One of the challenges facing unemployed people dependent on welfare is that the system assumes work is stable and long term. That may have been true in the past…
TL:DR;* The UK system of welfare payments for the unemployed is based on the assumption that work is stable and long term. That may have been true in the past but we are now in an era where jobs are increasingly likely to be of a temporary, contractual or seasonal nature, causing some people who accept employment to be worse off than those who stay unemployed due to how unemployment payments are administered. A possible fix would be to give everyone a base level of welfare freeing people to work on what they want.
This is one of those Friday thought posts. It’s about a theory I have bored various family and friends with over the past 12 months and nobody yet has come up with proof that it’s a bad idea. So time to test in a bigger pond…
In the UK, one of the ‘hot potato’ topics is the long-term unemployed. Accusations fly that people on welfare in the UK are unwilling to work and would rather just sit around receiving unemployment benefits instead.
Well I think that’s
bollocks a flawed assumption.
There may be some who choose that path in life. But I would wager that they are in the minority. Or at least no bigger a group than those who will do everything humanly and/or digitally possible to avoid paying taxes on what they earn.
One of the challenges facing unemployed people is the process involved when you find work. It seems pretty simple. Find a job, notify the government and the unemployment ‘benefit’ stops. And it can usually be stopped immediately, somewhat quicker than the process to start receiving welfare payments in the first place. But this approach assumes that jobs are stable, sufficiently well-paid and long term.
The reality facing an increasing number of people is that jobs are not stable, are not well-paid and are not long-term. Particularly at the lower levels of the organisation hierarchy, i.e. the majority of jobs on offer when you are unemployed. And you don’t get temporary or flexible welfare payments. It’s an ‘all or nothing’ system that is no longer aligned with employment patterns.
Here’s a very simplified scenario. (To do otherwise would turn this post into an ebook…) Two unemployed people are offered the same job. One takes it, one stays on benefits.
First of all, the basic cost of living (CoL). In this scenario, it costs 1,000 coins per month to cover the absolute minimum to live in our fictional country, covering the essentials: shelter, food, warmth and clothing.
This country provides welfare payments to the unemployed to cover the minimum cost of living. For those in work, there is a personal allowance enabling people to earn up to 2,000 coins per month before paying any tax. Earn more, and you start to pay tax at a rate of 20%. Earn more than 4,000 coins and it increases to 40%. The minimum wage is set so that those working full-time will earn a minimum of 1,100 coins per month. If you are earning, you more than someone who is not earning and you can earn double what they receive before you start paying any tax. This sounds reasonable on paper but how does it work in reality?
Back to our job offer for temporary work. The wage will be 1,300 coins per month. Person A chooses to stay on benefits and receives enough money to cover living costs on a monthly basis but has nothing leftover to save or spend on luxuries. Person B takes the job.
For the first three months, Person B will have extra money. But then they are told there is no more work for the time being. It takes at least a month to sign back on to welfare payments, so for a month they have no income at all and have to rely on savings or be unable to pay essential bills. That is a highly stressful situation to find yourself in. And that is why most people who are long-term unemployed are more likely to be better off staying on welfare payments than accepting low-paid temporary offers of work, regardless of their work ethic. Particularly if children are involved. Worse still, it encourages criminal behaviour. If there is the opportunity to earn money for a one-time piece of work, unemployed people are better off not declaring it than running the gauntlet of being signed off the system and then being worse off whilst waiting to be processed back onto the system afterwards.
So here is my idea for a solution: Eliminate unemployment.
Replace welfare payments for the unemployed with a universal credit that every adult citizen receives, regardless of what work they do or how much they get paid. Like child benefit, but for adults instead and without the means testing. Everyone gets it – from the poorest to the wealthiest. But at the same time eliminate all income tax credits and allowances, including state pensions too (saves arguing about raising the age for claiming it as the population ages). This is a universal credit until death but you pay tax on everything you earn along with the taxes charged for things you buy. Keep the income taxes as simple and as low as possible. And get much much tougher on those who avoid paying what’s due. (According to Caitlin Moran, in The Times published on 21st January 2014, £1.2 billion of tax is lost due to welfare benefit fraud whilst £14.7 billion is lost due to tax evasion.)
Why do I think this could work? It instantly eliminates the biggest barrier facing unemployed people and young people entering the workforce. The fear of what happens if a job doesn’t work out when you have no safety net of savings to rely on whilst you are processed back onto the welfare payments system. The fear that drives young people to give up their dreams and take a job that will never be fulfilling but ‘pays the bills…’ until they get made redundant one day and realise it’s too late to pursue what they really wanted to do.
So lets look at that scenario again, under the new system.
Person A stays on benefits and continues to survive.
Person B takes the job. Despite paying tax from the start, the money they have leftover each month is significantly more than Person A because they continue to receive their universal credit as well. But more importantly, if the work should suddenly end, they are not faced with being unable to pay for essential living costs. There is nothing to lose.
What is the likelihood that next time, Person A will take the job too compared to the first scenario that is more likely to see neither take the job? What is the likelihood that the local economy also benefits now that Person B has more money to spend. And then, as well as the income tax collected, the government gets some extra sales tax too and the overall economy starts to grow.
But there’s more. With the universal credit guaranteed, it enables people to take more risks in finding work. To try their hand at anything and everything if it helps bring in some extra money to help build a better life. That is very difficult to do under the current system. There is no need to be tempted by the criminal alternative of not declaring ‘cash in hand’ work. I fundamentally believe that most people want to do good. And that includes wanting to be productive in some way, to find meaning and purpose in their life. Yes, there may be some people who abuse the system, who will always take more than they put in. But they are in the minority and you find them at all levels of society and wealth. Under this system, how many people could follow their true passions in the arts, sports and good causes. Routes closed to so many people because they are pressured about the importance of ‘finding a job’.
The Future Reality: ‘Jobs’ are disappearing
There’s another reason why we need to stop this thinking of employment versus unemployment. More and more people in the richest countries in the world are going to find it harder to gain traditional employment in the coming years. Digital technology is automating jobs at an accelerating rate, moving up the hierarchy into the world of ‘knowledge work’ and the wealth being generated is not being used to invest in replacement jobs or markets for those directly affected.
Yet there is no shortage of wealth being created, things to do or desire within people to keep themselves busy. Just go visit YouTube and view some of the amazing creative talent on display by amateur film-makers. See how many books have been written and self-published on Amazon this month. On the TV programme Benefits Street (UK only), watch the ‘unemployed’ White Dee go about organising the lives of her neighbours: getting electricity reconnected, clothes washed and ironed, making sure people don’t miss appointments. Doing the job of more than a social worker in her local community without being paid for it.
The automation of traditional jobs is going to create conflict and disruption in the coming years within mature economies. But not through a shortage of human productivity or wealth generated from that productivity. But because the fundamental mechanisms controlling who benefits financially are broken. They are systems from the industrial era that are not effective in the current information era. It’s going to take time to establish new mechanisms. But imagine a place where you knew you would at least have enough money to survive, month-to-month. Imagine how that could free up the creativity and talents within people to lead the way into new markets. Who knows what innovations and wealth generation such opportunities would create. Surely that is a better future than the past where so many people had no choice but to sign over the healthiest years of their lives to function as a ‘resource’ acting as a replaceable cog in the industrial machine.
Appendix: The EU
Still here? Thanks for sticking around! This is a bit of a long-winded ‘On my soapbox’ post.
So one of the challenges I received early on to this idea is that the UK is part of the EU – wouldn’t this system lead to people who have never paid any tax into the system and live in poorer countries turning up and instantly receiving welfare, causing more deficit problems given the government currently spends more than it receives in taxes.
Here’s my additional solution (I’m pro-immigration, my concern is where money is earned in one country and sent to another. The healthiest economies are those where people spend what they earn locally):
- There should be free movement across all countries within the EU provided you either have an ‘import’ visa offered by the host country or an ‘export’ visa issued by your country of origin.
- The visa guarantees that the issuer will cover the cost of any welfare payments for 3 years, and they deposit an agreed amount in advance with the host country
- After 3 years, your visa is reviewed. Unless the host country can provide a suitable reason to revoke the visa, you are granted permanent residence. And ‘suitable’ should be defined centrally by the EU, not individually by each country
- Countries can decide how many import or export visas they choose to grant each year but the number can be challenged by the EU to try and keep movement as fair and free flowing as possible
- This should apply to all countries. If I want to move to France and I can’t persuade the French government to let me in based on my current skills, work and financial position, I have to apply to the UK government for an export visa.
- Note: You can still visit all countries as a tourist for up to three months per year
I know none of this is perfect and the devil always lies in the details, of which there are many to work through. But too state that old quote: ‘Insanity is doing the same thing over and over again expecting a different result.’ Our government systems created during the peak of the industrial revolution are not coping in this new globally connected information age that is disrupting how wealth is created, taxed and distributed. Instead of making terrible statements like the one below, we need to think differently.
MP Andrew Rosindell made the following comment during parliamentary question this week, in response to statistics showing that 52% of households in the UK contribute less in tax than they receive in services:
This is a startling statistic. It highlights the major problem we have in that so many people are able to get away with contributing very little to the cost of running the country, while benefitting greatly from it.”
Really?! Does he truly believe that people on incomes so low they need welfare payments to cover the cost of living are trying to get away with something? That they are benefitting greatly from their situation? What reality does he occupy? Politics and government systems need a reboot.
* ‘Too long, didn’t read’, aka a short summary
This post was inspired by a number of books and articles over the past 12 months. But the following pair led to it finally being written, with thanks to both authors:
- The post-job economy by Harold Jarche, February 2013
- Three things we should all learn from Benefits Street by Paul Taylor, January 2014
Flickr image at the start of the post: Dream baby dream kindly shared by Stefano Corso
What a breath of fresh air. I have felt for years that we in the UK have outgrown our political system and that it now hinders more than it helps key areas of all our lives; namely health, education and welfare. What I have been completely unable to do is conceive of a genuinely realistic alternative which I believe your idea for welfare is. As you rightly acknowledge there would be a lot of detail to get right but I happen to think a large part of the dire problems we currently face are caused by legislating for fringe cases instead of concentrating on the vast majority of people who aren’t trying to defraud or “get away with it” i.e. concentrating on the negative at the expense of the positive. I wonder how much of the cost of such a scheme would be covered purely from saved administration from the current systems?
The question I am left pondering is how on earth could the political class be breached with such an idea?
Thanks so much for your comment, much appreciated. I’ve been chewing over this idea for over a year and it’s good to start hearing other peoples opinions.
And it’s a great question. Because this is not an issue with any one political party but rather the way the whole system works. There is growing acknowledgement that many of the systems are not working, but the desire seems to be hoping that things will revert back to the old ways rather than accepting the systems need redesigning for the modern world we are living it. Chewing over that one too…
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