Reform think tank warns that Coalition's child benefit plan risks bringing targeting of benefits into disrepute

By Tim Montgomerie

A new report from the Reform think tank analyses the bureaucracy-enhancing 'money-go-round' that grew up under Gordon Brown. The appropriately-titled Money-go-round paper notes that middle and higher earners were big welfare gainers under Labour but all gains were lost in higher taxes:

Although it gives 'in principle' backing to George Osborne's attempt to reduce the welfare payments going to higher earners it is critical of the manner in which he has begun his task. The report warns that the child benefit change risks bringing "the whole idea of targeting benefits into disrepute". "The right way to means-test child benefit," Reform argues, "is to abolish it and to increase the value of the Child Tax Credit. This would remove the anomalies in the current proposals without requiring a new means-testing system to be established."

The Money-go-round report is also critical of Iain Duncan Smith's "badly-constructed" welfare plan. It warns that it will "encourage low wage, part time work and cause an increase in the welfare budget and the numbers of people on benefits".

You can read the full report here.

The moral and economic imperative of reducing worklessness

By Jill Kirby of the Centre for Policy Studies.

Outlining the Coalition’s plans for welfare reform in the House of Commons yesterday Iain Duncan Smith alluded to new data on workless households presented in the Centre for Policy Studies’ latest report ‘More Producers Needed’.  At 11.5%, the UK has the highest incidence of adults in workless households of the six largest EU economies. As the report’s author Peter Warburton explains, the social and economic challenges this poses are inextricably linked. Significantly, the 1992-2007 boom did little to improve the prospects of these disconnected households:
 
As more paid employment became available in the UK between 1992 and 2007, far more jobs went to households where there was already someone working than to people in workless households, deepening the divide between the “work-rich” and “work-poor.” The Labour government’s failure to tackle welfare reform meant that dependency became entrenched while the politicians averted their gaze. In Peter’s words “The increasing indebtedness of the UK economy from the early 1990s created an illusion of prosperity and allowed an improvement in living standards beyond that consistent with sustainable growth. At the same time, the apparent health of public finances promoted the false notion that social welfare expenditures could be allowed to expand without adverse economic consequences.”

As another recent report by the Centre for Policy Studies argued, one of the most important factors in encouraging the growth which will pull us out of the current slump must be the expansion and stimulation of our labour market. Peter applies this specifically to the endemic problem of worklessness, showing that a 10% drop in the number of workless households represents a potential 3% increase in the number of working households. Even if these transitional households were initially only half as productive as existing working households, this would add around 1% to GDP.

Continue reading "The moral and economic imperative of reducing worklessness" »

Ten facts about the rich public sector and the poor private sector

What's the biggest divide in Britain?

The divide between north and south? Between black and white? Between the children of intact families and those of broken families? Or, as David Willetts has begun to argue, between young and old? All are testing divisions but one of the most politically potent divisions of our time is the divide between private and public sector workers.

The divide is described as the "Great Jobs Apartheid" on the front page of today's Daily Mail.

The Mail is inspired by new research by Policy Exchange. Here are ten of PX's top findings:

1. On an hourly basis, the typical public sector worker is now 30% better paid than the typical worker in the private sector.
2. This pay advantage is not evenly distributed.  It is higher in lower grades, with the bottom 10% of public sector workers now 25% better paid than their private sector equivalents.
3. The public sector wage premium is small in the South East and London, but  higher in Scotland Wales the North east and North west, where public sector workers enjoy a 17-20% premium.
4. Over their lifetimes, people in the private sector work 23% more hours (equivalent to 9.2 years of a public sector employee’s working life) – where their public sector counterpart will either be on sick leave, holiday, strike or in retirement.
5. Since 2002 the public sector wage bill has increased three times faster than the private sector wage bill, growing by 33% in real terms, or £67 billion.
6. A remarkable net 97.7% of the increase in numbers of public sector workers has been in education and the NHS.
7. The number of management positions has increased particularly rapidly in recent years - by over 80% between 2002 and 2009.
8. Between 1997 and 2007, public sector productivity also fell, while productivity in the private sector increased by nearly 28% - leaving the former only two-thirds as productive as the latter.
9. Over the last decade the redundancy rate in manufacturing or construction has been seven times higher than in the public sector, roughly defined. During the recession these multiples increased to 16 and 10 times respectively.
10. Public sector employees have better pensions.  The difference is worth an extra 15% of their salary.

Coincidentally, the Adam Smith Institute today calls for 270,000 public sector job cuts over the next five years. The report, by Tim Ambler of London Business School, proposes to protect so-called frontline staff (teachers, nurses, doctors, police officers and active armed forces personnel) but for 100,000 job cuts at the Ministry of Defence and another 50,000 job cuts at Iain Duncan Smith's Department of Work & Pensions.

Dr Eamonn Butler of the ASI commented:

“These numbers sound radical, but it is worth remembering that more than a million new public sector jobs have been created since 1997. And as for political feasibility, the Conservatives actually proposed to abolish 235,000 bureaucratic jobs in their 2005 election manifesto. Now that the public finances are in such dire straits, this must be firmly back on the agenda.”

One-third of all welfare payments go to families with above average incomes

Fascinating analysis of official data by Policy Exchange reveals that one-third of benefits (£53bn in total) are paid to people who are wealthier than average. £5bn of child benefit, for example, goes to households with above average incomes. The table below summarises which benefits are enjoyed most by wealthy Britons and how much it costs the taxpayer;

Neil O'Brien, Director of PX, commented:

“Our benefits system is totally out of control. We’re wasting billions of pounds on a merry-go-round that taxes people, churns the money through huge bureaucracy, and then gives them their own cash back in the form of benefits. Under Gordon Brown people were encouraged to become more and more dependent on the state. We need now a welfare system that allows people to be self-reliant. The last government ran up debts equivalent to £100,000 per family. Now we urgently need to get our public spending under control – and cutting back wasteful welfare spending is an obvious place to start.”

More here.

IEA report says true level of national debt is six times greater than commonly understood

Nick Silver has produced a report for the Institute of Economic Affairs entitled A Bankruptcy Foretold 2010: Post-Financial-Crisis Update.

Silver argues that policymakers should include pension liabilities and "and a reasonable estimate of the likely liabilities to be incurred by the government in respect of the banking sector" within their calculations of the national debt.

If they do then the size of the national debt is £4.8 trillion rather than £772m. Or, as a percentage of national income, 333% rather than 54%;

"Liabilities from financial interventions make up £73bn of the debt, while public sector pension schemes comprise £1,179bn. This level of debt arises, in large part, because of the government making unfunded pension promises which will have to be honoured by future generations of taxpayers."

Once policymakers are faced with the reality of the pension burden that one generation is leaving for the next, Silver says that some tough policy choices need to be made. He recommends:

• The Office for Budget Responsibility (OBR) should compile figures showing the government’s explicit and implicit debt arising from pension liabilities every year.
• All future public sector pension liabilities should be financed up front and funded with index-linked gilts or other assets.
• The state pension age should rapidly be increased to 70.
• The linking of state pensions to earnings and the minimum 2.5% increase should be abandoned.

Download a PDF of Silver's full paper.

80% of Winter Fuel Allowance money goes to people NOT in fuel poverty

Earlier today David Cameron made it clear that the Winter Fuel Allowance would be protected under a Conservative government.  The Economist's Bagehot was disappointed, noting that "means-testing more benefits should indeed be part of the answer to the unanswered question about cuts."

Not only would it save money for the taxpayer, Policy Exchange argue in a new briefing that the Allowance is an ineffective way of tackling fuel poverty. The 'Cold Comfort' report finds that £2.2 billion of the £2.7 billion paid in Winter Fuel Payments is going to households who are not in fuel poverty. 100,000 pensioner households who receive WFP have an income over £100,000. Meanwhile a full 49% of the ‘fuel poor’ receive no WFP.

More here.

Britain's £1bn health and safety industry is encouraging 'over-compliance'

A new Policy Exchange report notes that Britain has a fast-growing health and safety industry - with 1, 500 ‘specialist health and safety firms' selling something between £700 million and £1 billion worth of services to other businesses.

The report - written by Corin Taylor -  warns that there’s such an enormous amount of uncertainty about health and safety legislation that a culture of over-compliance has emerged.

Taylor recommends greater clarity of what is legally required by the Health & Safety Executive to avoid firms over-complying (or gold-plating); a minimum standard of qualification for health and safety consultants; and giving consideration to whether certain health and safety requirements can be lifted from micro-enterprises and low-risk office-based businesses.

Click here for a PDF of the full report.

Public sector staff are striking fifteen times more than those in the private sector

Research from The TaxPayers' Alliance notes that strikes are now fifteen times more likely in the public than private sectors. Ten years ago private sector strikes were twice as likely. See the research note here (pdf).

ConservativeHome has been highlighting the role of the public sector unions as they pour money into Labour's marginal seats campaign and as they also build up a war chest to "unleash hell" on any incoming Tory government.

The Centre for Social Justice announces new work programmes on reoffending and Britain's ageing population

Later today Iain Duncan Smith will unveil a new work programme for his Centre for Social Justice. In an advance press release the former Tory leader lists some of the challenges he hopes to address.

Citing research data Mr Duncan Smith highlights crime...

• Nearly four in five teenagers leaving custody go on to commit a further crime, according to the latest figures.
• And 69% of those completing community sentences also reoffend.

...and Britain's ageing population:

• The fastest growing age group in the country is the over-80s, which now make up 4.5% of the population or 2.75 million. This has increased from 2.8 per cent or 1.57 million over the past 25 years.
• The numbers of pensioners are around 11 million or 19% of the population. This is expected to increase to 15 million in 20 years.
• Some 2.5 million pensioners are living below the poverty line and nearly a quarter of single female pensioners have no savings at all – compared with one fifth of single male pensioners.

CSJ proposes that houses with new granny flats should be exempt from Capital Gains Tax

Within a report about caring for Britain's ageing population the Centre for Social Justice suggests that householders who build a 'granny flat' should be exempt from capital gains tax when they come to sell it.

The Sunday Telegraph reports:

"A family who bought a house for £200,000, built a granny flat for £50,000 and sold the property for £400,000 would normally have to pay CGT of about 18 per cent on a share of the profits, or about £10,000. They would be spared this under the CSJ plan. Mr Duncan Smith's group is also studying plans to exempt granny flats from additional council tax or VAT charges."