[OccupyComms] Strugglers of the World Unite

[Mark Barrett]

 From Sunday Times behind paywall Why strivers, not shirkers, are our
biggest problem
 The welfare nettle that no politician dare grasp is the billions being
paid out to people who have jobs but are still dependent on benefits
 The Sunday Times Published: 13 January 2013

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How do you feel about giving a helping hand to a family member who has run
a bit short? A contribution towards the deposit on your child’s first home?
You would probably sign the cheque — is that not what the Bank of Mum and
Dad is for?

But what about being told you have to help out a family member — or even a
complete stranger — who cannot afford a car or a summer holiday or a
child’s scooter, or the myriad things that make a life worth living? That
is a bit trickier because it raises awkward questions about how they got
into difficulties and what standard of living they deserve.

As politicians grapple with cutting welfare spending, it is a discussion
they do not seem too keen on having either.

They may sound as if they are prepared to tell it like it is: George
Osborne, the chancellor, was outspoken in lambasting the “shirkers” whose
curtains are drawn while the rest of us hurry off to work — with both Ed
Balls, his shadow, and Vince Cable, the business secretary, lining up to
criticise him.

But these are tribal skirmishes, with ritual, sterile responses. The bigger
problem is what to do about workers on benefits — or Wobs — and here there
is obfuscation or silence. While politicians agonise about Neets — young
people not in education, employment or training — neither the coalition nor
Labour asks us how we feel about topping up the wages of about 7m
“strivers” through the tax credits and benefits system.

Their numbers have exploded over the years and successive governments have
concluded that this vast and willing workforce is simply not capable of
earning enough money unaided to support an acceptable standard of living.

The numbers have soared from 315,000 on family income supplement in 1990
when Margaret Thatcher lost power and rose to 734,000 before the Labour
landslide of 1997. Gordon Brown handed over a system to the coalition in
which 4.76m families were claiming working tax and child tax credit. The
number has since dropped to 4.3m, but the Joseph Rowntree Foundation (JRF)
estimates that about 7m working people receive some sort of tax credit or
other benefit if the recipients of housing benefit and council tax benefit
are included.

The check-out assistant at the supermarket, the call-centre worker, the
office cleaner — they may all be working a full week at or around the
minimum wage of £6.19 an hour — yet each of them is likely to be getting a
top-up provided by the taxpayer.

In some cases the wage subsidy more than doubles their effective hourly
rate far beyond even the “living wage”, a campaign endorsed by Boris
Johnson, the Conservative mayor of London, yet opposed by many employers
who have warned of job losses. It is set at £8.55 in London and £7.45
outside the capital, and has been adopted by a range of public-sector and
voluntary-sector employers, as well as Lush, the cosmetics retailer, the
Westfield shopping centre operator and many of the banks.

Why is this subject seemingly taboo? The subsidies that keep the working
poor afloat are not secret — but the reason they attract little public
debate is because they are mind-bendingly complex.

Under the current system, a single parent with one child, living in London
and working 35 hours a week on the minimum wage, earns only £941 a month.
With tax credits and benefits, however, his or her take-home pay can more
than double to £1,924 — an effective hourly rate of £12.65.

A couple living in the southeast, with three children, earn only £1,345 if
one works 35 hours and the other 15 hours on the minimum wage. That can
shoot up to £2,100 with tax credits and benefits — an effective hourly rate
of £9.67.

The calculations are provided by the Universal Credit Calculator, created
by Deven Ghelani, a policy expert at the Centre for Social Justice, which
helped devise the universal credit for Iain Duncan Smith, the work and
pensions secretary.

The system as it stands improves the living standards of millions of
working people but at the expense of undermining a social contract: the
link between effort and reward has been twisted. And it is done at an
enormous cost to the taxpayer.

>From October, the lone parent would need to earn £32,800 a year to receive
no state support, while the three-child couple would need to earn £39,500
between them. Their standard of living now depends alarmingly on the
vagaries of the state’s generosity. What would be a reasonable standard of
living, then, for a working person?

Last summer the JRF, which campaigns for the poor, published research that
detailed what the British public believe one needs to enjoy a minimum
income standard to be able to participate in society.

It emerged that a representative cross-section of the public believes that
a car is now an essential item in towns outside London; that a tumble dryer
is a must for households with three or more children; and that a child
should have a scooter, sunglasses and a bucket and spade. A couple with two
children need to spend £7.55 a week on telephones, £18.08 on meat and £6.12
on women’s clothing.

For some, this was an indictment of an uncaring society which failed to
recognise that a couple with two children would need £36,800 to reach this
standard of living. Others saw it as a do-gooders’ manifesto, to be
resisted at all costs.

Both sides had missed the fact that many Wobs earning the minimum wage
already have their incomes topped up to close to this level.

Research by Chris Goulden, head of poverty for the JRF, shows that a single
parent with one child on the minimum wage already receives about 90% of
this controversial minimum income standard.

A family of four with two earners receives about 85% of that standard,
although a single childless adult and a family of four with a single earner
lag behind.

By contrast, a jobless family of four can expect to receive about 60% of
this standard.

In his new year’s message for 2013, David Cameron said the coalition was a
“government in a hurry, [because] Britain is in a global race to succeed
today. It is a race with countries like China, India and Indonesia . . .
for the jobs and opportunities of the future.”

But who will persuade employers to pay more to reduce the burden on
taxpayers?He did not mention the fact that while these competitors have
skeleton welfare systems, we are propping up the living standards of 7m or
so Wobs. He knows picking on them is likely to lose votes: in a recent
poll, support for the squeeze on benefits fell from 54% to 32% when voters
were told it would affect those in work as well as the jobless.

Last autumn Ed Miliband tried to tackle the issue of Wobs, but his meaning
was obscured because he cloaked it in the policy wonk’s phrase of
predistribution. He said that instead of topping up low wages with tax
credits, people should acquire higher skills and receive higher wages.

But who will persuade employers to pay more to reduce the burden on
taxpayers? While Starbucks, Google, Amazon and Microsoft attract public
opprobrium for their nimble — and legal — exploitation of the tax laws, no
such anger has been directed at the supermarket chains, bars and care homes
that have ultimately landed the taxpayer with part of their payroll costs.

Employers, including the CBI and the Federation of Small Businesses, who
have already fought the living wage, would go into battle with warnings of
major job losses if tax credits were swept away.

John Philpott, director of Jobs Economist and formerly chief economic
adviser at the Chartered Institute of Personnel and Development, says any
changes would need long-term shifts in thinking. He suggests that we may be
looking at the Wobs problem through the wrong end of a telescope.

“People see it as a benefit to the individual rather than a wage subsidy
from which the employer benefits,” he says. In short, the campaign for
higher wages is regarded as a left-wing cause, yet if implemented, would
actually reduce the burden on the state.

“Some employers are part of the dependency state. They wouldn’t get the
labour their current workforce is providing for them if the state wasn’t
providing a wage subsidy for low-paid workers. Employers are usually the
first to argue for a cut in public spending, but a lot of them are actually
beneficiaries of the tax credit and benefits system.”

Under Margaret Thatcher, support for working families was known as family
credit and family income supplement, while Gordon Brown tried to remove the
stigma of handouts by adopting Bill Clinton’s idea of rebranding the
support as a tax break — or tax credit — to galvanise hard-working families.

The political pendulum is beginning to swing the other way. Duncan Smith
launched an attack on tax credits ahead of the debate on curbing benefit
levels. He described the system, regarded by Labour as one of its proudest
achievements, as a “sorry story of dependency” and accused Labour of
dishing out tax credits to curry favour with voters in the run-up to the
2005 and 2010 elections. He did not, however, attack the assumptions
underpinning it.

In America, Mitt Romney, the Republican presidential candidate, was
bringing up the issue when he made his gaffe about the “47%” who would vote
for Barack Obama “no matter what” because they are “dependent upon
government”.

Maybe Duncan Smith should have a word with Joe, a father of three, who
works as a supervisor of a team of cleaners at the Department for Work and
Pensions, earning £8.50 an hour. Last week his request for his first pay
rise in eight years was turned down. The only way he and his wife can think
of boosting their income is if she returns to work in September when their
youngest boy, who has just turned three, starts nursery school. However, he
said that the family would scarcely be any better off if she did return to
low-paid work. “We will lose some of our child tax credit and housing
benefit,” he said.

The universal credit, to be introduced this autumn in place of six of the
main means-tested benefits and tax credits, is intended to ensure that
people are better off in work. For all the upheaval it will cause, the
Centre for Social Justice points out that people working extra hours will
keep only about a third (35%) of their additional earnings as they lose
their benefits on a sliding scale.

The nation’s Wobs can work as hard as they like — but they will still in
effect rely on the say-so of the minister, and the support of their fellow
taxpayers, when wondering if they can afford their next car or holiday
complete with sunglasses, bucket and spade.
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