2010/05/14

On freeloaders in the benefits system, and reducing the offence they cause

One complaint that appears in the popular press from time to time is that the welfare state is too generous to undeserving people, while not being generous enough to hard-working citizens.

It's an unfortunate reality that no matter how careful you are in designing your welfare state, you're guaranteed one of three outcomes:

  1. Some people freeload and get away with it, because there's nothing in the system to stop them.
  2. Some deserving people don't get the help they need, because the system says no.
  3. The system costs a huge amount to administer, and is much more expensive overall than a system that permits freeloading - you can easily end up spending hundreds of pounds on administration for each pound of freeloading prevented.

I hope that people would agree with me that the third option is absolutely insane - there comes a point where pragmatism says that you shouldn't spend hundreds of pounds just to guarantee that a few pennies don't get given to people who don't need them. This leaves us with just two choices; I would personally prefer that deserving people don't miss out, which means that I have to tolerate freeloaders.

Given this state of affairs, what can be done to ensure that freeloaders don't upset people? First, we need an understanding of why freeloaders upset people; I believe that, in large part, people get upset because they work hard "for what they have", while freeloaders appear to get more by not working at all. We therefore need to ensure that freeloading isn't going to leave you better off than working.

Of course, I have an idea to solve this; simply put, we have plenty of benefits that could easily be paid to everyone, regardless of need, with those who don't need them paying them back in taxes. For example, the highest rate of Jobseeker's Allowance is £65.45 per week per person (around £3,500 per year). The basic rate of income tax is currently 20%, but by removing the personal allowance completely (replacing it with what used to be JSA), you claim back £1,500 from basic rate tax payers; you could then increase the basic rate to claim back the remaining £2,000, or accept that by pushing more people into the higher rate tax band, you're getting more income tax. Further, because people continue to get the same rate of benefits whether they work or not, you encourage people who don't work because they're scared of losing their benefits, or who can't stick out a job for more than a few months at a time to work, and thus pay taxes.

As a second upside, you reduce the amount of administration needed; if you look at all means-tested benefits, and remove those that can fairly be paid to everyone and reclaimed via tax, you reduce the number of people you need to administer the benefits system. There will still be exceptional cases (disability benefits for one), but they're fewer and further between.

There are, of course, downsides. For one, you need to be good at catching out tax dodgers; if people hide from the tax system in the black market, the maths stops working out. You still have a social problem; while you're now always better off working for a living, people will still resent carrying people who don't work, even though they should. I do, however, believe that this system will lead to less resentment, and even, possibly, more employment overall (it becomes possible to work for a couple of hours a week, without losing out on your "bennies").