Rip up the benefits system

Woman ripping up paper

How do you solve the welfare trap? In his regular column, Michael Blastland invites you to rip up the benefits system and start again.

OK, bit of a problem. Wonder if you can help.

It's welfare. All the benefits going to well-off people. Something should be done about it.

There's a scandal at the other end too: the welfare-trap, or poverty-trap, where people might see their benefits cut as soon as they take a job, then on top of that have to pay tax on their earnings. The bottom line is they are sometimes scarcely better off - a criminal disincentive to hard work.

Here's your chance to do something about it, to fix those bad incentives, force people to take responsibility for their own lives, stop subsidising the better off.

There's a comment form at the bottom of this page. First, let's take a very quick look at the problems one at a time, using the slideshow below.

Challenges of benefit reform

If you earn £5,000 or less, let's say you get £2,500 benefit. For every extra £5,000 you earn, in this example, you lose £500 of benefit. When you hit £30,000, you lose all benefits.
But that gives benefits to people who are too well off.

So... take it away from them.

Like this... So the maximum you can earn and still claim benefit is just over £20,000. That's better.
But, hey, that just made the poverty trap worse. Now when you earn an extra £5,000, you lose £750 in benefits. That's on top of all the income tax you now pay that you didn't pay before.
That's terrible. What a disincentive to work. Let's ease the poverty trap by taking away benefits more slowly.
But, hey, that gives benefits to people who are too well off...

Haven't we been here before?

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So here's the real problem: how to avoid what seems like an unavoidable trade-off? This is more than a welfare trap. It's the welfare-trap trap. Sounds like a dance and it almost could be - we go round and round to find that sorting one problem seems to make the other worse, the catch-22 of benefit reform.

Can you crack it? Or is it inevitable that the more you ease the taper on benefits to lessen the poverty trap, the higher up the income scale you go? Or, alternatively, the more you confine benefits to the poorest, the steeper the climb out of poverty?

Of course, you could just slash benefits all round. That way, even if there's still a long taper, it won't reach so far up the income scale. But that, obviously, means less for the very worst off.

The latest grand reform plans announced last week - much as they have been commended for the promise of simplification - do not offer a solution. In the past, coalition MPs have criticised both failings of the system, although every government has wrestled with them.

So in the spirit of the new government, we're seeking your ideas, marked for the attention of the Secretary of State for Work and Pensions, on the comment form below. We won't be forwarding them, but let's hope Iain Duncan Smith is a reader.

So get writing. Dear Secretary of State, I would escape the welfare-trap trap by…

A selection of your comments appears below

I would escape the welfare trap by establishing a base line 'living wage' and topping everyone's wages up with benefits until they reached this figure. It would mean everyone will be earning the same and whilst I admit it does not encourage people back to work they will not be penalised by doing so.

Heather, Cambridge

I work for an agency that advises on welfare benefit law. The system is horrendously convoluted and complex. So many departments administering different benefits, none of which appear to have any communication with the other. This leads to overpayments, erroneous awards and underclaiming on a massive scale. It needs to be simplified, administered by one agency, and made into one benefit which has several components relating to an individual's circumstances. Also, there are too many people working in the benefits administration system - making it a very expensive prospect. The amount of money saved on administration would more than likely, cover the cost of changing the system.

Nick Ward, London

Unemployment benefit should be axed completely and the money saved used to pay for community jobs for people who can not find a job themselves. Instead of paying some people to lay around all day, get them picking up litter, cleaning green spaces, etc. People who are fit to work, but not prepared to work, should receive no benefits.

Paul, Sheffield

Give everyone an extremely minimal universal income. Everyone. Whatever you earn on top of that is yours. That way there is never a disincentive to work, because the money is never taken away - you have only more to gain. The universal income should be set low enough to be very hard, but not impossible to subsist on. Most people will choose to supplement their income in whatever way they can.

Andrew Davie, Huntingdon, Cambs

Dead Secretary of State, I would escape the welfare-trap by not using a purely linear graph. I think that linear works up until around 20,000 - after this point it ends up giving people too much. I would increase the amount paid to the poorest and introduce an exponential decrease above 20,000 - so that the benefits start to decrease rapidly as you earn more.

Rachel Cullen, High Wycombe

The point is often raised that benefits are too high and as such are often a disincentive for people to work. I would argue that it is the minimum wage which is causing the problem. Rather than reducing benefits, wages should be increased. The current minimum wage (£5.80 per hour) for over 22 year olds is not enough to live on. This result of this is that the UK tax payer ends up subsidising wage bills through the benefits system.

Paul Cox, Sleaford

I would scrap family allowance after the fourth child. I am afraid if you would like a big family you must not expect the British state to pay for them for you.

Norma Duke, Alton, Hants

Keep the taper as it is until £15,000, then go straight down to zero. Raise the national minimum wage, and give it a regional weighting based on the cost of living in those areas. Make the punishment for benefit fraud the repayment of all they've defrauded, a fine of the same amount, and a statutory fine of their yearly post-tax income.

Brian,

Perhaps a bit simplistic, but I've always thought that if a person could earn (take home pay) £100 a week on benefits, then got a job only earning £90 a week, the government should 'top-up' their earnings so they're no worse off. Even a little employment is better than none at all. As people get more work experience, their pay would improve to a point that a 'top-up' is no longer necessary. I also think that handing people their benefits in cash is a recipe for disaster. Debit-style cards should be issued which can only be used for certain things (i.e. not alcohol/cigarettes/fuel). Combined with housing benefit and discounted public transport, that would ensure the public purse is not being used irresponsibly, but they have freedom to seek employment and feed their family. If people want to have money to have fun, they should have to work for it, like everybody else.

A Willis, Little Stoke, South Glos

I'm not sure if this will help much, but I find it odd that the decrease in benefits has to be so linear. For example wouldn't it work better if you start off with £2,500 in benefit for people earning £5,000, which then gradually decreases to £2,000 (or maybe £1,500) in benefit for people earning £20,000, followed by a sharp drop to nothing for people earning £25,000. Although this means that people earning between £20,000 and £25,000 now have a similar dilemma to those in the current poverty trap, at least it will always be more profitable to have a job rather than not have one at all.

Charlotte Leese, York

In an ideal world, build more council houses/flats and stop right to buy. Council rent = £400/pcm, my private rent = £600/pcm and I get £200 Housing Benefit every 4 weeks. It's a BIG layout to start with, but for every new person in council/housing association housing that's a saving on the Housing Benefit bill in the long term. I live in private rented, so if I go out to work, I lose benefits straight away, whereas someone in a council house will earn extra because they don't get any HB in the first place. They are better off and so are the government. Lower the benefits total across the board so that those who contribute nothing to society get the bare minimum which allows them to simply exist. Broadband, mobile contracts and cable/sky TV are NOT essentials to live. Instead of Income support of £X a week, give vouchers for food and utilities so the money is spent on the right things. Only give child benefit for the first 2 children. Stop some benefits once the children are age 8 (in junior school), basically forcing stay at home parents back into work. I realise this makes makes it harder for those on benefits (me included) but working should be better for you financially than being on benefits.

Sharon, Nailsea UK

The answer is simple. Scrap most of the "tax allowances", and have the government instead send every person an income of, say, £3,500 in monthly instalments. People in work pay tax on all the money they earn, so the £3,500 works just like the tax allowance used to; the difference is that if you find yourself out of work, you're still receiving the allowance without having to apply for anything, be means tested, or occupy the time of people in job centres. No eight-week delays while people deliberate over your application and you struggle to feed the baby. No loss of income if your circumstances change. And a massive saving on bureaucracy and pointless form-filling. Not to mention simplification of the tax system too.

Ian K Rolfe, Newbury, Berks

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