 people)
28% in the East Midlands (552,000 people)
27% in Scotland (623,000 people)
27% in the South West (583,000 people)
25% in the North West (683,000 people)
24% in the East of England (593,000 people)
23% in the South East (843,000 people)
20% in London (581,000 people)

Cameron's welfare reform speech

Cameron's much publicised speech on Monday about further cuts in benefits for people of working age is deeply worrying.  The issue of housing benefit for under 25s has caught the headlines, but there is a danger that this obscures the clutch of other very nasty ideas.

The model being promoted is a USA-style welfare system.  Now this is the country with the worst health outcomes in the wealthy world, the worst inequalities, the worst crime figures and any visitor to the US can tell you tales of the hordes of mentally ill, disabled and destitute people to be seen on the streets.  Over one million families in the USA are homeless and 10% of the US population have to resort to a food bank at some point each year.  It really is the last welfare system that any government with half a brain should want to copy.

Obama is so concerned about the injustice and negative economic effect of their welfare system that he has made efforts to increase the level of welfare payments in and some states have been reining in their workfare programmes and have prosecuted private welfare-to-work providers for mass fraud.  Of course, Cameron conveniently ignores these aspects.

That aside, I was deeply concerned about the wild inaccuracies about the benefits system in Cameron's speech.  Either he was misbriefed by civil servants or he chose to ignore briefings. 

I find it amazing how people in the UK are generally pretty cynical about politicians' truthfulness - lies about the Iraq War, expenses scandal, broken Manifesto promises, etc.  However, as soon as a politician slags off benefit claimants, everyone believes them!

Anyway, here are some examples of the fibs in Dave's speech:

"Tens of thousands of incapacity benefits reassessed and found ready for work".  Not true.  People are found not to meet the very high threshold for "limited capability for work", not "fit for work", let alone "ready for work".  As his Minister Chris Grayling conceded not long ago, very many coming off benefits for the sick have significant health issues.  And then we all know how flawed the re-assessment process is anyway.

"..instead of a complicated pension with endless top-ups there will be a straightforward, flat rate of £140 per week".  Not true.  Very many poorer pensioners will still have to claim the housing credit element of Universal Credit (so complex, the DWP still hasn't been able to announce details) and try their luck at claiming one of the many new local versions of council tax support.  So three bodies will have to be applied to, as opposed to the current two.

"Half of new [DLA] claimants never had to provide medical evidence".  That's because the DWP usually write direct to the claimant's doctor and/or seek evidence from an ATOS doctor - it's called efficiency.  Anyway, if this is so flawed, all you have to do Mr Cameron is to get people to supply such evidence without turning the disability benefits system upside down from April 2013 as you are doing.

"Someone can get £130 a week DLA by simply filling out a bit of paper".  Pray, what's the evidence that this is the case?  As the parent of a child who received DLA after a struggle (you said so at a reception you hosted at the House of Commons in 2007 - I know, I was there), you ought to know better.

Cameron then gives the example of a working couple without children taking home £24,000 a year with a couple down the road who have 4 children and get £27,000 a year in benefits for not working.  Of course they get more...because their needs are greater because they have children.  If the working couple had children, they'd get benefits and tax credits to help out, so it's a completely false and highly misleading comparison.  Apparently the workless couple also get £140 per week housing benefit - where does this figure come from?

As regards housing benefit, there really is a simple solution:  bring in rent controls like most other countries have and stop landlords being subsidised by and dependant on the benefits system.  Sadly government policy is going in the other direction by forcing up rents in the social sector to 80% of the private sector. 

"[19 year old young person] left college and went down to the jobcentre to sign on for Jobseekers Allowance, she found out that if she moved out of her parents' place she was automatically entitled to housing benefit".  Now which planet is this man on?  Life is not at all like this.  First, this mythical young person would have to find a landlord who accepted people on housing benefit.  They she'd have to somehow raise the money for a deposit and rent in advance (two months in practice, as HB is paid usually one month in arrear), then pay to equip the place.  And even if she could somehow do all that on her own, the DWP's own figures show that two thirds don't get all their rent paid by HB.  The evidence from DWP was published just last week and is here.  Then the young person has to feed. and clothe herself and pay her water, fuel and transport out of all of £56.25 a week (assuming they don't have a shortfall in their HB).  So Dave, please explain how your example can happen in real life?

"It pays not to work".  Again not true.  The problem is the means tested system which penalises people for trying to work combined with our high land costs in the UK, high costs of travel and high costs of childcare.  That's assuming the system actually works and doesn't screw up people's income or ask for money back because of some official cock-up.  Of course, that'll never happen under Universal Credit will it?

"[causes of poverty]...debt, family breakdown, educational failure or addiction".  What about our persistent problems of high unemployment since the 1980s and the extent of low pay?  And anyway only 4% of working age claimants have any addiction and you do get addicts in work - ask any musician.  But then putting it this way, Cameron gives out the message that poverty is all down to the financially incompetent, spouse-deserting, unintelligent boozers and druggies in our midst.

"If someone is signed off work with a bad back there's no requirement to take steps to get well to keep on receiving that benefit".  Well actually, they wouldn't have got benefit for the "bad back", even under the old system, unless it was a serious and chronic problem which could not be sorted out easily.  Anyway, what Cameron says is again not true.  People who get ESA and who are in the work related activity group can be required to identify rehabilitation they could do. 

And on it goes.  Half truth followed by distortion followed by innuendo.  Also outrageous that his "facts" have not been challenged by the useless Liam Byrne.

Universal Credit - back to giros

A relaible source has revealed to the Welfare Righter that because the DWP's computer system is unlikely to be ready in time for the start of the national roll-out of Universal Credit (October 2013), payments of the new benefit will be made "manually".

It remains to be seen what wonders will be foisted onto welfare world by the DWP's IT problems and the government's unwise rush to get the new system going.

More cap claptrap

Following the exposure on Radio 4's Moneybox programme, today saw a DWP press release about the letters being sent out announcing the cap.

"Letters are being sent this week to households who may be affected by the benefit cap, Minister for Welfare Reform Lord Freud has announced..."

Is the use of the word "may" a Whitehall-style attempt to explain why letters have also gone to families of disabled children who should be exempt?

Here is CPAG's statement about the letters.  You decide who is right.

Household Benefit Cap: letters from DWP to claimants

Key points CPAG has discovered from contact by local authorities and advisers:

• DWP have started sending out letters to claimants warning them that they are likely to be affected by the household benefit cap.
• DWP have also sent a letter to MPs with a Q & A intended to help them with any constituent queries and casework this generates.
• Benefits staff and advice staff in local authorities have contacted CPAG to say that they are finding major errors in DWP’s identification of households that stand to be affected and have received the letters (they have contacted us in confidence so we are not currently able to name those authorities).
• Households with a DLA recipient are due to be exempt from the cap. It appears that DWP screened out adult DLA claimants, but failed to screen out families with a child getting DLA.
• Several local authorities are saying that this is not the only error. Others errors so far identified by local authorities in the DWP lists  include:
• claimants whose total entitlement is well below the level of the cap
• claims that are no longer active
• claims that are in receipt of working tax credit and would therefore be exempt
• One local authority told us that of 200 households identified by DWP in their area, they found when they checked that only 78 of them meet the criteria that would see them affected by the cap.
• In a London local authority, out of 1100 DWP identified households, nearly 300 were found to be well below the level of the cap.
• Many affected families, especially in London, will see very large losses to entitlement – perhaps of their entire housing benefit, leaving them no funds whatsoever for housing costs. But the letters say nothing to indicate whether the household receiving the letter is due to lose £5 a week, or £200 a week. So it does not help the households with the most serious threat realise the scale of the problem they will face.

CPAG statement:
“There is an astonishing rate of error in the households that DWP has identified as those likely to be subject to the household benefit cap from April 2013. This will cause distress and confusion to families who are not actually threatened by the cap. We are also concerned for those families who are at risk, because the letters offer very little helpful advice about what they can do. The Department must urgently investigate why it has made so many errors to prevent further failures with the implementation of the Universal Credit, which will affect millions of households. It highlights once again the precarious situation we are entering with advice services for claimants subject to severe cuts at a time when the whole welfare system is about to change.”

Added 9 May:
By the way, I did hear right about the DWP's misleading, post-facto excuse for sending out letters to the wrong people.  From the transcript of the Moneybox programme:

"...they want to make sure they include everybody, so they have included more than will actually be subject to the cap."

In which case, why not say so in the letters?  Sorry, but I for one do not beleive this excuse.

Cap claptrap

A follow up to the item below (http://thoughtsofawelfarerighter.blogspot.co.uk/2012/05/caps-it-all.html ) concerning the DWP writing to families with disabled children, scaring the life out of them by wrongly telling them they are going to have their benefits cut next April when the benefits cap comes in. 

Assuming my hearing is still intact, on BBC Radio 4 Moneybox today it was reported that the DWP said they had deliberately written out to more people than those affected.  What?

Is this really true?

Caps it all

The benefits cap is a highly publicised cap on benefit payments which is to be introduced in April 2013.  The idea of a cap is flawed - most of the money in high benefit cases goes to landlords because of the UK's failure to regulate rent levels, for purely market-based ideological reasons.  The best cap is a cap on rents which, because of the poverty trap effect of means tested benefits, would also make it easier for people to move from worklessness into paid work.

The DWP have started writing out to people to be affected by the cap.  People receiving Disability Living Allowance (DLA) are excluded from the cap.

However, it looks like something may have gone badly wrong with the DWP's data because it seems that in at least one area, letters have been going out to families with disabled children who receive DLA and who are thus exempt.  What a mess.  Watch this space.