A Welfare Cap is the right way forward – but not in isolation.

Tonight it is all about the Welfare cap – so let’s start with the facts –
What is being proposed? – That no household can claim more than £26,000 per year in state benefits (That is the equivalent of an annual salary of about £35,000).

Who does it affect? – The Department of Work and Pensions calculate it will affect 67,000 households, or 90,000 adults and 220,000 children. Obviously there is a sliding scale here – with 45% losing up-to £30 per week, 26% losing £50 to £100, 12% losing £100 to £150 and 17% losing over £150 per week.

How much will it save? – DWP figures suggest it could save upwards of £120million per year.
What about the why? – The coalition government offer two reasons. First, to help cut the deficit. Secondly, to bring fairness back into the benefits system.

Let’s deal with dealing with the deficit first – £120milion might sound a lot, but it is not even pennies, when it comes to the nations finances. Assuming every bit of the projected saving is made (which is unlikely) they will reduce the budget deficit by less than 0.0008%. Put this in the context of the 133,000 children who are at risk of being moved below the poverty line as a result of this measure and it doesn’t feel anywhere near enough of a saving.

So that leaves us with fairness as the real driver for this change. Certainly at first glance it seems fair – why should those people who are not working be able to live in a way that many ‘hard-working’ families simply cannot? It is a compelling argument. More so when you think it is those same families whose taxes are paying for others not to work. As an aside – in 1958 Social Security spending equalled 6% of national income, in 2010 it was 11.9% (though it actually peaked at 13.1% in the dying days of the last Tory government) – this kind of upward trend is simply not sustainable, regardless of where your political allegiances lie. So, it turns out I agree with a cap at some level. Progress indeed.

The next question is how much? The median household income in 2011, after tax, was £24,000 – so again the government figures look broadly fair. My problem is that it is just too general. Mean household income in London is 50% more than in the North East. Average rental for a 3-bedroom house in Buckinghamshire or Essex is double that of Cumbria (London is, on average 6-times more expensive). With the major household cost fluctuating so much, how can it be fair to introduce a UK-wide cap? Why not an overall cap on all other benefits, with regional allowances for housing benefit? That is something I could definitely sign-up to.

We have a cap, we have made it fair – so what about exceptions? Take two civil servants, with a school-age daughter, living and working in London on a total household income of about £35,000 per year. They are managing OK when disaster strikes – thanks to swingeing government cuts they are both made redundant. Their ‘generous’ severance package keeps them going for a few months, but it is now 3 months on and there isn’t much work for former faceless bureaucrats. They live in a modest 3-bed semi in an average part of London – it costs £3000 per month just for the rent. Even with regional adjustments the housing benefit doesn’t cover it – do you want to tell them they have to move, or shall I? With fairness should also come patience – these people surely come under the ‘hard-working’ banner, so my suggestion is that we give them a year’s grace to find their feet, before slowly starting to reduce their benefit down to below the cap. This gives them time to readjust, potentially re-train and also ensures their daughter has the home and educational stability that is so important in terms of her development.

So, there we go – this blog has done its job. I am much clearer on what I stand for:
– An overall benefits cap, broadly in-line with the government proposals.
– It should be both index-linked and the housing benefit should be regionally adjusted in line.
– There should be a grace-period of 12months to ensure that those newly falling out of work can continue to live in their current house whilst seeking work and/or re-training.

But wait a minute; if we are doing this to ensure fairness, then it has to be balanced.
I don’t have time to get started on the multi-million pound bonuses of the UK’s top CEOs and senior-execs, or how the same group of people’s pay rose by 49% in the last year alone, whilst the average value of their companies dropped by 5.5%? But just some food for thought before I go to bed. The total saving of the above plans are in the region of £120million per year. Benefit fraud costs the UK taxpayer £1.5billion per year. Tax evasion (illegally not paying tax) costs us another £15billion. Tax avoidance (whereby companies and some v.rich individuals use loopholes in the law to minimise their tax burden – strictly speaking legal in the UK, but morally dubious) costs us a further £20-£25billion per year. Wouldn’t the government have more credibility in it actions if its first target were to significantly reduce these figures?

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