Freedom, system thinking, politics, science, education, economics, pirates

Monday, 31 March 2008

Budget tidbits - why it doesn't pay to work

The linked document from the treasury discusses the effect of Working Tax Credit on increasing employment rates. It concludes that there is an increased probability of working of 2%, well inside margins for error. No surprise there, then.

More interestingly it contains this graph:

This shows the take-home pay of a 25 year old sinlge person with no dependents, with a job that pays minimum wage. The top line is the actual take-home pay and the coloured blocks show how it is made up of earned income after tax, working tax credit, income support , housing benefit and council tax benefit. Up to 30-hours a week, the take home pay hardly varies.

That's right; for every hour worked the person takes home no extra pay, every pound earned results in a pound reduction in benefits. Effectively the tax rate is 100%.

So this shows that for anybody who can only aspire to a minimum wage job, work is totally pointless. Not working is a rational choice, when working will cost them money (transport, food, clothing etc.)

The successive governments have created this workless trap, and blaming those in it is ridiculous. To encourage the workless to go to work, they need to be allowed to keep some of their earnings. Calling them feckless or work-shy does not help them.

I have suspected that this is true for a long time. What has shocked me is that this information is contained in a budget statement: the government is well aware, yet they do nothing to help these people, except preach at them.

No comments:

Post a Comment