Political

You’ve got it wrong if your benefits reform plan benefits me

The enthusiasm of politicians to give me money is bizarre.

They love bundles of tax policies that make me better off. They nearly all consider the fact that I can afford a place of my own in London is a reason to give me an extra tax cut (thank you, council tax discount). And almost as many think the fact that my home has gone up in value thanks to no effort of my own at all, but rather a school moving to the area, is something which should solely credit my own balance sheet.

At times politics feels like being a vegetarian at a meat festival. All these freebies on offer and all really being directed at the wrong person.

Thanks to whatever combination of luck and graft you want to ascribe it too, I should be right near the bottom of wish lists of people to help when it comes to parcelling out financial assistance from the state in one form or another.

Which aside from making me sigh when the next Budget rolls around, is also why by the end of my time on the Lib Dem policy committee looking at the welfare system, I ended up against ideas of a basic income or negative income tax (a topic to be debated at the Lib Dem conference in Brighton on Monday). [Update: Lib Dem conference voted against supporting a negative income tax scheme.]

The idea of a flat rate system which gives everyone the same is flawed because, well, for the very reason that it is a flat rate system which gives everyone the same. I’m young(-ish), healthy, in full time work and without any dependents. That’s a massively cheaper situation to be in than someone who is, say, old, with a long-term health issue and with a child with disabilities.

A flat rate covering us both is either absurdly generous to me or horribly mean to them. And that’s without getting into how the huge variations in housing costs around the country mean that you can play out exactly the same profligate or mean problem for people depending on which parts of the country they live in.

Which is why any attempt to simplify our welfare system through a flat rate system rapidly becomes barely a simplification at all on paper as you have to add back in systems for assessing people’s health, deciding who gets parenting costs covered and accounting for variations in housing costs.

Plus you have the downside of having to introduce a whole new system for allocating the flat rate sliver which is left at the heart of all these complications. And we all know how cheaply, easily and hassle-free introducing such changes to our welfare system work out to be…

It makes the case against such flat rate systems essentially a liberal one: there is too much variation between people to shoehorn them all into the same template.

What’s more, what you spend on people like me for a flat rate system is spending that isn’t going on the people who most need extra help. Which is hardly a great way to prioritise help.

It’s true that some systems – such as versions of negative income tax – try to deal with this by taking back from better off people what they’ve just been given. So you can have a negative income tax system which ups the tax take above the flat rate designed to ensure the better off don’t end up even better off. Aside from all sorts of problematic details about the rate of such tapers, such an approach depends on income in one tax year being a good measure of whether or not someone is well off. There’s a reason Lib Dems often call for a switch from income to wealth taxes… so to build a new welfare system around the idea of income tax working to take money back off those who are well off is spectacularly inconsistent with what the party says the rest of the time about wealth versus income. Unless you’re going to through in too assessing everyone’s wealth into this “simplified” system. Which leaves you using “simplified” to mean “vastly more complicated and expensive to administer”. Oh, and risky too given how often new systems go wrong, with those most in need first in line to suffer the consequences.

Even if you do all that where does that leave well off self-employed people who book an accountancy loss in a particular? Quids in from government is where, thanks to that loss triggering flat rate generosity – even if, once again, they are not people who are really anywhere near poverty.

Far better instead, as the policy working group concluded after looking in detail about how such schemes have worked when tried out and considering carefully the distributional analysis for theoretical schemes proposed for the UK, to go for making the existing system simpler where we can. Incremental, less dramatic but prioritising helping those who really need it the most.

For if you want a nice simple system you have to pretend everyone is the same and be happy to make a system which gives extra cash to the wrong people. I mean, I’ll promise to give it a good cause and all that, but really – if your system is about making me better off, it’s the wrong system. Or you then have to burden it down with so many variations from nice and simple that you end up with new, complicated, messy and risky.

All of which takes money and effort away from actually helping those most in need. Which is where the priority really should be.

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