openEconomy

UK Welfare: radicalism says do nothing

The UK Department of Work and Pension's workfare proposals are wrong. The current system is not perfect, but works in a pragmatic way. It could be made better by decentralising the administration of benefits
Tony Curzon Price
Tony Curzon Price
13 November 2010

if you're reading this from the UK, you should be able to listen to a really good "Moral Maze" on the workfare reform that has just been announced by the UK's Department of Work and Pensions headed by the Conservative Catholic Ian Duncan Smith.

There was a position – which I think is the most defensible – that no one took on the program, so it seems at least worth airing the case. This position is that, taken in the whole, the present system works pretty well. A proper defense of the system certainly suggests sensible directions for reform, but none of these are the directions taken, or, from what I can tell, the directions defended by the participants on the program.

Let me crudely and briefly summarise the positions covered:

  • Micheal Portillo, one time Conservative minister, thinks workfare is right on moral grounds -- St Paul wrote to the Thessalonians saying ""if any man will not work, neither let him eat", and that justifies the reforms under which someone unemployed for a long period of time will be made to spend 4 weeks working for 30 hours per week  on community projects. The penalty for refusing is loss of benefits;
  • Claire Fox from the Institute of Ideas does not like the culture of victimhood that benefits may well have contributed to, and hopes that the poor unemployed might organise themsleves to demand better work, real jobs, to develop self-reliance, but on their own terms;
  • Michael Taylor, as far as I can tell, felt that there might well be some depressed people on benefits who need help – and that should be addressed directly – but that the social compact is that if you are unemployed you are entitled to unemployment benefit and your freedom should not be curtailed. This was the closest to a defense of the letter of the current system, although not the defense that I would give it;
  • Kenan Malik made the excellent point that the bankers have not been forced to do community service for the benefits that they receive (our under-writing of their lucrative business) so why should the poor be treated differently? Excellent though this reminder was, it did not amount to a full explanantion of an alternative - the answer is surely that the bankers should give back to the community ...

I don't think anyone disagreed that in the case where someone is not working because depressed, they should be helped and that the help might involve volunteer work. Michael Portillo seemed to be in the position of believing that this was the situation of most long term unemployment benefit claimants. One thing that seems sorely lacking in this debate is evidence of how many people we are talking about in thsi category. I suspect it is few, and that workfare may often not be the best treatment. But where are the sociological studies that would let us quote the numbers back to people like Portillo.

More tellingly, the provision that those unemployed for more than 2 years should spend 30 hours per week in voluntary work was referred to by Jill Kirby from the Tory Center for Policy Studies as helping to "flush out" the "benefits cheats": those who claim benefits but continue to earn money in the grey economy.This seems more like the underlying logic of the proposals – there is a sense of outrage that "honest hard-working, tax-paying folk" should be doing everything by the book while others are claiming to be unemployed but topping up their earnings without declaring them to the tax authorities.

The reason not to declare them, of course, is not so much the low levels of tax that might be paid at low wage rates but much more the benefits that start to get withdrawn if you work more than 15 hours per week. You risk losing a good portion of your housing benefit and council tax benefit if you earn more than the rather small "disregarded" sums.

The principled solution to this problem is the citizen's income: "an unconditional, non-withdrawable income payable to each individual as a right of citizenship." This does not suffer from the disincentive effects that otherwise plague benefit systems that have any element of means testing at all (as the new Ian Duncan Smith proposals certainly do). But the practical problem with it is that the high average tax rates that would be needed to replace current benefits with an unconditional income would be politically unachievable. The Citizen's Income captures the notion that the real point of welfare is to redistribute income from the rich to the poor as a moral imperative. It is simply what comes from a simple egalitarianism – not one that moralises the choices that recipients make, but simply acknowledges the privileges of the rich and the good of equality.

So if the Citizen's Income is the ideal but cannot yet be achieved, what is the next best thing that can be achieved? In my view, a means-tested set of benefits combined with an intelligently tolerant attitude towards undeclared earnings goes a long way in the right direction. This, I believe, is the system we currently operate – before the IDS reforms, that is. Unemployment benefit for those with some involvement in the grey economy should not really be thought of as accruing to unemployment, but rather as accruing to low pay. After all – and I agree here with Michael Portillo and Claire Fox – purposeful work is usually a good thing to do if you can, and whether the income is official or not hardly changes whether it is good for how each life goes.

The nub of this pragmatism is in the "intelligence" of the tolerance towards undeclared earnings. In much the same way as Katharine Hibbert has argued that squatting might actually be quite a good pragmatic solution to the problem of squaring housing waste and council obligations to tenants, so much higher "disregards" are a pragmatic solution to making low pay socially acceptable.

Almost by its nature it is impossible to officialise this "intelligent tolerance" in a codified set of rules. It is exactly the attempt to do so that leads to the dis-incentives to work that exist at low levels of pay and participation. But of course, the one thing that the workfare proposal does is to make "intelligent tolerance" harder because of the "flushing out" effect. To the extent that reform is needed at all, it ought to be in the direction of building the mechanisms that encourage clever fuzziness around the rules. If someone on benefits starts to earn a great deal, of course they ought to come off benefits. The likelihood is that they will anyway, but if they don't, the tax and benefit office should be close enough to local realities to be able to decide to become less tolerant in cases where people might be over-stepping the mark. So decentralisation of the administration of tax and benefits would be an intelligent reform.

My view that the most radical thing to do is just what we're doing before these reforms essentially rests on three contentions: redistribution is good; trust people to know that work is good; don't discriminate between work in the official and unofficial economies at low levels of earnings. It is pretty clear where this is different from the Portillo line – there is no moralising about "entitlement" in my view. It is in many ways quite close to Claire Fox's – I think that work within high "disregards" is real and worthwhile; I agree with her that there should be more of it. I think the defense of the status quo is different from Matthew Taylor's in that welfare at low earnings in my view really doesn't have anything much to do with "unemployment" which is central to Taylor's justification of the status quo.

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