5 thoughts on “Universal Credit: a good idea but certainly no cure-all”

  1. Posted 11/10/2010 at 11:42 | Permalink

    Government changes are often promoted on the basis of large benefits or savings, which ultimately fail to appear to anything like the extent promised.

    Often there is considerable uncertainty about the net effects of changes, and politicians are naturally inclined to give themselves the benefit of any doubt.

    Moreover, there is not much ‘incentive’ to be honest. By the time the results are available, the government may have changed, or the minister concerned; and anyway, not many people are going to bother to look at the ‘facts’ years after the change.

    Where does that leave us? With the very sound advice from the Book of Common Prayer: ‘Put not your trust in princes.’

  2. Posted 11/10/2010 at 14:57 | Permalink

    The graph is particularly instructive. The negative effect of a lower taper rate on work incentives higher up the income scale can obviously be reduced if the initial benefit rates themselves are lowered. Reducing the payments would also produce significant savings for taxpayers along with improved work incentives.

  3. Posted 11/10/2010 at 21:25 | Permalink

    Hooray for UC/SUT!

    You make some fair points, but remember is that benefit withdrawal is exactly like taxation, so there is a Laffer Curve to means testing in the same way as to taxation generally. The cost-minimising benefit withdrawal rate is probably the same as the revenue maximising tax rate on lower earners, which I believe is 60%. Seeing as Employer’s NIC is about 10% of gross wages + Employer’s NIC already, this means the cost-minimising benefit withdrawal rate (inclusive of any PAYE deducted) must be 50% (which handily enough can be dealt with via the PAYE system, no need for DWP officials and form filling.

    Click my name for link to article I wrote.

  4. Posted 12/10/2010 at 19:21 | Permalink

    Good point and fair conclusion. But to play devil’s advocate: if moving to a lower taper-rate increases the government’s welfare budget, any way of funding that budget is likely to reduce the real value of pay and benefits, whether through increasing the tax burden somewhere within the economy, or by devaluing money. Someone at C on your scale would have to accept a greater reduction in their real net income than you allow, in order to enjoy more leisure at point B. I expect that most people would view that as somewhere between difficult (bills to pay, employers to satisfy) and undesirable.

  5. Posted 12/10/2010 at 19:25 | Permalink

    How often do people turn down an offer of a pay rise and ask instead for reduced hours? As an employer, I’ve never had that experience.

    And would it do any harm if a minority chose that route? Is it fair to call that “free-riding”, when someone at B is still paying much more in taxes than they are gaining in benefits, i.e. a net contributor?

    There’s no such thing as a free lunch or a policy without negative consequences for someone, but reducing the disincentives to work for those trapped in poverty must surely weigh very heavily against any disadvantages.

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