The Clegg phenomenon and the 2010 UK Election

[Túrin Turambar]

Her Majesty’s Government is now moving onto the thorny question of welfare reform. This is a complex topic, one that I’ve looked at myself in some depth in the past, and the most I could do here is briefly touch on the proposed changes.

An excerpt from a fairly lengthy BBC article:

A "universal credit", sanctions for those turning down jobs and a cap on benefits paid to a single family are among the changes outlined.
Planned housing benefit curbs for the jobless have been dropped but tenants 'under-occupying' homes face cuts.
Labour backs some changes but says help for people to find work is inadequate.
The changes, outlined in the Welfare Reform Bill, include:
• A single universal credit to come into force in 2013
• Tax changes to enable people to keep more income
• Changes to the disability living allowance
• More details of the back-to-work programme
• Those refusing to work facing a maximum three-year loss of benefits
• Annual benefit cap of about £26,000 per family
• Review of sickness absence levels
Central to the plan is the creation of a universal credit, a process which will begin in 2013 and continue into the next parliament.
The government says, with five million people of working age on out-of-work benefits and 1.4 million of those for nearly a decade, that unemployment has become entrenched in many communities.
Prime Minister David Cameron said the bill would "bring about the most fundamental and radical changes to the welfare system since it began".

There is broad agreement that the complexity of the current system and disincentives to work are serious issues. There is, however, scepticism among the government’s critics that the reforms will not leave many people worse off in the current poor economic conditions. From the same article:

In future, the government is guaranteeing that for every £1 extra people earn, they will be at least 35p better off as a result of being in work.
Up to 2.7 million households will be better off as a result of the changes, ministers say, with more than a million of these - including many of the poorest - seeing an increase of £25 a week.
But the Institute for Fiscal Studies has warned that while the changes could benefit 2.5 million households, a further 1.4 million - including many lone parents and families with savings of more than £16,000 - face being worse off.
Ministers say transitional arrangements will be put in place to make sure no-one is worse off while they are being migrated to the new system - which will cost £2.1bn up-front to introduce.
That short-term cost, they insist, will reap considerably higher savings in the long term.

The reforms are discussed some more here, with the specific example of ‘Mick’, a man who has lived on benefits all his adult life.

[eborr]

There is a lot if sense in many of the things that Duncan-Smith says, , in that the benefits systems is horrendously complex, the effect being that many people do not get all the money they are entitled too. It also acts as a disincentive in that people who wish to move from wholly being on benefits to to part-time work will actually loose out financially.

However I have two problems with what they say, the first of which is that it panders to that Tory dream that the only thing holding Britain back from retaining it's former glory is a vast army of work-shy people who instead of earning an honest penny are smoking, and drinking and no doubt eating ripe meat off the bone on tax-payer funded holidays in Benidorm, the second problem is that it pre-supposes that there are jobs to go to.

Given the Tory parties insane policy of slashing the economy we are now seeing record levels of unemployment among our young people.

So we have the conundrum, a new welfare system which rewards those who can get the non-existent jobs.

Let's take a case we have a state employee in his early 40's who has a specific skill set which is based on his public sector role. He will have paid his taxes and quite a high cost for his admitedly good pension. He looses his job in the Cameron/Clegg cuts and cannot get work, he is probably condemned to a life in and out of benefit on low paid jobs, ultimately he will loose his house, his children will have their life chances ruined, and his pension which he contributed so much to will probably be much less than 50% of the value it would have been.

Let's take the case of another man in his early 40's who has received a salary from the public purse, lets suppose he looses his job, he won't worry because he will be supported by the family share-holding the value of which has been artificially propped up by the Govt's policies, his name his Dave, and of both he and his chum George don't have any concept of what it's like to earn a living- work is just a game for them

[Túrin Turambar]

That's pretty much the issue. Pushing people off welfare is only half-solving the problem. There must be a job for them to go into.

Personally, I’m never entirely sure why the make-work type programs that were practiced around the western world during the Depression went out of fashion. It’d be expensive, but it’s far better to employ someone to do something than to leave them sitting on benefits.

[eborr]

Exactly, and the other thing to take into account when considering public sector reforms is the net cost of making a public service employee redundant.

Lets take someone in the public sector who is not so well paid living in private rented property. These figures are not 100% accurate but they will be quite close

Income partner 1 - 23000
Income partner 2 - 10000
Rent Costs 1000
Children 2

Additional Benefits
Child Benefit 1920
Tax Credit 960

Housing 1200
Tax take on this couple 9240 per annum

Actual Cost of employing the couple assuming both in the public sector

27840

If the main earner is made redundant then the cost would alter in the following way

Benefits
Unemployment 3120
Child benefit 1920
Tax Credit 4800
Housing Benefit 12000

Cost to state of couple would be
31800

Tax take recovery from one income would be 2200

Actual cost to state would be 29200.

So its actually more or less cost neutral to keep many low paid public sector workers in jobs, and if you also take into account that public sector workers deliver value, then the economic argument is not tenable.

All they are actually doing is to move money from one cost cente to another doing untold personal damage along the way.

Obviously if a public sector worker leaves to join the private sector, then we are facing a new-ball game, but with unemployment set to rise exponentially then either the governments motives are entirely political - rather like the Thatcherite moves to destroy the union movement, which took down our manufacturing base as collateral damage, or they are incapable of simple arithmatic.

And all this with the support of the Lib-Dems

[ToshoftheWuffingas]

then either the governments motives are entirely political - rather like the Thatcherite moves to destroy the union movement, which took down our manufacturing base as collateral damage, or they are incapable of simple arithmatic.

I don't see it as an either/or then or now.

[Aravar]

How do you get a tax take of £9,240 eborr?

Earner 1

£23,000

Personal allowance £6475

Income tax 20% of £16,525 = £3,305

NI 11% on everything above £5720, ie £17,280 = £1900

Total tax & NI £5205

Earner 2

£10,000

Personal allowance £6475

Income tax 20% of £3,525 = £705

NI 11% on everything above £5720, ie £4,280 = £470

Total tax & NI £1175

Total tax and NI for the couple £6380.

It does still work out at cost neutral, I suspect the figures have been carefully chosen in the example to show neutrality.

The figures show the two absurdities of the system which have been locked in by Labour's policies. First one can recieve a "tax credit" which far exceeds the tax paid. Frank Field, the Labour MP demonstrated how the way the tax credit system worked mean that a single mother, working only sixtenn hours per week could nevertheless receive an income of £487 per week from tax credits, which is well above the median full time wage.

Second the size of housing benefit. This puts a floor under house prices and ultimately is a subsidy given by the taxpayer to private landowners. This in turn encourage "investment in bricks and mortar at the expense of other economic activity.

[eborr]

my figures were based on simple percentages, so I am happy to give way to your accurate calculations, which in any confirm the point that it is cost neutral not to fire civil servents my figures were not carefully chosen, simply representative of low-middle grade clerical officer on the one hand and a teaching assistant on the other.

Had I chosen two low salaries, or maybe a family in which only one partner works, or shock horror a family with a disabled person in it the results would have been even more striking

The figures for benefits, are conservative if the partner b was a teaching assistant the benefit figures for the summer period would grow substantially, to cover the full cost of housing

The tax credit system was silly. but it was a response to the prevailing social problems which had been created by the Thatcher/Major administration which led a massive decrease in social housing, which was a contributory factor to the huge rise in both house prices and rental values, and also to their creation of the low wage economy which was actually re-enforced by the tax credit system.

Benefits payments in Britain grew enormously through the 80/90's starting with the first conservative induced recession of the 80's and continuing periodically through the period, funded by north sea oil revenue. It was during this period that the sink estates were created and the engines of mass employment in the primary sector and heavy manufacturing were shut down. It was during this period that the parents and grandparents of todays benefit culture lost their livelihoods and became dependent on benefit culture.

[Túrin Turambar]

As much as I like Cameron, his speech on the Alternate Vote was a bit loopy. Like many opponents of AV in Britain, he lays onto the Australian electoral system, the only major democracy to use (what we call) preferential voting (it’s usually referred to as Instant Runoff Voting, or IRV, in the U.S.). And most of these people don’t really seem to understand how it works.

For a start, the fact that it took 17 days to form government in Australia following the last election was a product of the hung parliament, not the voting system, which usually delivers results on the night. Cameron also suggests that some votes are counted more than others, which is absurd – every vote is counted for as many rounds of eliminations as there are.

I’m a huge supporter of preferential voting, as is practically every other politically-interested Australian that I’ve spoken to. We generally view compulsory voting and preferential voting as the twin pillars of our democracy, both born out of the same innovative spirit that gave us the secret ballot and early votes for women (although New Zealand was first). And in objective terms, few countries can claim to have a longer and better tradition of conducting elections, or a more successful democratic model. The criticism by Cameron and others haven’t gone down all that well.

In other news, in response to questions from readers in the U.K., Australia’s leading psephologist, Antony Green, has written a post on his blog explaining AV.

[eborr]

not sure whether Cameron cares one way or another about the AV system. FPTP is one of the sacred cows of the tory traditionalists, and he needs to keep them onside

[Aravar]

The tax credit system was silly. but it was a response to the prevailing social problems which had been created by the Thatcher/Major administration which led a massive decrease in social housing, which was a contributory factor to the huge rise in both house prices and rental values, and also to their creation of the low wage economy which was actually re-enforced by the tax credit system.

I think your example shows that it may be cost neutral not to fire some civil servants, not that it is cost neutral to fire any.

But the other thing your example shows is that benefits can be so generous that working full time leaves you no better of financially than staying at home. Is it really any wonder that many people in the UK choose the latter and we fill vacanices with immigration form the rest of the EU. It seems to me to be a crazy system.

The huge rise in house prices was caused by a number of factors and did not really take off until Labour took power. Indeed in the mid-90s under Major was the last time house prices were in line with their long term average of about three times income. As an anecdotal I bought my first flat in '98 for £55,000, which was an amount affordable on the then mean wage of just under £17,000. Now the same flats are up for sale for £130,000 an impossible sum on an average wage.

Lack of social house building may be a contributory factors, along with loose credit, immigration, planning costs and even donright fraud. I never understnad why the Tories get the blame for policies which Labour had thirteen years to reverse if they wanted to.

I think AV is the least bad alternative, although it does create the anomaly that only the third placed person's second preferences count.

[eborr]

Aravar

Couple of things, what is missing from the discussion regarding civil servant eqaution is the pension benefits, which is why many civil servants accept a relatively low salary, knowing that they are/were ? guarentied a comfortable retirement -which if course is not the case if they are on the state pension.

The level of beneifts available is a consequence of a low-wage high cost economy, where a price fixing amongst retailers and suppliers has meant the normal forces of supply and demand are not actually balancing the economy.



I completely agree with you regarding the Labour party continuing with the the despicable tory policies on housing, one reason for that is the Blair was more Thatcherite than Major, secondly they put 2-Jags in charge of housing, thirdly Gordon Brown was enjoying the tax revenue coming in from Stamp duty, which meant nothing would happen.

I also think it's a bit disengenous to suggest that the lack of social housing would have an immeadiate effect, as for the first few years of the conservative administration the effect on housing would not be so apparent, I suspect the lack of housing took some time to works it's way through the system. Finally you also need to consider the fact that interest rates were high through much of the Thatcher/Major years so again that surpressed the housing market

[Ghân-buri-Ghân]

Aravar, I agree with you. Labour should receive the blame for ditching their pronciples and implementing the policies of the preceding Conservative governments. Thatcher Tories became Major Tories became Blair Tories. Now we have "Call me Dave"/Clegg Tories.

It seems the main problem is... you guessed it... they're Tories...

[Aravar]

Aravar, I agree with you. Labour should receive the blame for ditching their pronciples and implementing the policies of the preceding Conservative governments. Thatcher Tories became Major Tories became Blair Tories. Now we have "Call me Dave"/Clegg Tories.

It seems the main problem is... you guessed it... they're Tories...

So am I, that's my problem. If you think Blair, Gorless Gordon and Ed Balls, let alone "Red Dawn"Primarolo, were Tories then you aren't very discriminating in your use of the term.

[Ghân-buri-Ghân]

Of course they were Tories, in the mould of Thatcherism! Back door privatisation, PFI, courting the stinking rich, widening of social inequalities; Thatcherism to the core, with a wash of pink to disguise it.

[Aravar]

Of course they were Tories, in the mould of Thatcherism! Back door privatisation, PFI, courting the stinking rich, widening of social inequalities; Thatcherism to the core, with a wash of pink to disguise it.

Your disappointment with Phony Tony is deluding you. To adapt Neil Kinnock, what we have just suffered is the grotesque chaos of a Labour Gvoernemnt, a Labour Government.

As the Great Leader said: socialists always run out of other people's money.

Oops they did it again.

[Ghân-buri-Ghân]

Of course they were Tories, in the mould of Thatcherism! Back door privatisation, PFI, courting the stinking rich, widening of social inequalities; Thatcherism to the core, with a wash of pink to disguise it.

Your disappointment with Phony Tony is deluding you. To adapt Neil Kinnock, what we have just suffered is the grotesque chaos of a Labour Gvoernemnt, a Labour Government.

As the Great Leader said: socialists always run out of other people's money.

Oops they did it again.

Like the socialist George Bush did in America? Or the socialist Brian Cowen in Eire?

And the fat cat bankers are letting their belts out to the next notch because of socialist Labour?

But of course...

[Primula Baggins]

A reminder: Sarcasm is inappropriate in discussions here. The quality of the conversation tends to deteriorate quickly once it appears. Please stop using it or edits will be made.

—Prim, for the marshals

[eborr]

To defend labour they would justify themselves by saying they were using the weapons of the enemy to reach the right ends, of that never works.

Having said that after almost 20 years of neglect the labour party has done many good things we have new hospitals, new schools and roads that no longer have the quality of third world tracks, the sad thing is that much of it was funded by PFI, and not as it should have been by taxing the rich more severely, and spending far less on overseas adventure.

Just a further note on the big tories deficit lie, figures released today show that Government is having to borrow less this Jan that was expected, this is interesting for two reasons, firstly it removes the justification for the scale of cuts that Govt are imposing, and secondly since much of the increased revenue is from increased Corporation tax take, this is hangover from the boost that came to the economy which was sparked by labour - the so-called overspending. When the next figures come in Tory economic policy will have begun to have an effect and the tax take will be lower, both in corporation and personal tax terms, the increase in VAT will make little impact on overall take, but will have the effect of reducing demand from the system, and guess what Govt borrowing will go up.

Dave and his mates need to take the lesson from history look what the blessed Margaret did to the economy, and he doesn't have north sea oil to fall back on.

[Aravar]

TJust a further note on the big tories deficit lie, figures released today show that Government is having to borrow less this Jan that was expected, this is interesting for two reasons, firstly it removes the justification for the scale of cuts that Govt are imposing, and secondly since much of the increased revenue is from increased Corporation tax take, this is hangover from the boost that came to the economy which was sparked by labour - the so-called overspending. When the next figures come in Tory economic policy will have begun to have an effect and the tax take will be lower, both in corporation and personal tax terms, the increase in VAT will make little impact on overall take, but will have the effect of reducing demand from the system, and guess what Govt borrowing will go up.

The deficit is no lie: the better than expected figures mean that the Goverment may only have to borrow £140,000,000,000 this year rather than the expected £148,000,000,000, down from the £159,000,000,000 in 09/10, in order to cover its bills. It has to pay interest on that borrowing.

As a contrast HMRC only received £134,000,000,000 from income tax for the 09/10 financial year.

January is bound to be better because that's when many people, myslef included have to pay their income tax. One swallow does not a summer make.

I still have no explanation as to how the goverment will avoid either a cashflow crisis, as has occured in Ireland, or face increased borrowing costs which will feed into increased oprivate sector borrowing costs.

[Aravar]

Like the socialist George Bush did in America? Or the socialist Brian Cowen in Eire?

And the fat cat bankers are letting their belts out to the next notch because of socialist Labour?

But of course...

They are making hay lending money to the Goverments to fund the huge deficits. That's what bankers do, lend money at interest.