Article: This welfare web is snuffing out the will to work

Torquil Norman writes in The Sunday Times 8 August 2010.

Many young people with whom we have worked at the Roundhouse, the charitable arts trust that I established in the building of that name in north London, come from poor, disrupted families who subsist on our complex system of means-tested benefits, tax credits and allowances.

In fact, almost half of households receive benefits of some kind. Welfare increased from £90 billion in 1997 to about £160 billion 10 years later — more than 25% of total government expenditure.

Our welfare system includes more than 50 different benefits which overlap and confuse, taking complexity to a level approaching insanity. For example, the Department of Work and Pensions issues 14 manuals, with 8,690 pages, to help decision-makers apply the department’s benefits. There are many more for those managed by local authorities and HM Revenue & Customs. Armies of government employees are charged with policing all the conditions and rules applying to the benefit system — an impossible task.

The way this mostly means-tested system operates contains serious disadvantages. A fundamental one relates to the tax rates that apply if someone on benefits takes employment. As they earn money they will often lose benefit that results in marginal tax rates of between 60% and 95% — a massive disincentive to millions of people to work.

Perversely, it becomes a huge encouragement to work in the grey/black economy without declaring their employment or paying taxes. The size of this underground economy has been estimated at between £140 billion and £200 billion.

The days of huge government-financed welfare are surely numbered and should be replaced by real incentives for people to work and improve their prosperity, at the same time finding the joy and satisfaction in work that Lord Beveridge tried to foster. The present widespread culture of idleness that is taking root in this country, and that is, alas, being handed down to young people by benefit-dependent parents, must somehow be reversed. If it isn’t, we shall soon become — if we aren’t already — a second-class nation. The popularity of immigrant rather than native labour clearly illustrates the problem. This is what needs urgently to be done.

The present government approach to raising the income tax threshold is along the right lines but doesn’t go far enoughFirst of all, the benefit system needs to be simplified. There have been two recent suggestions as to how to do this: one by David Martin, in his report Benefit Simplification, and the other contained in Breakthrough Britain — Dynamic Benefits, by Iain Duncan Smith’s Centre for Social Justice. Martin’s reforms, over three years, would leave us with a benefit system comprising a single benefit with few conditions, negotiated through local government offices and a single monthly payment that would be made directly into the claimant’s bank account. Second, the corrosive side effects of means testing and the disincentive to work imposed by high marginal tax rates need to be minimised. The solution is simple: it is to make the income tax system more fit for purpose, removing much of the necessity for the benefit system as it is now set up.

The present government approach to raising the income tax threshold is along the right lines but doesn’t go far enough. Since some 30m people (about half of the population) receive benefits, it is appropriate that about 50% of potential taxpayers should be freed from income tax completely, achievable by raising the threshold to £15,000 from the present government target of £10,000. The cost of this is affordable and would leave many people at the lower end of the tax scale better off. It would strike a heavy blow at the grey/black economy — a very attractive cost-saver for the exchequer. And a surge of energy and initiative would be released into the economy as millions of non-workers would be incentivised to go back to work. In addition, the army of civil servants trying vainly to police the system could be demobbed.

Changes to the level of benefits or ways of reducing total benefit expenditure should, I feel, be done by some form of royal commission looking at all the facts and figures. Undoubtedly large savings could be made and there will be many areas, such as mental health, where extra payments will be merited.

Finally, we should tackle the much-discredited tax credit system, which could be greatly improved and simultaneously yield savings of about £8 billion a year.

The principle that the best way out of poverty is through one’s own efforts is infinitely superior to the present system of being given large handouts, often for not working. A member of the US Congress ways and means committee said: “When you subsidise people not to work, you get more non-workers.” Beveridge wrote: “Complete idleness, even on an income, demoralises.” I could not agree more.

Torquil Norman’s charity, the Roundhouse Trust, has helped more than 20,000 people in 10 years, giving them new skills in the arts and media. His book, Kick the Tyres, Light the Fires, is published by Infinite Ideas, £12.99

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