Benefit cuts focus debate on shape of post-Covid safety net
Milton Friedman once warned that nothing is as permanent as a temporary government program. The consequences of the coronavirus pandemic will be a test of whether he was right. With millions of people unable to work last year due to lockdowns, governments around the world have put in place temporary programs to support the incomes of their citizens. How and to what extent policymakers reverse this support will determine the shape of the post-pandemic welfare state.
The UK faces a critical moment at the end of September, when the government plans to reverse an increase of Â£ 20 per week in times of crisis for benefit payments. Last week Boris Johnson told the deputies this decision was in everyone’s interest. “The best way forward is to get people into better paying and more skilled jobs, and if you ask me to make a choice between more welfare or better and better paying jobs, I will look for better and better paid jobs, âsaid the Prime Minister.
But no one had asked him to choose between more welfare or better jobs. Indeed, it is not clear that this is a real compromise.
For starters, universal credit is a benefit for the working poor and those who cannot work, as well as for job seekers. Of the approximately 6 million people who benefit from universal credit, 36% work and 20% have “no obligation to work”, for example because they are too sick or have a baby under one year old. year.
What about those who are physically fit for work but who are currently unemployed? It seems clear in theory that a reduction of Â£ 20 per week in their earnings would increase their incentive to find a job. But it’s worth remembering that UK work incentives are already strong because benefit levels are so low.
Even with the Â£ 20 boost, the current basic service for a single adult over 25 is less than Â£ 100 per week – half UK minimum income standard (an estimated budget deemed sufficient to meet material needs and participate in society) and well below the government’s own measure of absolute poverty, according to the Resolution Foundation think tank.
As a percentage of the jobseeker’s previous earnings, the UK has some of the the lowest unemployment benefits in OECD countries. The financial incentive to find a job, although slightly weaker if the Â£ 20 per week were made permanent, would still be strong by international standards.
The actual evidence that benefit cuts boost employment is also slim. A work document by economist Arindrajit Dube found that there was “surprisingly little overall effect on employment” in various US states in July 2020 when a generous increase in US unemployment benefits expired. Likewise, there is not much sign again this year of higher job search activity in U.S. states that prematurely ended federal unemployment benefits during a pandemic.
This suggests that there are other barriers or disincentives for people to find work, such as the location of available jobs, the availability of local transport, the schedules and schedules offered, and the cost of childcare. The United Kingdom, for example, is one of the most child care expenses at the OECD.
The best argument for cutting down on Â£ 20 a week is one that Johnson didn’t, is just that it would be expensive to keep it. The Institute for Fiscal Studies calculated it would cost Â£ 6.6bn per year to make the increase permanent, adding around 10 percent to the annual cost of universal credit (although only reversing a fraction of the total benefit reductions implemented since 2010 .) Ministers want to maintain some fiscal discipline and have other spending priorities for the post-Covid economy. These include certain measures to help the unemployed and low-paid, such as more vocational training.
Against that, I would argue that returning to benefit levels that were, for many, well below the poverty line would hurt not only those affected, but the prospects of their children and their local economies. When the ministers increases the generosity of the safety net last year was an implicit recognition that it was too worn out to get us out of the crisis. âWe will… Act to protect you if the worst happens,â Chancellor Rishi Sunak said when he announced the increase in March of last year. time, their employers go bankrupt, they have accidents, they get sick.
It is on this ground that the argument must take place. Johnson’s claim about boosting jobs deflects attention from the real question: What should a safety net for the 21st century economy look like, and how much are we willing to pay for it?