A very neat little story from Frank Field showing where the problem really lies:
The guy I buy my coffee from in the morning has run the franchise also for ten years. Every day during this time at least two and may be as many as five young people come in asking for a job. Not once has any of those young people been British.
There is simply something wrong with the incentives for those currently able to claim welfare. Quite what would be the subject of an entire book, rather than a simple blog post, but it’s obvious that there is something wrong when people out of work are not beating the streets looking for it.
My own maunderings on the subject revolve around the marginal tax rates faced by those who would indeed move from benefits to work: I’m sure it’s possible to construct scenarios where someone would lose money, ie face a greater than 100% marginal tax rate, by moving from benefits into a low skilled job. Certainly, rates of 90%, 80%, are common at certain points on the income distribution.
Being someone who thinks that incentives really do matter, my thoughts therefore concentrate on how to remove those disincentives. The simplest method seems to be a citizen’s basic income. Simply hand out to everyone the bare minimum necessary to keep body and soul together. You might tax it back way up the system (over median income perhaps), but this way the marginal tax rates faced by those at the bottom would be massively reduced, to 30 % or so (income tax and NI).
The biggest objection to this is probably the one that, well, if people got money without having to seek work, won’t they just sit there on the cbi? Say "Ta!" and do nothing? It’s possible, and certainly there would be some who did so. But there would also be others who responded to the much lower marginal tax rates by working….perhaps only part time, but working all the same. Which effect would dominate is at present unknown and it does, in forecasting which will, rather depend upon your view of human nature.
Are they, in the majority, feckless wasters, who with enough for the cider and the tabs will do nothing? Or rational economic actors who will, with reasonable incentives, start to work?
Our problem is that under the current system we can’t tell: for few rational people would work rather than take benefits with an 80, 90, greater than 100% marginal tax rate. Being the cheery sort of soul I am I think that a cbi would lead to a rapid expansion of those looking for work: your view, driven by your view of human nature, might differ.