When George Osborne delivered the Autumn Statement last week, announcing that benefits will be raised only by 1% for the next three years instead of in line with inflation, there were understandably mumbles (and stammers*) from the Opposition.
The truth is for a few years now benefits claimants have seen increases in their benefits that are not in line with inflation faced by those in work.
The rate of inflation is calculated on the rate of inflation of a particular month in the preceding year, usually September. So while the rate of inflation (CPI) for September* in a previous year has been 5.2%, meaning that benefits claimants saw a 5.2% rise in their benefits, the rate of inflation for the WHOLE YEAR has been much lower, and those who are in work saw their wages adjusted to a rate much lower than 5.2%.
* 19/12/12: Link and these words added.
Last September the CPI (Consumer Prices Index) was 2.2%, but the average pay rise will be 1.5%. So if benefits were raised in line with CPI, those on benefits would be doing far better than those in work.
I see clients who tell me that they 'cannot afford to go out to work' because they would be earning less than if they were on benefits.
These are usually single mothers with one or more children under 16. They get Child Tax Credits on the basis of being single parents.
In other words they are incentivized to become single parents.
Where is the logic in this? None whatsoever.
When Gordon Brown introduced these tax credits, many, many people were happy to vote for his party to remain in office.
There are also Working Tax Credits. So if you work minimum hours (used to be 16, now 30 if in a couple) the taxpayer tops up your pay.
Result: people work minimum hours in order to benefit. Why work 40 hours when you could get nearly the same by working just 16 hours?
On the other hand people who work 40 hours on minimum wage only get £12,875.20 BEFORE TAX. The unemployed woman in the linked story above gets an untaxed £15,480 (according to the report).
When was the last time you enjoyed a six-month holiday?
One of our clients took his parents (all three receive all sorts of benefits) on a six-month holiday back to India. He even came back with a wife. If he could afford to go on such a long holiday, surely we are paying too much in benefits.
I also have clients who come to complain their electricity and gas bills are too high. "It cannot be right. I was not living there. I was on holiday in Sweden for a month."
I suspect clients like this are also claiming benefits in Sweden because governments do not share data, cannot share data, lots of claimants, it is rumoured, have wives in different countries, where they claim all sorts of benefits as single parents while the fathers flit in and out of these various countries, having more and more children and getting richer on benefits.
I could have told IDS this many years ago. I remember a couple with three children taking on a £1200 a month mortgage. They weren't particularly hard working or in lofty positions or one's to skimp on things. When I asked them if they worried about meeting the payments they told me their tax credits more than paid for it.
So like many other millions they were being awarded living standards which they in no way deserved by the welfare system.
At the same time people were turning down overtime and promotion because the tax credit system made them worse off for doing so. It really is an unfair and extremely wasteful system which distorts the proper functioning of the labour market.
Which begs the question of why IDS is only raising this issue now and why they haven't abolished them completely. We managed and fared much better without them.