Welfare & Pensions

We are all in favour of clothes banks to follow food banks


It's not just that we're in favour in fact, it's that we cannot find anything wrong with the idea at all:

Louise Cooke, a 46-year-old ex-teacher and community worker in Nottingham, has never been elected nor is her work funded by the taxpayer – but she is filling in the gaps left by the government.

For the past two years, volunteering out the back of her local church, Cooke has been running Sharewear – what, in austerity’s language, we could dub a “clothes bank”. This isn’t packets of pasta or boxes of veg but winter coats and children’s shoes. Cooke describes the people who come through the doors as in “crisis”: anyone from job seekers to Syrian refugees, from low-paid workers to people on benefits (“We have people coming in on disabled people’s behalf because they’re housebound,” she adds).

As Cooke says: “No one should have to walk around in smelly clothes just because they haven’t got enough money. No child should have to go to school in ripped clothes.”

We entirely agree with the sentiment: Britain is a rich country and those are things that can be solved in a rich country. However, it is important to note what the problem is: incompetent government. And this is not a new incompetence: government has not become more incompetent as the result of the election of the Conservatives, or the Coalition, or the defeat of New Labour. Government has always been this incompetent if not worse. As is the case with food banks: no one with a couple of decades of adult life under their belt is unaware of the manner in which the benefits payment system has always had great gaping holes in it.

That is, there is no new and sudden need for these charitable activities. Rather, it's that we've now this new technology (and yes, a method of organisation like a food bank is indeed a technology) enabling us to solve these problems. For which, of course, a rousing Hurrah!

But we need to note the important point about these solutions. It is the little platoons sorting out the incompetence of government that is working here. Given that this is so yes, most certainly, why not have more of such little platoons working to solve this problem but don't, whatever we do, try to hand over the solution to that government which is the original cause of the problem.

If only Owen Jones actually understood economic numbers


We do find it difficult to understand Owen Jones. He has, in recent years, told us that Syriza in Greece, Podemos in Spain, Chavez and Maduro in Venezuela have all been economic examples we might want to copy. Quite why such a collection of basket cases have been held up for admiration we're really not sure. But today we are at least beginning to have an inkling. Jones simply doesn't know: he doesn't know the numbers, doesn't understand what the various economic numbers are telling us and him. This might seem like a minor example we're to show you but it's part and parcel of that, well, that ignorance in fact.

But consider the plight of the majority of Americans. We know that, six years into his presidency, poverty was still higher than before the financial system near-imploded. While child poverty has been alleviated for many Americans in the past five years, for African-Americans it has remained stubbornly constant.

The link for the child poverty is to this report. And that's not a measure of child poverty at all. It's a measure of how many children would be in poverty before the things the US government does to take people out of poverty.

To understand: there are now two measures of poverty in use in the US. The Official Poverty Measure, which is three times a basic but nutritious diet in the early 1960s upgraded for inflation since then, adjusted for family size. It is an absolute measure of poverty: it does not consider how lifestyles in general have been improving over that time. The other is the Supplemental Poverty Measure: this is very much more like our own measure, one of relative poverty, relative to the median income. The SPM also includes the various things that the US does to try and reduce poverty and under that measure child poverty rates are quite similar to what they are here in the UK.

However, the thing about the OPM, which is what Jones is considering, is that it does not include those poverty alleviation measures:

The income and poverty estimates shown in this report are based solely on money income before taxes and do not include the value of noncash benefits, such as those provided by the Supplemental Nutrition Assistance Program (SNAP), Medicare, Medicaid, public housing, or employer-provided fringe benefits.

That it doesn't include taxes also means that it does not include the EITC, the US equivalent of our tax credits. And pretty much all of America's poverty alleviation efforts come through either that EITC or the direct provision of goods and vouchers: all the things not considered in this estimation of poverty. They spend about $800 billion a year or so on them, they do alleviate a lot of poverty. In fact, the one thing that the US poverty alleviation system is very good at is the alleviation of child poverty. When we measure against that OPM, but add in those benefits in tax and in kind, child poverty in the US pretty much disappears in fact.

The error that Jones is making, as so many others do, is akin to looking at the British figures before all taxes and benefits. Something that is done here. Figure 1 tells us that (using our relative poverty measure of less than 60% of median household income) fully 40% of Britain is in poverty. Which is of course a nonsense. Because we cannot measure, usefully, poverty before the things we do to alleviate poverty.

We can also test this in another related manner. The Gini is not quite the same thing but it is indeed related. And if we look at the pre-tax and benefits inequality of various countries the US does not stand out in any remarkable manner. It is, before that redistribution, less unequal than France or Germany, only a little above Sweden or the UK.

Is the final outcome in the US more unequal? Yes, indeed it is. They do less redistribution than most European countries. However, to go around measuring poverty by the gross numbers for the US, before tax and redistribution, and then try to compare it to the net numbers, after tax and redistribution, for other countries is simply absurd. Or, of course, ignorant.

As Mark Twain pointed out, it's not what you don't know that's dangerous, it's what you do know but ain't that is. And thus we think we've found our solution to the conundrum of Owen Jones. He simply doesn't know the subject he's pontificating upon, just doesn't grasp the economic numbers. And thus his being led into the error of being a socialist.

Maybe Lin Homer is just pensioned out?


We find ourselves rather amused by this retirement of Lin Homer from HMRC. Because, while this is to a large extent just idle speculation from ourselves, there is still a nub of truth under the idea that it's as a result of the tax treatment of pensions. And it's going to people who have done well in the public service who are going to get so hard hit by those tax changes. We could, of course, just say "Aw, diddums" and go off for a celebratory pint but it's still true that this interaction of public sector pensions and the restrictions on tax relief, the taxation of amounts over the pension cap, which are going to hit those public services hardest.

So, the basic news is that Dame Lin is off:

The country's top tax collector who has faced intense criticism from MPs, is quitting her post in April, the Government has announced. Dame Lin Homer, the chief executive of HM Revenue and Customs, was due to give evidence to MPs on Commons Public Accounts Committee on tax evasion on Wednesday afternoon this week. HMRC sources said Dame Lin had told Sir Jeremy Heywood, the Cabinet secretary, last summer of her intention to leave her job at the end of the tax year.

That explains the when of the DBE at least. However, consider this career path:

She qualified as a lawyer in 1980 whilst at Reading Borough Council. In 1982, she joined Hertfordshire County Council where she stayed for 15 years, rising to director of corporate services. She then left to join Suffolk County Council as chief executive in 1998. After four years at Suffolk, Homer went on to be the chief executive of Birmingham City Council in 2002[1] and joined the civil service in 2005.

There's a 36 year public sector pension pot there. And we've now got the new rules about pension pots that exceed £1 million in capital value. And those rules now bite on final salary schemes as well as defined contribution schemes. And once you've got up into the rarified atmosphere of the upper echelons of the civil service a £1 million pot is easy peasy to achieve. Which means that rather a number of those up there are in the same situation as this doctor:

With just two years to go until her minimum retirement age (55), having had the benefit of the generous salary-linked NHS scheme, Gillian has broken through the £1.25m maximum lifetime pension allowance. Anyone whose pension is valued at beyond that sum (which falls to £1m next April) faces penal tax.

When the penal taxation on the accrual of greater pension benefits is taken into account then the marginal tax rate starts to approach insane levels of 70 and above percent. At which point our old friend the Laffer Curve comes into play again and people become subject to the substitution effect. Why spend the Golden Age shuffling paper if I'm not in fact increasing my lifetime income by very much by doing so? So, they don't.

As we say, this is speculation on our part about Homer herself. But it is a real change in the incentives faced by such people. And there's a certain joy to all of this as well: the people who have been calling loudest for these reductions in the gentle tax treatment of pensions are those over on the left. Those who also tend to believe in the idea that senior civil servants are very important people indeed who should be well paid. Rather than what we think they are, our hirelings there simply to handle society's scut work.

These tax changes will fall hardest upon those civil servants. Simply because they cannot opt out of greater pension accrual, unlike everyone in the private sector. Any one of us, when our pot limit is reached, can reach agreement with our employers to not add any more to our pensions: instead, just give us the cash. Not something possible for those locked into government and union approved contracts. Aw, diddums.

And perhaps this should be a lesson for those who scream loudly about tax reform: it's a complicated system, just as is the economy, and fiddling with one bit of it is highly likely to have unexpected effects elsewhere. You know, stop the fat cat FTSE directors amassing vast pension pots and you find senior civil servants all bailing out at 55.

Well, they do actually have a point here on taxing public pensions


It actually is a fair point that is being made here:

The highest paid public sector workers are demanding pay rises worth tens of thousands pounds to compensate them for new pension taxes, the Telegraph understands. A group of 12 trade unions representing hundreds of thousands of workers including doctors, police officers, head teachers and civil servants have held private talks with David Gauke, Financial Secretary to the Treasury, demanding loopholes that would spare them the tax. Staff most likely to be seeking this extra cash will already have pensions worth in excess of £1m - and their calls for "compensation" have been condemned as "displaying breathtaking gall".

It's not gall at all. Pensions are simply deferred pay. If their pay, that they've already earned, is now being reduced then they've every right to scream blue bloody murder.

However, let's do this properly shall we? Let's now seriously, when comparing public and private pay, include the full value of those pensions in our calculations of that public pay. For when we do so we find that the public sector gets paid very much better than the private sector. Which is, of course, why those unions scream blue bloody murder when we point this out, the effects of those pensions.

But, sauces for ganders being sauces for geese we here are entirely happy with this original complaint here. Yep, your pensions are indeed part of your pay. And we're going to count them as such on proper actuarial grounds from now on.

Meaning, roughly speaking if our back of the fag packet calculations are correct, future cuts of perhaps 30% in public pay to bring it into line with that in the private sector.

Can't say fairer than that, can we?

Why we don't want the government running food banks


There is, as we all know, a certain argument going on about food banks and their usage in the UK. It's most certainly true that the number of food banks, the number of people using them, has expanded considerably in recent years. This is used as an argument to insist that there's a gap in the welfare state: and that argument is also entirely true. That, in turn, has led to the argument that government must take over to fill that gap in said welfare state: that is lunacy of the highest order. Because:

People are at risk of going hungry and losing their homes because of avoidable delays to benefits, a cross-party committee of MPs has said.

In a damning report, the Commons work and pensions committee called on the government to work harder to cut delays to payments and set a new target to help reduce mistaken underpayments.

Hmm, bureaucracy is not swift and efficient, who knew?

Under the current regime, the committee said, advisory organisations such as Shelter and Citizens Advice reported that benefit underpayments left some individuals vulnerable and facing difficult decisions over whether to pay their rent or provide essentials such as food, gas and electricity for their household. Others found that individuals could become reliant on food banks as a result of underpaid benefits.

Actually, other figures show that from many to a majority of food bank users are there because of that noted efficiency of the state in processing the money to which they are entitled.

Which is why we're just copacetic with the idea that a smaller, nimbler, organisation like the Trussell Trust should handle that provision of food: something which does need to be done on a timely basis. Not because the State should not be involved in making sure that the poor have food to eat, but because the State is, provably, incompetent at making sure that the poor have food to eat. Thus it seems logical to have a private sector provider, one that is actually competent to perform the needed task, perform said task.

We are utilitarians here, we have no problems with, indeed desire it to, the State doing what it is better at. But obviously we don't want it doing what it is worse or incompetent at. True, that leaves us with a pretty small, minarchist even, government at the end of the consideration of what the State can do well but that's fine, so be it.

Good, glad that's settled then, UK levels of inequality don't matter


Even as an entirely utilitarian classical liberal it's possible to, in theory, be worried about economic inequality. If a society is so unequal that we don't have, nor cannot have, equality of opportunity then this isn't a society that's living up to the liberal ideals. We might therefore want to do something about said inequality. For example, imagine a society in which large swathes of the population are inadequately fed in childhood, leading to stunting and possibly a diminution of their IQ, meaning that they're most unlikely to pass by their richer and better fed contemporaries. This is of course what has been true across vast swathes of the world throughout time and is still true in the poorer places. We would therefore argue that something must be done in order to improve matters: which is what we do do, it's imperative that those poor areas be able to experience economic growth sa a result of some judicious dollops of capitalism and free markets.

But imagine that this was still true in a rich society: like, say, the UK of today. In fact, that's what part of the argument from our current left actually is: that the poor of our society are not able to deploy their God given gifts as a result of the poverty in which they grow up.

But is this allegation true?

Research suggests that genes and environment both play a critical role in shaping a person's intelligence. A longstanding hypothesis in the field of behavioral genetics holds that our potential intelligence, as set by our genes, is more fully expressed in environments that are supportive and nurturing, but is suppressed in conditions of poverty and disadvantages. While some studies have provided evidence supporting this hypothesis, others have not.

A reasonable statement of the question at issue. The answer?

The researchers found that the relationship between genes, socioeconomic status, and intelligence depended on which country the participants were from.

"The hypothesis that the genetic influence on intelligence depends on socioeconomic status was not supported in studies outside of the US," says Tucker-Drob. "In the Netherlands, there was even evidence suggestive of the opposite effect."

Importantly, the meta-analysis did not show any evidence that other factors -- such as age of testing, whether the tests measured achievement and knowledge or intelligence, whether the tests were of a single ability or a composite cognitive measures -- influenced the results.

That is, UK levels of inequality don't matter. We've got that basic floor to the welfare system that allows full human flourishing of those given gifts and that's all we need to do.

Given that equality of opportunity is the aim and that's what we've achieved in terms of basic living standards (although obviously, not necessarily so in terms of access to decent education and so on) then on that issue we're done. We just don't need to collapse economic inequality any more than we already do.

A surprisingly good idea about council housing


This isn't what we really expect from governments of any stripe but occasionally the odd good idea does manage to filter through the system, possibly by mistake. And such is this idea that council (and then housing association) tenancies should be for five years, not life. It's causing the usual moaning over on the left for there's absolutely nothing quite as conservative as the British left. Everything, but everything, must be left exactly as it was first laid out under St Atlee to hear some of them pontificate. Yet none of them manage to even ask, let alone answer, the crucial question:

In a stealthy amendment to the housing and planning bill, the government has announced an end to lifetime council tenancies. All new council tenants (and eventually housing association tenants) will be given maximum five-year contracts, after which their circumstances will be reviewed. If they’re told to leave they’ll be offered a more suitable council tenancy, directed towards other rental options (the expensive private sector) or assisted into home ownership.

The government has thus far refused to confirm any exemptions (for the long-term disabled, say, or families with small children). It’s unclear who would be conducting these reviews, and no assurances that this wouldn’t turn into another welfare-bashing crapshoot.

That crucial question being, if you need aid and welfare at some point in your life why should that turn into a lifelong subsidy?

Any and every system of governance is going to have some form of aid for housing for those who cannot afford it any other way. We're fine with that. Three's all sorts of things that can occur in life that mean that welfare, aid, is required for some period of time. Unemployment means unemployment benefits, being ill means treatment and possibly even benefits while being treated. But we do not then say that because you were unemployed in 1992 therefore you should have unemployment benefit for the rest of your life, nor do we say that because you were ill in 2002 then you should still be resident in an NHS ward. And so your requiring aid in gaining access to housing at some point should not mean access to subsidised housing for the rest of your natural days.

After you don't need welfare you shouldn't get welfare in short.

Will the Finns be the first to introduce a basic income?


Finland may become the first country to introduce basic guaranteed national income.  Although the final proposal will not be considered until November 2016, the basic income plan would replace existing social welfare benefits and instead hand out a monthly tax-free payment of €800 for every Finnish adult.

According to the poll commissioned by KELA, the Finnish Social Insurance Institution, 69 percent of the population supported the idea of a universal monthly income of about €1,000.  The poll indicated that there was especially high support for basic income that was implemented as a negative income tax.  Initially proposed by Milton Friedman and Robert Lampman, negative income tax arrangement would provide payments from the state that would increase in inverse proportion to income.  However, as the Finnish constitution requires an equal treatment of every citizen, an equal pay should be made to one and all, at least those in the wage earning age.  Naturally, some of the basic guaranteed income could be clawed back by taxes from the better off individuals.

Finland’s major political parties back the universal basic income concept as the means of simplifying the country’s complex social welfare system, and perhaps counterintuitively, the plan is seen as the means of tackling high unemployment.  Finland has been in a recession on and off since the mid-2012 having lost its footing in the traditionally strong pulp and paper industry, and after the demise of Nokia in mobile phones, the tech sector has not lived up to its expectations as a national growth engine.  The country’s unemployment rate is alarmingly high, hovering around 10 percent and rising to 23 percent among the young.

The Finns believe that basic guaranteed income could allow people to take low-paying jobs without incurring personal cost.  At the moment, taking a low paying job may result in lower welfare benefits and many temporary jobs go unfilled as the welfare benefits system is not agile enough to cope with temporary employment that reflects the changing nature of work.  There can be a lengthy time lag before welfare payments are restored after a temporary contract employment has been terminated.   

Critics of basic guaranteed income caution that it could remove people’s incentive to work, especially among the young.  However, previous experiments with basic universal income provide support that such programmes produce largely positive social and economic benefits.  In the Canadian town of Dauphin everybody was given a stipend from 1974 to 1979.  Although there was a drop in the hours worked this decline was mainly due because men spent more time at education and women took longer maternity leave.  Other social benefits of the experiment were hospital admissions for mental-health related issues that fell after the introduction of the guaranteed income scheme.  These results were most likely a result of the stress reducing effects at least to some degree of income security.  In addition, economic benefits of basic guaranteed income have been studied in Uganda.  When thousands of unemployed people were given unsupervised grants twice the their monthly income, working hours increase by 17 percent and earnings rose by 38 percent.  The guaranteed income provided a level of security that motivated people to gain further skills and/or take entrepreneurial risks. These experiments indicate that people with a basic income do not lead idle lives.  In developing countries the economic benefits can be substantial in terms of skills development, longer working hours, and a significant uplift in earnings.   In wealthier countries the accrued benefits may include personal and professional development, improved family life, and the pursuit of healthy lifestyles.

However Finland’s basic universal income or negative income tax initiative will ultimately be implemented it is unique in the sense that it has gained support across the political divide.  Other countries that are seriously considering such policy options include the Netherlands and Switzerland that will hold a national referendum on guaranteed basic income in 2016.  The major question that Finland and other countries will have to address is the cost.  Bloomberg has calculated that in the case of Finland the cost would amount to €46.7 billion annually.  The projected government revenue for 2016 is estimated at €49.1 billion.  It will be interesting to follow how the policy discussion evolves and what the projected savings will be from the streamlined welfare administration and what welfare payments eventually will be scrapped and rolled into the basic universal income.

From libertarian perspective, we should support the basic guaranteed income policy development.  The nature of work has changed and unfortunately some of our citizens will not be able to acquire or maintain the necessary skills to gain meaningful employment in our post-industrial societies and hypercompetitive globalized economy.  Assuming that we do not object to our societies providing support for those in poverty, basic universal income is the best policy to replace our outdated welfare systems.  The provision of national income removes the stigma that is often attached to having to apply for welfare payments.  Moreover, basic universal income increases choice as it allows and empowers individuals to make decisions how to spend their income by themselves by removing the state diktat of targeted welfare payments.  Finally, the implementation of a basic guaranteed income policy could reduce administrative costs and roll back the state, at least a little, which on its own would be a worthy outcome.

Further reading:

Story, M. (2015) Free Market Welfare: The case for a negative income tax. ASI (Research) Ltd., London

Would a basic income reinvigorate civil society?

I've long made the case for a basic income (aka a Negative Income Tax) on the basis that it would simplify the welfare system and make sure people always have an incentive to work. My fear is that in-work poverty will be the challenge of our time, just as unemployment was in the 1930s and inflation was in the 1970s, because things that are raising living standards overall like globalisation and automation may be leaving behind people at the bottom of rich societies. Consider what options the former steel workers at Redcar now have. But Charles Murray's argument for a basic income is different:

My real goal with all of this is to revive civil society. Here’s what I mean by that: You have a guy who gets a check every month, alright. He is dissolute; he drinks it up and he’s got 10 days to go before the next check comes in and he’s destitute. He now has to go to friends, relatives, neighbors or the Salvation Army, and say, “I really need to survive.” He will get help.

But under a guaranteed basic income, he can no longer portray himself as a victim who’s helpless to do anything about it. And you’ve got to set up feedback loops where people say, “Okay, we’re not going to let you starve on the streets, but it’s time for you to get your act together. And don’t tell us that you can’t do it because we know you’ve got another check coming in in a couple of days.”

A guaranteed basic income has the potential for making civic organizations, families and neighborhoods much more vital, helpful and responsive than they have been in decades. ...

Right now, people can say, “What am I going to do? There’s no job out there. There’s this or that.” If you’re getting a check every month, you are not without resources, and that opens up a whole new dialogue between you and the other people around you.

America’s always been very good at providing help to people in need. It hasn’t been perfect, but they’ve been very good at it. Those relationships have been undercut in recent years by a welfare state that has, in my view, denuded the civic culture.

That's an interesting thought. "Primary poverty" is usually thought of as just not having enough to get by, no matter how hard you try. I think that probably describes the situations of most poor people in the world today. "Secondary poverty", though, is the poverty that comes from wasting the resources or skills you have through low conscientiousness, addition, laziness or something else.

I've always thought of a basic income as being a very good solution to "primary poverty", while perhaps risking exacerbating "secondary poverty". But if Murray is right that the state crowds out civil society, then perhaps there is a very conservative case for rolling it back, and just giving people the cash instead.

Of course we expected nothing different from a political statistic but still....


As we all know political statistics are not used to illuminate, rather to obfuscate. An interesting example of which is the campaign that Unite is running about the changes to tax credits. Examples of that, well, yes it is, propaganda, are here:

Teaching assistants, social workers and other key public sector workers could lose more than £1,500 a year as a result of controversial government cuts to working tax credits, according to calculations by the public sector workers union Unison.

They also provide us with a handy little calculator here. At which point we can say two interesting things about these numbers.

Firstly, they do calculate the change in post-tax income that comes from the rise in the personal allowance. But they don't actually include it in their headline number. Which is to be expected, of course it is, but still a bit sneaky.

The second is that they're only calculating the rise in the personal allowance for this one tax year. Entirely ignoring the fact that it has risen substantially over the previous years as well. Which is distinctly sneaky.

The reason we are interested in this is of course that that large, near doubling in fact, of the personal allowance came about as a result of our shouting about it. That it's simply ridiculous that those on the minimum wage, even part time on that, should be paying income tax at all. An imposition upon their incomes that is then topped up by a hand out of tax credits. The adjustment, as we all would wish it to of course, needs to come with the personal allowance rising first, then the hand out reduced. Which is what has happened and thus we would insist that the entire process is evaluated, not just the effects in just the one year.

Finally, of course, there's the one more point. We have also been advocating that the personal allowance for national insurance payments should rise to be the same as that for income tax. And, more controversially, that this should be the same as the full year, full time, minimum wage. At which point, if this were done, the current reductions in tax credits would leave all but those in the oddest of family situations no worse and possibly better off.

That is, as we've been saying all these years, the problem is not that we don't give the poor enough money, it's that we take too much off them. We do not have wage or benefits poverty in the UK, we have tax poverty.

So, as we keep saying, if you want the working poor to have more money then stop taxing them so damn much.