How welfare works
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What is the main topic discussed in this episode?
Thank you for downloading this week's More or Less podcast. Here's Tim Harford.
Hello and welcome to More or Less. If the SAS stood for the Statistical Analysis Service, I'd be Andy McNabb. This week, we look at how to cut the welfare bill. Is it really a matter of rooting out lifestyle benefit claimants? We unveil a brand new system for measuring salaries. Bird numbers are down, are cats to blame and why is the question so controversial? And of course, we have to find out who won our half marathon race between the sexes and the generations. Old man David Lewis or young whippersnapper Lucy Proctor?
We're going to savour the atmosphere and we're going to just do our best and you're going to come second.
But first, let's take a look at the ongoing political debate about the welfare budget. The Chancellor, George Osborne, recently said that while he'd continue to protect and support deserving benefit claimants, he warned that people who claimed benefits as a lifestyle choice would have to stop because the money would no longer be there.
How big is the UK welfare bill and what did the Chancellor claim about 'lifestyle' benefit claimants?
Mr Osborne is expected to announce cuts of £4 billion from the welfare bill to go with the £11 billion reduction he announced in his emergency budget in June. He does face a colossal budget deficit, of course, and he told the House of Commons on 13 September that the welfare budget was unsustainable.
The welfare bill has risen by 45% in the last 10 years, and almost £1 in three that the government spends goes towards welfare. The current system is not protecting those who genuinely cannot work, nor is it helping those desperately looking for work find a new job quickly. There are close to 5 million people on out-of-work benefits, and over half of these people have spent at least half of the last 10 years in this situation. Rather than rewarding work and supporting the vulnerable, we are wasting the life of millions of people.
But there's an interesting rhetorical twist in that statement. The Chancellor began by talking about the total welfare bill, but then switched to talking about out-of-work benefits. You might draw the conclusion that the welfare bill is largely out-of-work benefits, but it isn't. Here's Mike Brewer from the tax think tank, the Institute for Fiscal Studies.
Out-of-work benefits are not very important in the total welfare budget. The first thing people don't realise is the state pension is the biggest single benefit. And if you take into account all the money that pensioners receive, it's just over half the total welfare budget. And from what we can learn from what Osborne has said so far, he's not very interested in cutting benefits paid to pensioners. In fact, he wants to make the state pension more generous. So when you've ruled out more than half of the welfare budget, you've only got about £100 billion that you're trying to make cuts in. And these main out-of-work benefits are just a small fraction of that. A great deal of what's left goes to people with children or to people with disabilities or to people who rent through housing benefit.
The corollary of that is that the 45% rise which worries the Chancellor isn't a matter of out-of-work benefits either. Much of it, about two-thirds, is accounted for by the growing pension bill and the introduction of tax credits which aren't out-of-work benefits. Still, Mr Osborne wants to save the taxpayer another £4 billion. Will he get there by targeting people who are making a lifestyle choice? It's hard to say because while everyone knows what he means, none of the available research tells us how many people fall into the category. But we can find out how many people leave the benefit system when governments change the rules, making benefits less generous or more difficult to claim. Professor Jeff Groger from the University of Chicago has been comparing different welfare systems in different states in the U.S.
The differences across the states are really one of the key mechanisms by which we learn anything about the incentive effects of welfare programs.
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Chapters
5 chapters
1
What is the main topic discussed in this episode?
0:00–1:04
2
How big is the UK welfare bill and what did the Chancellor claim about 'lifestyle' benefit claimants?
1:04–11:41
3
Which parts of the welfare budget make cuts harder than they appear and why aren’t out‑of‑work benefits the main driver?
11:41–19:08
4
What does research from the US and IFS say about how benefit generosity affects claim numbers?
19:08–24:45
5
How can overlapping benefits and housing support create disincentives to work?
24:45–27:57