How much should income be cut by?

The government claims to be concerned about ‘inflation-busting’ settlements.  Public sector wages have generally ‘risen’ by 2.7%; private sector wages by 6.9%.  Many benefits (not all) have ‘risen’ in line with inflation.

I have put ‘risen’ in inverted commas because incomes have not risen at all.  As a simple matter of maths, a rise ‘in line with’ inflation is not an increase in income; it is a reduction.

Initial income 100
Inflation 10.7%
Value of income after inflation 89.30
Increase of:
2.7% (recent public sector awards) 91.71
6.9% (recent private sector awards) 95.46
7% (NHS in Scotland) 95.55
10.7% (‘in line with’ inflation)
98.56
12.32% (break even) 100
19% (the claim made by the RCN) 106.27

Increasing benefits ‘in line with inflation’ implies a cut in real income. It would take an increase of 12.32% before that did not happen.  And the supposedly unaffordable claim by the RCN for 19% is actually a request for an increase in real terms of 6.27%.  Since 2010, the real wages of nurses have fallen by 8%.  The RCN claim would not restore that level of income.

Not quite Universal Basic Income: the new selectivity

UBI is universal when it provides for everyone in a category, without further conditions; basic, when it is only the starting point, and people are free to add income from other sources; income, when it is paid periodically.   The Basic Income Earth Network identifies five main points:

1. Periodic—It is paid at regular intervals (for example every month), not as a one-off grant.
2. Cash payment—It is paid in an appropriate medium of exchange, allowing those who receive it to decide what they spend it on. It is not, therefore, paid either in kind (such as food or services) or in vouchers dedicated to a specific use.
3. Individual—It is paid on an individual basis—and not, for instance, to households.
4. Universal—It is paid to all, without means test.
5. Unconditional—It is paid without a requirement to work or to demonstrate willingness-to-work.

There is more to being ‘unconditional’ than not having a work test – benefits that are restricted to people with disabilities or care needs have to impose a test, and to that extent they are selective.  UBI tries to avoid the pitfalls of selective benefits, which have three great problems: complexity, the difficulty for claimants of knowing whether  or not they will be entitled, and potential stigma.  Selective benefits commonly fail to reach many of the people who ought to be receiving them.

Arguments for Basic Income have captured the imagination of many people.  I have my reservations about them, and those reservations are serious, but I’m sympathetic to the core objectives: providing people with a foundational income that is consistent, reliable,  and as simple as possible.

It seems, however, that some recent programmes have departed somewhat from the script. In Wales, a ‘basic income’ experiment is being conducted for 500 young people leaving care.  The programme is linked to advice and support relating to financial management, education, employment and welfare.  That’s the right way to go about supporting vulnerable people, but it’s three steps removed from ‘Basic Income’: it’s selective, time-limited and not just a cash payment.  In San Francisco, there are three such programmes.  The first is the “Abundant Birth Project“, which offers a ‘Basic Income Supplement’ to pregnant women who are African American or Pacific Islanders, mainly for the duration of their pregnancy and shortly afterwards.  Next is the Guaranteed Income Pilot for Artists, supporting two cohorts of 60 artists, nominated by partner organisations.  The third, and most recent, is the Guaranteed Income for Transgender People, offering both cash support for 55 transgender people and ‘wrap-around’ support (including medical care, case management and financial advice).  Again, these initatives are time-limited.

These programmes don’t have much in common with the idea of Basic Income.  They’re selective, short-term, and eligibility is highly restrictive; they are linked, beyond cash, to other forms of support; and their target groups are highly visible.  I don’t think we can draw any lessons from them about how Basic Income might work, or how people might adapt to a UBI.  It’s interesting, however, to see that arguments for UBI have influenced the development of highly targeted, selective benefits – for example, this paper on supporting transgender people.  We’re seeing, not a commitment to universality, but a new selectivity.

A few reasons not to cut the value of benefits

The most obvious problem with cutting the real value of benefits is that it will plunge people further into poverty.   It’s not a great surprise that people on benefits and low wages might be going without food; that’s been a recurring problem since at least the early 1980s.  It’s been estimated that there are two and a half million people in Britain who are destitute.  There will be more.  Expect growing malnutrition, and the short and long term harm to public health that goes with it.

A policy of impoverishing benefit recipients, however, will affect more people than just the recipients. There are the macroeconomic effects.  Cutting the value of people’s benefits would cut the demand for goods and services, at a time when the economy is teetering on the edge of a slump.  We know that people on lower incomes spend proportionately more of their income than richer people do – that much is self-evident, because people on lower incomes don’t have resources to save.  Research for the IMF has calculated that benefits for poorer people produce more of a multiplier – a beneficial ripple outwards – than tax cuts for richer people.  Conversely, withdrawing money from poor people will reduce demand  more than withholding it from richer people.

Next, there are sectoral effects.  Poor people spend proportionately more on food and energy than people on higher incomes do. Local shops and community businesses depend on their customer base; if that base withers away, so do the businesses that serve them.

Now to labour markets.    Most benefits, by quite a long way, are not concerned with whether or not people are part of the labour market: pensions, child benefits and disability benefits account for three quarters of the cost of benefits, and other benefits, notably Universal Credit, extend to people who are working as well as those who don’t. The mean-minded reluctance to support people on benefits is often justified in terms of the ‘incentive’ to work.  As benefits for unemployed people currently stand at something like 15% of the average wage, one might have thought that there was every incentive to work for pay. But there’s more going on here.  Many years ago, I heard a senior executive from the Danish social security system explain that they didn’t want to make too little provision, because if people got used to living on very low income that would undermine their incentives to work.  I dismissed that argument  at the time – the evidence didn’t seem to show much of an incentive or disincentive effect in either their system or in ours.  But the speaker had a point.  If we want people to engage in a high-wage economy, the last thing we should be asking those people to do is to survive on a pittance and  take any low-skilled job that comes up.  Forget the gibberish about preparing CVs: we should be training, getting people into education and funding internships.  We have to put more money into the process, not less.

Finally, microeconomics.  One of the central arguments that’s made by free-market liberals is that markets need to be able to operate.  Indeed they do, but markets have to be fed.  When people get cash benefits, those benefits are spent in the market.  When incomes are very, very low, people have less ability to participate in markets, and market providers have less reason to engage with them. Lower incomes mean more uncertainty for businesses and for poor people, more debt, and more debt defaults. This is the opposite of anything a free-marketeer should want.

 

The Natcen report on disability benefits is disappointing

The DWP declined to publish the Natcen report on The uses of health and disability benefits.  It’s now been released to the Work and Pensions Committee, and is available here.  The report is presented as a qualitative study; wisely, the authors have avoided numbers.  However, the form of the report is disappointing, and I cannot suppose that it is an adequate reflection of the work that was done.

Qualitative social research works, or needs to work, on two guiding principles.  The first is that what people tell you is evidence.  That is often derided by people in love with quants, but it is fundamental to the nature of evidence.  Courts of law judge evidence by looking for corroboration – probabilities and statistics aren’t enough.  As a broad proposition, evidence is corroborated when two or three witnesses  say the same things, confirming what the others have said.  This report doesn’t do that. It consists very largely of the researchers’ summaries of what people told them.  In a 79-page report, there are 15 ‘case illustrations’, and only 27 direct quotations from respondents.  That means, simply put, that while there are plenty of judgments, there is hardly any evidence given for those judgments.

The second principle is voice: what people tell you, and the way they tell it, matter.  Direct quotations, right or wrong, have a purpose and a moral authority.  Researchers have an ethical duty to report what people are telling them.  The way the respondents express themselves is fundamental to any adequate qualitative social research.

It may well be that this format was demanded by the DWP.  (I’ve been asked by other commissioners, in the past, to dump direct quotations and to just say what I think instead – and I’ve refused to do so.)  It’s very likely that the researchers intend to provide the evidence for this report, and to reflect the voice of the respondents,  in a separate publication.  However, they will need the DWP’s permission for this.  Their report, as it stands, does not do what it needed to do.

The TUC proposes a ‘replacement’ for Universal Credit

It’s been obvious for many years that Universal Credit is failing. On this blog, I’ve considered a long series of critical reports.  When I first made criticisms of the benefit – that was done on the same day that Iain Duncan Smith announced the measure – my concerns were about the concept and its practicability.  Then the criticisms moved on to its implementation, and the impact of further complexity to make up for the deficiencies.  Nowadays, the areas of concern are more likely to be focused on the abundant empirical evidence of failure – for a benefit that has still not fully been rolled out.

The TUC has realised that Universal Credit is a ‘disaster‘, and a new report makes proposals for its ‘replacement’.  The detailed report covers six main areas:

  • making work pay
  • increasing the level of benefit
  • changing rules about conditionality and the initial waiting period
  • changing the process
  • altering the assessment periods, and
  • changing rules for payment.

These are all ways to improve the benefit.  I don’t think this goes anything like far enough.  The fundamental problems will remain:  a tapered benefit, a central focus on getting people to work  when most of its claimants are either already in work or aren’t going to be in the labour market, and a reliance on information that can’t be supplied or managed. The TUC’s proposals are well meant, but they leave all of those elements in place.

 

 

 

Computer says ‘no’

It’s admittedly difficult to get resources to people given the state of the benefits system.  The Chancellor has pleaded that it’s difficult to get higher benefits paid to people, because so many benefits don’t run on the shiny new systems introduced for Universal Credit.  Many people are still on legacy benefits, which rely on older computer systems.

A focus on Universal Credit may seem the best option available, but there are two large deficiencies in that.  The first is the deliberate exclusion of so many people from Universal Credit itself.  The coverage of UC is limited by design: the limitations are produced by

  • work requirements
  • people excluded from recourse to public funds
  • sanctions (the largest number being for people who have missed a meeting)
  • limited entitlements because of notional (or imaginary) income
  • capital rules
  • the arbitrary changes in entitlement coming from fluctuating incomes, and
  • Inaction/suspension because information required

At slightly higher income levels, people may also drop out of the UC system because of the benefit cap or the two child limit.

The second problem, of course, is that people may not have claimed UC although they were entitled to it. The government seemes to be working on the wholly implausible assumption that takeup is about 83% – which would mean that the takeup of UC was markedly better than the previous takeup of Pension Credit, Job Seekers Allowance or any disability benefit, and that that would be true despite UC’s special blend of all the factors identified as deterring takeup in previous research (PDF file).

There are other ways of getting money to people on the lowest incomes.  Cold weather payments  (ignore the weather bit) provide one obvious mechanism: they make it possible for the government to transfer money automatically to  recipients of Pension Credit, UC, Income Support, income-based JSA or ESA.   Or, if that’s too finicky, Winter Fuel Payments (which aren’t actually assessed in winter anyway) go to every pensioner, and Child Benefit goes to every child – that covers, in a simple and practical way, a substantial majority of people on lower incomes.   Putting money into pensions and Child Benefit as well as UC would be hugely more helpful than UC alone.  The targeting is not perfect, but it’s practical and a more effective than tax reductions could ever be.

The DWP is a people business. Treat it like one.

The DWP has announced the closure of several of its offices in Scotland, apparently intended to reduce the size of its ‘estate’ – that is, the buildings and offices it uses.  It’s true enough that many people working in the system found it impersonal – to that extent, location isn’t what matters most.  The estate is about more than buildings, however: it’s also important for people – where they work, how they get there, and what it’s like when they are there.

One of the last research projects I undertook, before the Great Shutdown, was a project listening to the views and experiences of social security officers in Scotland, some of whom were in places that are about to be closed down.  We had 228 qualitative responses, 142 from staff in group meetings and 86 written submissions.

My only interaction with other DWP departments is whatever contact our computers have. There’s very little with actual people. Staff move about between roles but once you’re in you’re chained to your desk and don’t get to know any other parts of the business.

There are serious delays, but staff have been clocked from dealing with them by a system that is fragmented and inflexible.

There is no staff to process claims, and there is a backlog of claims. We’re now at a stage where you’re going through your own cases and there’s ones going back … –and they’re vulnerable customers – and there’s no staff being allocated to deal with it. There are skilled staff who could address that, and process claims, but they’re put on the phones. People are put on the wrong jobs.

At its core, the DWP is a people business: it relies on people (its staff) talking to other people (the service users).  And service users have lots to say to a human being, if only they can find one.

The fact that you have a time frame at all shows they don’t have a clue – some might take two minutes, but others take 25 minutes, it takes as long as it takes and sometimes you just need to listen to them.

 You find yourself cutting them off, trying to wrap it up so you’re under time and they just don’t get the service they should.

 (On the phones) I was told (by a manager) to get to the point quicker. The woman was bereaved and crying and I wasn’t prepared to rush her off the phone.

We’ve lost that human touch.

Over the years, there’s been a recurring problem.  The central administration of the Department is convinced that  the  reason why the system doesn’t work is that the boneheads in the offices can’t do it right.  The people in the offices, meanwhile,  do everything they can to make things work, despite their instructions.

Benefit Officers should be able to help people and use initiative. The current system is too rigid.

They (managers) just look at whether you are following the script and not if you’ve helped the person.

The officials know what needs to be done.  They want to be able to sort people’s problems out.  Lots of them say that they want to be able to follow problems through until they’re dealt with properly.  It’s the system that stops them from doing it.

The Way to Work … won’t work

I didn’t respond immediately to the Government announcement of new rules for unemployed people, because I can’t actually make sense of those rules.  All I’ve found to go on is a press release, which tells me that unemployed people will be expected to find work in any job, regardless of skills, after four weeks.  More specifically, the press release says this:

 those who are capable of work will be expected to search more widely for available jobs from the fourth week of their claim, rather than from three months as is currently the case. … Under existing rules claimants have 3 months to find a job in their preferred sector before facing the prospect of sanctions. New rules will mean that sanctions could begin 4 weeks after their initial UC claim, if they’re not making reasonable efforts to find and secure a job in any sector or turn down a job offer.

The way the system is supposed to work is this.  People make a claim for Universal Credit when they become unemployed.  They are then invited to a meeting with a work coach who gets them to sign a claimant commitment.  They do not receive benefit before five weeks.  So it seems that

      • the claimant commitment will be established and signed at a point where the obligations allow them to specify what their expertise and competence makes reasonable.
      • After four weeks, the claimant commitment will have to be torn up and replaced with other obligations.
      • The renegotiation is going to happen before claimants are actually paid anything.

I may have this completely muddled – I can’t tell from the details that have been made available – but if this is right, what I’d expect to happen is this. Some work coaches will  jump the gun – if they don’t, it would double their workload. People with skills will not bother claiming at all, because the extreme economic prejudice of taking any job will outweigh the potential benefit. Others will be sanctioned because they don’t turn up to a second meeting with the work coach. Employers will be flooded with inappropriate applications.

Stepping back from the details, there’s much more wrong with this policy.  The first misconception is that sanctions encourage people to get into work.  There’s no evidence to back that up.  The main use of sanctions in practice is to ensure compliance with the benefit rules – the vast majority of sanctions are given for not coming to meetings – and it’s not clear that they even do that.  Second, there is the myth that unemployed people won’t work otherwise.  Before the government started messing about, about 90% of unemployed people were back to work in a year.  That figure has fallen to about 80%, I suspect largely because of the forced transfer of many people from Incapacity Benefit or ESA – those who are too sick to work.  And the third is the ridiculously misconceived position that Universal Credit is mainly a benefit intended to get people into work.  It isn’t. It covers people on low wages, and as the transfer is proceeding there are increasing numbers of people without jobs who  are chronically sick or caring for young children – people who would previously have been receiving Incapacity Benefit/ESA  or Income Support.  The numbers of long-term unemployed people are relatively small, but policies have been driven by the myth that dealing with them is the main purpose of the benefits system. No wonder it’s a mess.

 

Evidence to the Welsh Affairs Committee on Universal Basic Income

I gave oral evidence to the Welsh Affairs Committee at a session on November 3rd, and have only just got round to reading the transcript, which is here. I made three important reservations about Universal Basic Income: the distributive impact, especially if it was to be funded by closing down existing benefits; the impossibility of defining a level that would be ‘adequate’; and the many other purposes that benefits have.

There are two points in the transcript at which the MPs misconstrued what I was saying, and while the format of the session wouldn’t allow me to go off on a tangent to explain, I can clarify the points here.

Q116 was not addressed to me – it was answered by Jonathan Williams.  Q117 was, and Geraint Davies MP seems to have taken me to mean that people should be forced to work. I can’t see where he got that from, which makes it difficult to answer; I said no such thing, and wouldn’t.  I did say that conditionality does not work and was counter-productive.

In Q143, Robin Millar MP thought I was arguing to ‘tweak’ the system. This, at least, is an understandable misapprehension; I should have been clearer. I have argued, here and elsewhere, to break up big benefits into smaller ones.  However, I don’t think that’s a ‘tweak’ – it would be a fundamental reform.  See, for example, my blog on How to abolish Universal Credit.  The rationale for redesigning the system about simpler,  smaller benefits with common pay-days is that then ‘income packages’ – the money people finish with – can be adapted to their needs without massive intrusion or putting everyone on the same conveyor belt.

 

Universal Credit never fails to confuse

A research report from the IPR at Bath University began by trying to examine the impact of the £20 uplift on claimants, but hit a snag; many claimants haven’t a clue about how the uplift works, or even if they were receiving it. “Of the 56 participants, less than half said they were aware of the uplift (25/56); over half (31/56) were either not aware (28/56), or not sure (3/56).”

I didn’t even notice to be honest … because it doesn’t say that on the statement I don’t think … because his wage … can be different every
month, I never really know what we’re going to get UC, it doesn’t stay the same …

This shouldn’t come as a surprise.  Over time I’ve reported a catalogue of problems with the design of the benefit, and this one comes up repeatedly. More than ten years ago, I was complaining that “It can be hard for claimants to know whether they are entitled, how much they are entitled to and – just as important – when they should stop receiving the benefit.” The same point has been made by an All-Party Parliamentary Group.  The IPR report concludes:

We hesitate to call these effects ‘unintended’ or ‘design flaws’ because, in the main, they reflect how UC is intended to work.