Benefits and taxes

Fairness and effectiveness are often at odds in the distribution of benefits. There is always a tension between giving away too much and too little. If benefits are means tested, there will always be some people who desperately need them but don't claim them for a variety of reasons including the complexity of the process and the stigma. If you make a benefit universal, there is a lot less stigma attached, and it tends to be less complex, and so take up rises. Child benefit, for instance, in its various guises, has had near 100% take up, thereby insuring that it goes to everyone who really needs it, because of universal availability. The problem with that is that a good deal of our taxes then goes to supporting people who don't need the support.

You can deal with the problem to a certain extent by making benefits taxable. If you do that, you may need to increase the benefit to take into account the effect on lower earning tax paying households. It can be done, but the politics of turning a non-taxed benefit into a taxed one are fraught.

I wonder if another way of turning the circle into something like a square might be to apply a variable upper rate of tax. As it stands, in 2012-13 taxable income between £34371 and £150,000 is taxed at 40% and above £150,000 at 50%. Increasing those taxes across the board to recognise the benefits paid to high earners is generally seen as unpalatable, because it disincentivises earning and over-incentivises tax avoidance behaviour. Whether you agree with these or not (I don't agree with the first, I do agree with the second to an extent), they are so widely accepted on both the conservative and what passes for the progressive wing of the political elite that they are all but unchallengeable.

A variable upper rate would apply a higher rate of tax to small bands within the upper bands. Thus, for income between, say, £80,000 and £90,000 the rate could be 45% which would net an extra £500. People in that bracket, who probably think of their earnings as “modestly high” could be confident that when their earnings passed £90,000, the extra would revert to the 40% tax rate. There might be another band, say, between £120,000 and £130,000, netting another £500. And more at appropriate intervals further up the scale.

The idea is not to arrive at individual fairness in the sense that those who benefit pay it back. It is a sense of collective fairness in that those who earn large sums of money can be seen to redress the balance as a group for benefits received. The extra cost of a universal benefit is seen to be recouped, or at least partially recouped, by the variable tax. It seems such a simple idea that I am sure other people must have thought of it before and rapidly come up with reasons why it would not work, so if anyone can enlighten me, I would be grateful.

IDS's crocodile tears

I am following up yesterday's post about International Day for Disabled People – all over the world except in the UK. Yesterday was a day that every Liberal Democrat in the country should take notice of, because the government – in this case Iain Duncan Smith and the Department for Work and Pensions – is doing dreadful things in our name and with our support.

For all the rhetoric Iain Duncan Smith and his department have one objective, which is to reduce the benefits bill. They have no care for how they do so, or for the dreadful impact that has on the lives of the people they deprive of income. In the last few weeks he has made great play of the number of people he has got off benefits, despite the government's actual figures demonstrating really poor performance. But even where the Work Programme has got people into work, it has not reduced the benefit bill one penny. With two and a half million people chasing a few hundred thousand vacancies, not one new job has been created. Under normal circumstances, when a vacancy arises, an unemployed person applies for it, and gets it. When A4E get involved, they pick which unemployed person goes into the vacancy, leaving another unemployed person unemployed and claiming benefits. To do this they get paid, so the Work Programme creates no jobs but works as a mechanism for transferring money out of the pockets of taxpayers and into the hands of very profitable private companies. The work A4E is now charging us through the nose for was being done very capably by charities and NGOs before Iain Duncan Smith decided the private sector needed a boost.

In fact far from creating jobs, the Work Programme destroys jobs. Companies like Poundland now know that they can fill 10%, 15%, 20% of their labour needs through the Work Programme. So they no longer need to advertise those posts and pay people to fill them. So the taxpayer gets shafted twice. We are directly contributing to the profits of companies like Poundland by paying the wages for them, while also paying A4E for choosing which unemployed person will go there. There is more detail here.

Meanwhile Lord Freud thinks that poor people should take more risks. It is tempting to speculate about which planet he was on when he said that, certainly not this one. I would like to think that the rich might be inclined to take more risks, but there is no sign of them doing so. The Director General of the BBC is just the latest case in a long line where people are given contracts that fireproof them against failure of any kind. The DG's contract was such that the BBC were required to give him a year's pay if they sacked him. Why? If he is not capable of putting something away for a rainy day on a salary of £450,000, what on earth is he doing in a job of such responsibility? The same goes for every single bonus and every single feather bed contract given to directors and CEOs since the crash of 2008. No high level contract should ever carry more than the legal minimum benefits: they are well enough rewarded by the rate of pay. The bankers and the directors have gone on doing business as before, except for the occasional shareholder revolt, and the government has done nothing to ensure that when people play with other people's money, they take responsibility for what they do. If they did that, they would make better decisions, and companies would be more profitable. Subject to the government's laissez faire attitude towards taxing multi nationals, the tax take would be higher, and the government would lose their excuse to screw poor people even harder. Which is of course why they're not doing it.

So all in all, government policy towards the rich and the poor is not just not helping with the recession, it is actually making it worse. We've known for a long time that the Conservative part of the government has no intention of actually making rich people take the consequences of their actions. It becomes clearer every day that their intention is actually to make the poor pay for the actions of the rich, by hounding and harassing them off benefits.

These are not isolated cases - every day up and down the country, disabled and sick people are being told they are fit for work, and being made to - pardon the pun - jump through hoops to re-establish their need for benefit. Try this one for size: "A blind, deaf, tube-fed, non verbal, disabled man from Scotland has been deemed fit for work" - this is not an aberration, it is normal procedure for ATOS, aided and abetted by Iain Duncan Smith's DWP.

Brian McArdle died when his disability benefits were stopped. His son wrote to Iain Duncan Smith, and got back a clunkingly self justificatory letter written without a hint of compassion.

Karen Sherlock died in the middle of an entirely unnecessary battle with the DWP over the income she needed.

I say again, these are not aberrations. Between January and July last year 1,100 claimants died after they were put in the “work-related activity group”. Yesterday, on the International Day for Persons with Disabilities, by an exquisite irony, the DWP brought into effect a provision that people on ESA, and in the WRAG - deemed by the DWP's own system to be unfit for work - can be mandated to go for work, without any time limit.  Jobseeker's Allowance claimants who are mandated to go to Work Programme placements have a time limit of three months on those placements. But if they have decided you are unfit for work, you can be made to work to the end of your days, or lose benefit. There is certainly no compassion, but neither is there any logic or any competence in these provisions. In fact quite the opposite - these measures hinder economic recovery for one purpose only - to hound the poor and the sick, with all the perverted moral zeal that Iain Duncan Smith can bring to the task.

Yesterday I wrote as a human being. Today I write as a Liberal Democrat. Liberal Democrats must withdraw all and any support for Iain Duncan Smith's poisonous schemes, and work to put some compassion and rationality back into the benefit system.

The UK government and International Day of Persons with Disabilities

Today is International Day of Persons with Disabilities – all over the world except in the UK. In the UK Iain Duncan Smith is marking the day by continuing and intensifying his campaign against unemployed people in general and disabled people in particular.

Every disabled claimant now has to undergo a Work Capability Assessment (started by Labour – who have yet to apologise for it). The WCA is in fact a BDS – a Benefit Denial System. Its purpose is to get people off benefits by any means possible. The claimant's own description of their condition is not credited, medical evidence is not accepted. If a claimant gets to the assessment room, that proves they can walk. If they sit in the chair throughout the process, that proves they can sit at a desk. Then they are deemed capable of work. Iain Duncan Smith's department is doing this quite deliberately, to reduce the benefit bill, regardless of the cost to disabled people. Terminally ill people are being found fit for work. People with the most horrible conditions are being found fit for work. Yes, some terminally ill people work till the day they die. But only a small proportion of them. At the moment, the DWP's own figures show that 70 people a week are dying within a short time of having their WCA. You read that right. 70 a week – 3500 a year.

“Work” now means you can lift a pencil. It does not mean that you are employable. That is Iain Duncan Smith's great trick, completely divorcing the idea of “work” from the idea of being profitably employable for a company. If you have not worked in this sphere it is difficult to imagine, but please bear with me. Think back to the worst flu you have ever had. If you've never had flu, think back to the worst hangover. At some point you hauled yourself out of bed, tottered downstairs and made yourself a Lemsip. According to IDS that means you were capable of walking, and of operating machinery. You were fit for work. But you didn't go in to work, did you? Now imagine feeling like that all the time – every day, 24 hours a day, no let up, ever. Sorry, but you're fit for work.

Scene 1

Applicant: “I've come for the job.”

Employer: “Sure, we have vacancies.”

Applicant: “I'm terminally ill with cancer, by the way.”

Employer: “What?”

Applicant: “It's OK, I'm fit for work, The DWP says so.”

Employer: “Er...”

Applicant: “I need to take ten minutes out every couple of hours to vomit, but I'll make up the time.”

Employer: “Um....”

Applicant: “And I'll be dead in about three months, but it's being off benefit that's important. I'd much rather be here stacking shelves and coughing all over the customers than spending my last few weeks with my family.”

Scene 2

Applicant: “I'd like a job.”

Employer: “Sure, we have vacancies..... What's that smell?”

Applicant: “Oh, sorry. I just shat myself again. I'll clean up, then I'll be ready. It's OK, I'm fit for work, the DWP says so”.

Scene 3

Employer: “We start at 9”.

Applicant: “I should be able to get in for that some days.”

Employer: “We start at 9. That's when the phones start ringing”.

Applicant: “I have ME. I never know from one day to the next when I'll be able to get myself out of bed. I can manage 11 most days. It's OK, the DWP says I'm fit for work, so can I have the job please”.

It's all happening because the benefit bill is unaffordable, right? We can afford to spend billions and billions and billions fattening bank balance sheets. We can afford to spend billions on the Olympics. We can afford to see billions and billions disappear in unpaid corporate taxes. We can afford to see companies still run inefficiently, and billions in bonuses paid to people who cannot demonstrate that they have earned them. We can even afford £5 million a year to subsidise the alcohol in the House of Commons bar where Iain Duncan Smith toasts himself with a glass at the taxpayers' expense on disappearing yet more people from the benefit rolls. But we can't afford to treat our disabled people with a minimum amount of decency.