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Thursday, 20 November 2014

A Workfare Thought Experiment and Property/Land Taxes

Let us image a thought experiment. You are on a workfare scheme, but instead now you have 20% of your unemployment benefit paid for by the firm for being on the scheme, and 80 percent by the government. This is encourage the company to hire people and reduce the amount spent on welfare.
At what point does this become a job? If the government decreases its share to 20 percent, it is a (below minimum wage) job. This is not much more than subsidies via in work benefits or tax credits. From this we see workfare is a 100% subsidised job.
Workfare could make sense if the whole of the unemployed were idling. But they are not. And workfare schemes have not been shown to be more effective than traditional schemes.
Also, the whole point of Jobseeker's Allowance is to enable the person to look for work. Forcing them to work for free at private companies is counterproductive as they have less time to search for work. They are already sanctioned for not applying for x number of jobs and if they refuse any work.
Declining benefit levels and progressive tax do produce welfare traps. For a start, when claimants do only gain a small amount of money (under universal credit, sometimes as low as £1/week) for working longer or at all. Secondly, since low paid work at taxed at a lower level and high paid work higher, income differences are increased. If I want to hire a skilled engineer, I have to pay him more as he pays more in tax. This also leads to a more complex tax code.

A flat tax combined with basic income makes the system much more transparent and eliminates welfare traps. Crucially, the basic income does not have to be unconditional. It can have conditions on it. Basically, since benefits are not cut with increased income, welfare traps are reduced. This may require increased taxation but there are savings overall. There is currently more money spent on the Work Programme than JSA!
Another advantage is that a basic income can act as a powerful deterrent to crime as the basic income can be used to pay from prison costs or be sanctioned or removed. It also encourages informal industries to apply to the taxman, since they will not receive basic income.
Another way to fund is through a land value tax. This can also solve the 'grannies' problem by covering the costs of the tax to those who are on a low income but with large amounts of property/assets if you feel it is unfair to ask them to downsize(the problem identified by Klass to Ed Miliband's mansion tax proposal.) Using a basic income will ensure the property/land tax only hits millionares like Klass. Instead of handwaving her 'concerns', Ed should have shown her that Labour will help those with little income.
Putting this in context with the big picture (a very small proportion of low incomes hit by the tax) compared to labour's plans to help out low income households. Then, the only way to oppose the tax is through greed. In terms of the NHS, labour need much more funding than this, and other sources like sin taxes on legalised drugs or ending PFI and the internet market, or heaven forbid, the evil word of BORROWING!