Friday, October 29, 2010

Best To Be Bold

Daft - but not quite as reported*

Nobody said welfare reform was going to be easy. There were always going to be losers, and the welfare lobby was always going to scream very loudly.

But if we are ever going to grip our ballooning £200bn pa welfare bill and provide real work incentives, serious reform is absolutely essential. And to do it right, we must be bold. Nibbling away at the margins is very likely to leave us with the worst of both worlds - plenty of losers and screaming, combined with a welfare system that still isn't fit for purpose.

Take the row over Child Benefit. This morning we got the latest instalment, in which the Treasury is vowing to impose fines on any higher rate tax payer who fails to declare his or her partner is in receipt of CB.

Which is fine, except that the partner may not want to say. After all, a couple's tax affairs are separate these days, and CB is paid direct to the female partner specifically so she can keep it away from the nasty beer swilling brute she's forced to live with (well, that's what Pol says anyway). And what happens if the man/woman doesn't realise he's a top rate tax payer, perhaps because of an unexpected bonus?

The basic problem is that we currently have no way of taxing couples as a unit. Tax is levied on individuals, so HMRC doesn't automatically know the overall household income.

And that is a key reason why our own cuts package last year included the complete abolition of universal Child Benefit (see this blog). In its place, following an existing plan put forward by Reform, we proposed beefed up payments to poor families under the Child Tax Credit, which is means tested on household income. True, in an ideal world none us wants more means testing, but since this is the real world with an increasingly limited budget, that's something we just have to put up with.

Had George followed that line, he'd have avoided all these complexities with fines and the indefensible disparity between one and two earner families. He'd have had a clean workable solution - at least pending the more radical universal benefit reforms promised by IDS.

So why didn't he do it?

You know why. Universal Child Benefit is a totem - the very embodiment of the welfare state. Also, he didn't fancy explaining to those Ordinary Hard Working Families (OHWFs) on £30-40k that they are to lose a couple of grand a year - even though at some stage they could look forward to commensurately lower taxes.

So we've ended up with a dog's breakfast. Failure to be bold and go for a workable long-term solution has landed us in a mess.

Let's hope there's no backsliding on the the other great welfare change - cutting Housing Benefit. The much bolder reforms there find themselves firmly back under the spotlight, courtesy Boris's most unfortunate remarks yesterday about "Kosovo-style social cleansing"*. Here's the TPA's Matt Sinclair arguing the case last night against the Bishop:

We've blogged Housing Benefits many times, and we took a good look at the current situation here. We showed how under Labour, spending soared by 35% in real terms, although the number of recipients barely changed - in other words almost all the money went on pushing up rent levels:

We also showed how in some areas, Housing Benefit dependency has reached 30% of all households, and more. The record is held by Hackney, where an astonishing 43% of all households are on HB:

We noted how many landlords have done very well out of HB, driving returns on their equity as high as 50%.

And we pointed out that the serious economic research in this area shows that it is the landlords who will suffer the biggest hit from cuts. The evidence says that between half and all of the cut in rental subsidy ends up falling on the landlord not the tenant. In other words, rents fall pretty much in line with the cut in subsidy.

But according to the BBC and the rest of the left, the poor are about to be sent back to the workhouse. Indeed, the preposterous Labour MP Tristram Hunt reckons they'll soon be gnawing on bones and putrid horse flesh to stay alive. Tristram is the son of Lord Hunt and was schooled at University College School Cambridge followed by Trinity - we should probably assume he's never sampled bones, putrid horseflesh, or even KFC, and knows as much about life on low income as the Duchess of Buccleuch.

Admittedly George is from a similar background to Trist, but on HB reform he is a lot closer to reality. His bold HB reforms are a vital step in the right direction and he must not allow himself to be intimidated.

Everyone out here agrees that HB recipients should not be funded to live in houses the average taxpayer can't afford, and that may well lead to some relocation. But that's simply too bad - the money has run out.

Nobody's being sent back to the workhouse. And if the reforms lead to anything like the grim Dickensian world Trist describes, Tyler will personally gnaw on the first bone he can find lying in the gutter.

*Footnote  Boris was obviously daft to have referred to Kosovan cleansing. But when you hear the actual interview - as opposed to the hyped up reports of the interview - it's pretty clear he was actually just saying that he wanted to see good transition arrangements for the new system. He wasn't opposing the whole deal, as was reported subsequently. Well, that's what Tyler thinks anyway.


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