Saturday, 31 July 2010

Iain Duncan Smith vs. The Telegraph

Iain Duncan Smith, the Coalition’s Work and Pensions Secretary, says that the benefit system has ‘trapped generation after generation in a spiral of dependency and poverty’. I don’t always agree with everything Iain Duncan Smith says, but I do think that on this occasion he has a point. So I was not at all surprised to see a rebuttal in the Telegraph. “The Coalition wrongly assumes that poverty is the result of worklessness caused by barriers outside individual control, writes David Green”.

“Imagine that the only help available for a person losing his job was from a family member. Your brother or sister says ‘OK I will pay you £300 a week until you get back on your feet’. A month later you are asked how the job search is going and reply, ‘Well I found a job for £310 a week but it’s not worth taking because I will lose the £300 you give me. In effect I will be working for only £10 a week.’ The kindest of siblings might find this a little selfish. But this is exactly the attitude being taken by people on benefits who will not work because it does not pay.”

Mr. Green might have a point if that was how the situation actually worked, if the person finding work could actually be sure of being better off, even by just £10 a week. But that is not how it works at all. What happens is, the government pays an unemployed job seeker various allowances, such as Housing Benefit and Job Seeker’s allowance, which together usually amount to just enough for a frugal person to scrape by on and they are conditional on the recipient being able to prove that he or she is actively seeking work. I’ll use Mr. Green’s figure of £300 (well above the minimum wage) for the sake of argument, but usually the figure will be nothing like that.

The job seeker then finds a position which pays £310 per week, but since it is a considerable journey to work, the fares are £12 a day, or £60 per week, leaving a net income after transport costs of £250 per week. Then there will be new clothing and shoes to be bought, since the stuff that was good enough for at home won’t be good enough for the work environment. The benefits will stop straight away while the wages will probably be paid a month in arrears, leaving a one-month “black hole”. Then there are taxes to pay, and all the other incidental expenses that arise from having to travel … the result is that for someone who was just scraping by on benefits, the effect of actually finding a job can be financially devastating, unless that job pays very significantly more than benefits. That’s why benefits shouldn’t be an all-or-nothing thing, cut off instantly and in their entirety the moment a person finds employment.

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