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Friday, 5 April 2013

Benefits! Benefits! Read All Abaht It!

What is called The Benefits Culture is essentially the creation of political parties and the Treasury.

The Treasury hates ring-fenced money and National Insurance schemes are just that. If people are paying in to a scheme to insure themselves against unemployment or sickness, then there has to be a published schedule which shows how payments in are linked to benefits out. That's just the kind of thing the Treasury hates because it creates a pool of money it can't divert at the will of politicians.

So the Treasury favours systems in which the level of Benefits is set at will and funded from general taxation. In other words, it is always seeking to abolish the distinction between Insurance schemes and a social safety net designed to assist those whose needs, for one reason or another, are not addressed by Insurance schemes.

In our deference culture, Politicians want to be seen as Benefactors. They don't like the idea of Insurance schemes either. It gives the person in the street too much of a sense of entitlement and not enough of a sense of gratitude. So politicians have cast themselves as Benefit-factors. Here, take this, my man! So they tend to think of all Benefits as acts of generosity.

Gordon Brown provides a paradigm of the politician seeking gratitude and deference. He looks on the so-called "Winter Fuel Payment" as one of his great achievements. But what is it? An arbitrary cash handout funded from general taxation and delivered no-questions-asked into the bank account of anyone and everyone over 60 - and a fortnight before Christmas! That's not a Benefit, that's a Bribe.

There is another concern politicians have. They can't see themselves persuading voters that a decent Pension is going to cost them a lot of money all through their working lives. Building an adequate pension pot is a costly business and gets more costly as life expectancy rises. So politicians prefer to fudge the Pension Problem, looking to general taxation to fund payments which should be funded from long-term Savings schemes.

The end result is the present mess where taxpayers quite rightly have concerns about the level of unfunded Benefits commitments which have to be covered from general taxation.

The only way to row back from this situation is to re-discover Insurance schemes, compulsory and life-long.

Every child should get a National Insurance number at birth which initially entitles the child to free access to a National Health Service. At least part of the cost of that access should be met not from general taxation but by parental contributions directly into their child's Insurance account. Far from receiving Benefits for having children, people should expect to bear at least some of the costs in a way which is transparent and Health Insurance is a good place to start.

At sixteen, every young person should then be enrolled into an Employment Insurance scheme to provide protection against Unemployment. They should be expected to make some nominal contribution even when they are still in full time education. Then if they are unemployed on leaving University, they will already have some Entitlement to Unemployment Benefit.

Then, perhaps a little later, at 21 say, everyone should be enrolled in a compulsory National Pension Scheme which could offer variable levels of Benefit calibrated against variable levels of contribution. But there would be an unavoidable minimum which everyone would have to pay.

All three schemes would require top-flight  fund managers and really competent actuaries.

As for the Social Safety Net, the idea should be to offer assistance to those struck by misfortune, including disability, not to subside fecklessness or low wages or baby farming. A high minimum wage and a high threshold before income tax kicks in are the best ways of shrinking the cost of the safety net.

And we should take a lead from China. There should be a Three Child Rule. Want to have more than three children? Well, go ahead. But you're on your own if you do.

1 comment:

  1. OK, I imagine you're posting as a senior philosopher, not as an economist, but as a very junior economist me and my classmates would like to ask you a few questions.

    1) Your ideal of a living wage is right, but the current public subsidy for less than living wages via the working and child tax credits is obviously designed to guard against inflation which would make our exports less competitive and affect adversely those on fixed incomes such as pensioners.

    2) The idea that access to all welfare benefits, including the NHS, should be based on contributions is OK as well, but what do you do about the million or so school leavers who have very little chance of finding a job in the current economic climate.

    3) You say that parents should pay the NHS and presumably future welfare contributions for their children from birth, I think a big problem here is that you are not touching on the role of the state currently. We have private healthcare and social insurance companies who are touting for business from the better off, what would be their role against the state insurance scheme and future regulation? How do you regulate spending, would you deny children medical treatment if their parents had not paid, for whatever reason, isn't that against the rights of the child UN Convention?