Picking On The Poorest – 3

Incentive to work is key, so the latest report from the so-called Taxpayers’ Alliance tells us. And it is also used to spread characteristically misleading information about the benefits system.

For someone taking a job paying the minimum wage and at the same time losing all three of tax credits, housing benefit and council tax benefit, the TPA asserts, the extra income from working would be only an extra 26p an hour. However, as they fail to even estimate the number of people so affected, this can be assumed to be no more than a headline grabbing figure, and will be treated with the contempt it deserves.

The TPA do, however, quantify the number of households facing a “benefit withdrawal rate” of 60% or more: this is put at 2.5 millions. The “benefit withdrawal rate”, which becomes a “taper rate” when it forms part of the TPA’s proposals, refers to the amount of benefit lost per pound of money earned, so earning a hundred notes a week while losing 60 in benefits produces a rate of 60%.

Here, the marginal extra income from working at the national minimum wage comes out at 2.32. But what if the rate were even higher, leaving a mere two quid extra? Let’s consider that scenario. Would I get out of bed for another two quid an hour? Dead right I would: 80 notes a week more for working means working. But how can I be so certain?

Those at the least well off end of the spectrum inevitably have more needs than the amount of money available. Benefits do not bring affluence or comfort, whatever the comfortably off at the TPA might suggest. Every pound gets spent, whether or not the goods purchased meet with the TPA’s approval. Propensity to spend is at its highest here. That 80 quid extra may go on better clothing, more enjoyable food, or even a good session down the nearest bar. But it will get spent, and there will be little problem providing the motivation to take the work that delivers it.

Have the TPA investigated the area of motivation? Doubtful. There is nothing in their report to suggest that those subject to a 70% “taper rate” will be significantly less motivated to take work than those subject to a 55% one. We have to take that on trust. And that, not for the first time, is not good enough.

But at least the figures will be reliable in such a thorough and rigorous report, won’t they? Don’t bet on it – more next.