on Monday, 03 August 2009 08:40
The great complexity of the UK benefit system damages claimants and is expensive for taxpayers, demonstrates leading tax specialist David Martin in a new report, Benefit simplification: how and why it must be done.
David Martin illustrates the complexity showing how marginal withdrawal rates can be as high as 95.5%. For example, a single woman who works 30 hours per week, for every extra pound that she earns she pays a further 20p in income tax, 11p in NICs, and loses 39p in Working Tax Credit, a total of 70p. The extra net income of 30p (after these deductions from the extra pound) reduces her Housing Benefit and Council Tax Benefit by 85% of 30p, or 25.5p. Her marginal deduction rate is therefore 95.5% (70% + 25.5%).
In addition to this poverty trap, the complexity of the current system means that claimants:
- do not know whether it is worth their while to take a job.
- cannot calculate accurately their own entitlements.
- have to apply for many different benefits which have different thresholds, rules, payment periods, forms and decision-making processes.
- are subject to the risk of errors, overpayments, and fraud.
For the taxpayer, complexity means that it is next to impossible to control the level of this spending.
WHAT CAN BE DONE?
David Martin proposes that all benefits should be administered by a single agency. This will allow much of the current complexity to be eliminated. Having a single entry point and point for reporting changes in circumstances would greatly increase efficiency, increase transparency, reduce the scope for fraud and reduce the poverty trap.
A single agency could also ensure that eligibility rules for all benefits conform with one another and that the overlaps between various benefits are eliminated.
For claimants, there would be just one form for all benefits and a single website so that claimants could see how their net income would be affected if they worked longer hours.
Read the full report here and read coverage of it in the Daily Telegraph, BBC and the Daily Express.
Read Jill Kirby's blog here.