Comment
on this article to comment@patrickminford.com
Time to close a poverty trap...- Daily Telegraph 29 January 2001
Comments so far:
J. Alan Smith
Chris Kelley
Daniel Brewer
Dear Professor Minford:
I agree with your proposal to abolish the Working Families and Child Tax Credits and raise child benefit. It was 'The Social Contract' by Sir Brandon Rhys Williams, Bt that first introduced me to the idea of integrating taxation and benefits; I gave support to it in my pamphlet 'No Mean City' (Monday Club, 1969). Sir Brandon put the case for Family Allowances in a speech to the House of Commons on 2 November 1987; I reprinted it in Prag No. 46, Easter 1989.
Regards,
J. Alan Smith
Dear Mr. Smith,
Many thanks for your comment. There is a long history of contributions to this subject - in fact on one occasion Sir Geoffrey Howe reminded me of a pamphlet he had written for the Bow Group even further back. I am sorry that space never allows full acknowledgements - virtually none at all, come to that. But of course Sir Brandon was, with Hermione Parker's help as I recall, one of the first to call for a Basic Income (like the Citizen's one). The difficulty with these ideas, at least when considered in the context of supplying people with an incentive to come off the dole (out of the 'unemployment trap'), was that they were far too expensive; one swapped high marginal tax rates on all for a reduction of very high on a few. Needless to say this did for it in the official debates, eg under Sir Norman Fowler in the mid-1980s. Given the need to use benefits to tackle both unemployment and poverty traps the Fowler compromise was about the best one could come up with. However as I argued this morning we now have an opportunity, with the unemployment trap out of the way, to sort the matter out; and the solution is the Rhys Williams/Parker basic income (or as you say 'family allowances') but at a much lower rate.
yours sincerely,
Patrick Minford
Geez! How do working stiffs live with such high tax rates? What is the motivation to continue working if the government confiscates the greater portion of your hard-earned pounds to "give" unproductive people £220 per week? Why would poor people ever stop producing children irresponsibly if the government offers them "incentives" to breed by blessing them with additional funds for additional kids?
I am amazed that while so many Britons are working so hard to make ends meet that there are bureaucrats who actually believe non-working people (who continue to bring children into the world) actually have some kind of right to taxpayers' hard-earned incomes.
This is rather frightening, given my wife and I are going through the preliminary paperwork motions to relocate to the UK. She's a nurse and badly needed. I'm a mechanical engineer.
Yeah, yeah. Sure, the US has welfare - and it's proven to be a negative incentive of tantamount proportions for getting of welfare - and it's done nothing but dumb down a too large number of people. But not to the extents this article seems to imply! The idea that so many hard working English mothers and fathers must struggle with their own family costs to feed and cloth and heat and entertain losers on the public dole - who have no business bringing children into the world(!) - loafing about during the workday drinking and doing drugs while their unmonitored children break into neighbors' unattended homes turns my stomach.
What kind of person empathizes with these people? Get them the hell to work and contributing to the public rather than living off the public. If they're foreigners - well, perhaps they need to leave? From what we've learned from your government, foreigners are not supposed to be entering England without proof of employment or support and are not entitled to approach the welfare system there. If this is indeed happening, perhaps it's time for a change.
Chris Kelley
Seattle, WA.
Thanks! Well, you said it. Of course what we do here is incomprehensible from an American viewpoint; with the exception that the US got itself into a similar mess for years with its big welfare programmes, particularly the Aid for Families with Dependent Children, which had a very bad effect on the incentives of poor families. The problem is once you are in this mess it is hard to dig your way out because you have created a large class of recipients and of professional whose careers depend on the programmes. The combination of 'chattering class' and poor people's opposition to reform is extremely powerful.
But your reactions have a strong echo in the opinions of ordinary people here. Read the Sun to discover just that. There is now as a result a much tougher attitude on 'git a job'- as I said in my piece both main parties endorse that which is huge progress. The other changes are more subtle - poverty trap stuff - but will come as people understand that problem too. It takes time.
As for asylum and so forth, everyone here is appalled by the mess; we both let them in and then stop them doing any work. It is crazy; either let them in and push them into the labour market; or send them back. We - basically due to the Labour government's changes - do the worst possible combination. So welcome to the UK - when you arrive, please join in the debate!
yours sincerely,
Patrick Minford
Dear Professor Minford,
I was fascinated to read your article of 29th Jan 2001 with your opinion of how to solve the problems of the poverty and unemployment traps. I am the director of PIVOT, an independent initiative dedicated to seeing these traps eliminated. I am also not trying to solve poverty, making PIVOT entirely non-party political.
There are a few points that I would like to challenge you on. I agree that there are some failings with the WFTC concerning its administration and as a director of a small private company I do understand these pressures. I also agree that raising child benefit is a sound solution, though I would administer it differently - as a benefit to those on no/low incomes but as a tax-free allowance for those on higher incomes. Incidentally this is much closer to the concept of a citizens income than perhaps you would like to admit.
However "to have a short sharp poverty trap" may help some but it would seriously disadvantage the most vulnerable and disadvantaged. In a labour market that is increasingly flexible, casual and agency work is just as important as highly skilled jobs, and so such work must be encouraged at all levels of income. The only way to achieve an incentive for this work is to remove the poverty trap by having reasonable benefit withdrawal rates from the very first pound that is earnt.
Secondly, it may be fair to assume that on average single people and childless couples are freer to fend for themselves but they are not an homogenous group. If anyone honestly wishes to place this expectation on this entire demographic then I suggest they volunteer themselves for six months work in a homeless shelter. Offering support only to families with children only encourages people to stay at home and have babies. Thirdly I find it interesting that you consider in-work benefits to be "a bribe" to get people to work. This sort of thing happens all the time. In fact I would argue that it is less of a bribe than the tax breaks that are freely offered to the rich, in essence as a cash benefit. I think tax credits are the only way forward to streamline the tax and benefit system and if it is carefully implemented they need be no more an administrative hassle than the NIC and PAYE system is currently. It seems to me that it is actually a way of pulling businesses into a fully legitimate economy. The reason for discrimination against certain employees with families at the moment is because adults with no children are not entitled to an equivalent tax credit, and they should be.
Sincerely yours
Daniel Brewer
Project Director, The PIVOT Initiative
Dear Mr. Brewer,
Many thanks for your letter.
In reply to your three points: I prefer the idea of stretched child benefit to the short sharp poverty trap, as I said in my piece. However, the short sharp trap is better than the extended trap because it can more easily be leapt over; in practice promotions and retraining deliver big enough shifts in wages and conditions to mean that for most a short trap will not be too great a disincentive.
For the same reason, yes, I agree with you that there should be no withdrawal - hence child benefit.
A tax allowance in place of benefit up the scale creates a high marginal tax rate higher up - better just to keep the benefit going.
I cannot see any case for giving benefits to people without children, since they have the flexibility to change jobs and retrain, in the case of couples to have two jobs, and in all cases just to worry about themselves. Of course it is up to my fellow-taxpayers but I cannot see they would wish to support them on poverty grounds. That Fowler judgement has gone unchallenged - even if I can see that Pivot would not be in agreement. (I would expect the public to be happy to support the sort of charitable activity that Pivot represents for those in these categories that cannot cope - but not to want the taxpayer involved.)
Yes, the in-work benefits were a bribe or if you prefer an 'incentive' introduced to offset the attractions of unemployment support. If the 'no fifth option' is accepted, then withdrawal of unemployment support after six months makes such an incentive unnecessary- that's my point.
Yours sincerely,
Patrick Minford