A dangerous "benefits trap"

I'm feeling compelled to write this post, because I don't see any evidence that the current Chancellor understands this trap, and I see otherwise intelligent friends not understanding just why this is a dangerous trap for a government to fall into; often, they're letting themselves be blinded by an ideological view.

The trap in question is one where increasing my taxable income decreases my net income; there are two ways for this to happen. The first is obvious - if the tax rate applicable (once you combine income tax, national insurance, and any other taxes paid on income) is above 100%, increasing your pay decreases your net income. The second is more subtle; if you are paid income-linked benefits, and the increase in net pay is offset by a greater decrease in your income-linked benefits, you lose out.

Why is this so bad? There are two reasons:

1. You set things up such that I could pay more tax, but I'll be worse off than if I pay less tax. This results in things like someone refusing a pay rise that takes them into higher-rate tax, until it's enough to make up for the loss of child benefit; the government is thus losing out on tax revenue, and paying out in benefits.
2. You encourage people to depend on benefits rather than earned income, because they're better off that way - this is bad enough when people are depending on benefits because they value their free time above their possible earnings, but becomes utterly crazy when they're doing it because they could get off benefits, but then they'd work as hard for less money in the bank.

I have set up an example spreadsheet on Google Documents to illustrate this. My hypothetical benefit is £1,000/month (housing costs, say), paid to people who earn £12,000 per annum or less. To set up the trap, we've excluded people who earn £24,000 per annum from claiming the benefit at all, and we've decided that you'll lose benefit linearly as you earn more (e.g. people on £18,000pa get £500/month benefit). I've also simplified taxation - instead of multiple taxes on income, I've got a single rate, and a personal allowance. We could add higher rate tax, and more personal taxes, but it doesn't seem worthwhile for a simple example.

You will notice that in my simple example, anyone who earns between £12,000 and £28,000/year is worse off than someone earning less than them. A rational actor will handle this by refusing to accept any job where they're paid in that range; the result is that (for example), instead of taking a job at £24,000, and paying a net £354.17/month in tax, someone sane will take a job at £12,000, and receive a net £895.83/month in benefits after tax is allowed for. It's obvious how this is bad for the government.

It's also not all doom-and-gloom; in this case, by increasing the upper threshold for £24,000 a year to £28,000 a year, people earning between £12k and £28k simply don't take home more; increase the upper benefit threshold a bit further (say to £30k), and although you don't take home much more as you increase your pay, you do take home more money, and thus escape the trap. You can also escape the trap by limiting benefits; this has other, deeper, social implications, as it can result in the benefit not helping the people it's supposed to assist.

So, how do governments end up in this trap accidentally? The usual route is to link the level of a benefit to something different to the thresholds for being permitted to claim the benefit; for example, in the example, I could have tied the benefit level to rents in London. When it started, I was paying £300/month maximum benefit; at that point, there is no trap. As rents rise, I don't review my thresholds, nor do I limit the benefit level; once rents exceed a certain threshold (around £750/month in my example), the trap appears. Capping the benefit just forces people out of an area completely, and creates "ghettos" of poor people kept out of the way of the rich, making it easier for the genuinely rich to be ignorant of what it's like living in a world where £10,000 isn't just the cost of a good night out, but is a sigificant sum of money.

Science, pseudo-science and non-science

As someone who holds strong opinions, I'm often found arguing with people; because my education is scientific, the debate is often around a subject where "scientific evidence" is expected to carry the day. Most of the time, the claimed "scientific evidence" is nothing of the sort - often, it's nonsense using "sciency" words to seem right.

It's quite simple to tell science from non-science, and not that much harder to distinguish pseudo-science from science. If you're planning to argue using "scientific evidence", please make sure it's genuinely scientific before you start.

Non-scientific claims are based on authority, not on testable evidence. Examples include "my doctor tells me that this drug will suppress the symptoms of my hayfever", or "the Bible tells me that God loves everyone". Non-scientific claims don't have to be false; they can be a useful shortcut to avoid going over basic knowledge again and again, or you could be in a realm that science cannot speak on.

Scientific claims have two properties. Firstly, they are based on testable evidence; secondly, when the claim has been tested, it has been found to be "not false".

Pseudo-scientific claims are very similar to scientific claims. The difference is that where a scientific claim has been found to be not false, a pseudo-scientific claim has been found to be true.

The distinction between found not false and found to be true is subtle, and bears further examination; it's about the way in which you test the relationship between your claim and your evidence. When you find a claim "not false", you start with your claim, and think of a way to gather evidence that the claim is false. You then try to gather that evidence; the claim is found not false when your evidence does not contradict the claim.

In contrast, when you find a claim "true", you start with the claim, and try and gather as much evidence as you can of the claim being true. The claim is found to be true if the evidence does indeed agree with your claim.

This does not sound like a huge difference; however, in practice, people tend to find the evidence they set out to gather, unless that evidence genuinely does not exist. What's more, for many of the claims we wish to evaluate, there are many reasons why the claim could appear true.

For example, earlier in the year, I suffered from a bout of flu, lasting about 4 days in total; during that time, I took Tamiflu. Now, I could claim that Tamiflu cured my illness, and point to the fact that I had flu, I took a course of Tamiflu, and I was then healthy again as evidence. This would be evidence that backs up the claim that "Tamiflu cures flu" in a pseudo-scientific fashion, and would be clearly flawed - would I have recovered without Tamiflu?

Against that, I might claim that my camera "sees" infrared light; the test would be to get a high intensity IR source, and if it didn't show up in a photo taken by my camera, I'd know my claim was wrong. If it shows up, then that reinforces the claim, and it's up to me to try another way of disproving it; as I struggle to find a way to disprove it that works, it becomes less and less likely that my claim is false.

The challenge, then, for people presenting "scientific" claims, is to show that they are backed by evidence, and that the evidence has been gathered by trying to prove the claim wrong. In an ideal world, you describe why you gathered the evidence you did, and how I could gather it myself, so that I can check your claim. I can then be confident in your claim, knowing that if I start to disagree, I can check it.