Ryeview – October 2010

John Clark writes…

First published: October 2010

George Osborne has stated ‘people who claim benefits as a lifestyle choice would have to stop’. This is linked to statements about the welfare bill (£1 in every £3 of government spending) having risen by 45% in the last 10 years. The problem is that there is no connection between these two statements. Benefits spent on the state pension and pension tax credits make up the majority of benefits. People who receive this money have clearly paid taxes for decades.

Unemployment benefit is small in comparison. From within this the number of people ‘choosing this lifestyle’ is tiny compared with those desperately looking for a job. In Britain unemployment benefit is not related to previous earnings. It is in fact £65 / week (£3,380 / year). Hardly a sum of money that would encourage people to choose an unemployment lifestyle. The result of this logic is simple. Stopping benefit cheats is of course totally right. It will however have virtually no impact on the benefit budget.

There are areas in the welfare system that could be improved. The government’s proposal for having one benefit system is well worth investigating. One set of means testing would at least save on administrative costs. For some people in low paid work and a mixture of benefits it is presently possible to earn an extra £10 and end up with only £2 because of the resulting reduction in benefits. There is very little incentive to put in an extra hour of overtime to get two quid.

Positive use of benefits can increase the uptake of work. Working Family Tax Credits and Child Care have helped lone parents into work. Over the last 10 years the employment rate for lone parents has risen by 10%. Half of this is estimated to be because of benefits. Research in the US has shown that if benefits are cut by 10% there are 3% less claimants. A very small effect. What will happen if those benefits that encourage work are cut? It could all be very costly if the nett result is to discourage ‘work’.

Let us have look at the other side of the economic balance. In August the ConDem government appointed Sir Philip Green, the billionaire shop boss, to look into Public Spending. Arcadia, last year, paid out the biggest pay cheque in corporate history of £1.2 billion. The cheque was paid to Green’s wife, the majority shareholder of Arcadia who lives in Monaco. Therefore no tax was payable – a loss of £300 million to the British taxpayer. Tax Research UK calculates that £25 billion is ‘lost’ each year to the Inland Revenue. Sir Philip heading a review into public spending is a perfect example of putting the fox in charge of shutting the hen hut.

It is tempting to have the view that Green and others like him have made a ‘lifestyle choice’ not to pay a fair share of UK taxes. In the words of George Osborne ‘it will have to stop’.

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