Stealing the safety net

On the BBC’s Andrew Marr show this morning, Chancellor of the Exchequer George Osborne announced that in Wednesday’s budget he will be reducing the maximum amount of benefit a person of working age can receive per annum to £23,000.  He indicated that the quoted level would apply in London and a lower cap would be introduced outside London.

Mr Osborne stated that it was only fair to people who earn that amount of income, that those on benefit cannot “earn” a similar amount.  Aside from the misplaced use of the word “earn”, this is an outrageous and divisive example of George Orwell’s doublespeak as one can imagine.

Using words to suggest that this is a move designed to suggest that this is an act to support working people, it is an act instead to dismantle the social security system that provides a safety net to those self same working people.

Consider Alice, who was widowed two years ago.  Alice lives in privately rented accommodation in London with her four teenage children.  She works full time to provide for her children and is a poster girl for the “hard working” people for whom George Osborne claims to speak.  She’s most likely to be working in the public sector as maybe a nurse or a social worker and earns £24,000 per annum.  Clearly it is not acceptable for someone who is not working to receive more in benefits than Alice can earn, as otherwise there would be no incentive upon Alice to work.  She could simply jack in her job and receive a higher income from benefits.  Except that she cannot and the suggestion that she can is simply a lie.

For in addition to her earnings and Child Benefit, Alice will also qualify for approximately £140 per week Child Tax Credit (under the current rules) and Child Benefit of £60 per week.   This gives her a net disposable income of about £520 per week.  On top of this she will receive Housing Benefit, which will cover all but about £170 per week of her rent, which will have to be paid from her disposable income.

Because Alice does not receive Working Tax Credit, she is subject to the Benefits Cap and this means that her Housing Benefit has been reduced by about £105 per week.  So in order to ensure fairness for “hard working” Alice from the less “hard working”, the Benefit Cap has already reduced her income by about £5,000 per annum.  No doubt that inspires her to work even harder.

Now imagine that in Mr Osborne’s budget on Wednesday he announces some public spending “savings” (i.e. cuts) which result in Alice loosing her job.  She will be forced to rely upon the safety net of Social Security.  A safety net which Mr Osborne suggests is too generous.  She will receive exactly the same amount of Child Benefit and Child Tax Credits as she did when she was in employment.   She will also receive Jobseekers Allowance of £73 per week.  This gives Alice a net disposable income of approximately £270 per week, about half of what she had when she was working.  On top of this income she will also receive Housing Benefit.  But because of the benefit cap, her entitlement to this benefit is substantially reduced and she will have to pay £240 per week in rent payments (from a weekly income of £270).  Her Housing Benefit actually reduces by about 25% when she loses her job.

So the Benefit Cap, designed to introduce a level of fairness between the working and non working of working age affects “hard working” Alice by firstly reducing her weekly disposable income whilst working hard by 20%, and secondly by ensuring that if she were ever to become unemployed she would also become unable to afford her home.

The underlying problem is clear.  The Social Security system is supposed to be a safety net that catches us when we fall on hard times.  But the problem we have is that our high housing costs in the United Kingdom, means that “hard working” people like Alice can find themselves relying on the safety net, even when they are earning a reasonable wage.

The answer is clear, the way to reduce Social Security expenditure is as the Conservative politicians keep telling us, by making work pay.  But the way to work pay and reduce Social Security expenditure is not by cutting the benefit rates to inhumane levels, but finding means of increasing earnings and reducing housing and childcare costs.

Lowering the safety net, just means people have further to fall and for “hard working” people like Alice, the Benefit Cap is simply a way of removing the net entirely.

(nb:  Alice is a fictional character and the assessments on her benefit entitlements assume that she has four children, the eldest of whom is of one gender and the other three of the opposite.  The calculations assume that she rents a four bedroomed property in central London, the rent of which is on the 30th percentile point (i.e. 70% of rented four bedroomed properties are more expensive than Alice’s property.  It also assumes that she loses 30% of her gross salary to tax, national insurance and pension contributions)

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