Sentences to ponder

The chancellor intends that from 2013 household benefit payment will be capped at around the median earned income after tax and national insurance for working families – estimated at about £500 a week.

That's from the UK and I was surprised to see that benefits could run so high.  Keep your eyes on this story: the UK is the first Western country in recent memory to attempt a comprehensive overhaul of its welfare state.  The UK does a lot of things first (e.g., decline, revitalization) because its parliamentary system allows for relatively rapid and decisive legislative action.

Comments

Germany's Hartz IV reforms of 2003 were pretty comprehensive...

Did they pull that sentence from the article? Can't find it.

The big variable in the UK welfare system is housing costs - the state will pay housing costs for a family with no income: in London for a large family that can amount to more than many individuals earn. This may scupper universal credit - it's unlikely to be enough to pay housing costs anywhere year London, yet if it isn't it will put thousands of families on the street. If they put housing outside the universal system, we retain the sharp marginal withdrawal problem. How do other countries get around this? Direct supply of state housing and no payments for welfare private sector housing?

Hmmm. A cap on corrective benefits sounds logical.

Now, if we could just get nature, randomness, bad luck, etc. to cooperate and not have people have problems which have remedial expenses exceed the cap.

Don't get me wrong. I certainly do not want people to create their own bad luck. But, things like cancer, disabilities, retardation, car accidents and other such "nature" assigned randomness would make this indeed a cruel world if there is a hard cap.

Off to read Dickens.

So what happens to families who lose the child benefit because one of the parents got a promotion moving them into £500 a week bracket? If they are actually worse off, this policy by a so-called conservative government is not conservative at all.

"The UK does a lot of things first (e.g., decline, revitalization) because its parliamentary system allows for relatively rapid and decisive legislative action."

are you implying that the decline was a parliamentary decision ?

If the problem is housing, why don't the Brits cap that component of the benefit?

Because people have to be found accomodation by the local council running the area in which they currently live in.

The option is then one of either paying up, or moving people away from where they currently live - and in many cases have lived in for decades before such areas were subsequently gentrified.

"before such areas were subsequently gentrified"

The point with London is that these areas were not "subsequently" gentrified, they had been gentrified for centuries, it is simply that pockets of them were de-gentrified in the '70s by the then Labour government.
I would like to stress that while I believe that it is outrageous that people on benefits get to live in wonderful parts of town, I don't think that it is only rich people who should live there. In London there is a great initiative by which every new developments in Central London (which almost by definition means luxury) needs to have a section for key workers (nurses, teachers, etc.). Note that this is different from Section 8 in the US, these people needs to be identified as key workers.

It's entirely possible for housing benefit alone (rent subsidies that is) to be higher than median income for the country.

Tyler: I can confirm that housing benefits in London drive up rent costs of low-end housing ridiculously high. Normally you'd see full range of prices, but they never fall below certain level, which seems related to Council's willingness to pay housing benefits.

This is most visible on low end but it must be driving costs on mid level as well, even if I cannot convincingly demonstrate it in a short comment.

If benefits weren't higher for people living in more expensive areas, they'd just move further away from center (not to any rural zones, Greater London is 10M people - it would mean longer commutes, but that's about it), decreasing prices for people who pay themselves, and very likely decreasing Council Tax levels as well.

This is the first benefit I'd like to see cut, for purely selfish reasons of having to pay for it twice - as taxpayers, and through higher rents.

As rental housing market is competitive, most of taxpayers' money spent on housing benefits must end up subsidizing landlords.

Noah - First subtract about 10% for the fact that most things are subject to 20% VAT (some food and children's clothes are exempt, as is housing). Second, most benefits are available only to very specific groups. Job seekers allowance (an indefinite but very stingey unemployment benefit) requires that you take any job that comes along and prove that none did, so many long-term claimants claim disability instead, which obviously requires some medical plausibility. Other benefits are available only to families. Essentially all benefits are means tested and withdrawn very rapidly as income rises. As others have pointed out, housing benefit is the main culprit for the apparently very large number, since it requires that people be accomodated where they have been living, and the most expensive housing markets in the UK are just as expensive as in the US - $40k may sound like a lot of money, but in San Francisco, New York or London its barely enough to rent a home of any kind. This programme seems to be trying to get away from paying housing benefits that allow people to live in very expensive areas, and also to solving the net marginal withdrawal issue that means some families gain almost nothing by earning money.

Imagine if you had six children and you lived in Lower Manhattan. That $44,000 wouldn't go so far any more. The solution in the US is that poor people don't live in Lower Manhattan. Poor people do live in Kensington or Mayfair. This will force them to move.

1. The commenters above are correct. The cases of very high total benefit bills are almost all due to housing benefit costs in inner London. And these are mainly driven by local authorities having a duty to find accommodation for homeless people with a 'local connection'.

2. The reform will have enormous ramifications for the social composition of London and its surroundings, and for the spatial distribution of poverty and wealth. It will mean far more segregation by income, with more poor people required to live much further away from the jobs in inner London. Opinions will differ over whether that is a good thing.

3. It is also the second step in a classic right-wing strategy: (1) Argue against in-kind benefits (council housing) - we should just give people money and let them choose where to spend it! (housing benefit). Followed by (2), massively cut the amount of money you give them.

4. Those 'local connections' are usually pretty real - jobs, school for your kids, social ties. Even if you think the end-point is a good one, there will be enormous and extremely painful transitional costs.

Chris,

"That's largely nonsense"

(Couldn't you find any expression other than "nonsense" to be used during a discussion?)
You found an example, to which I can find another counter example: at the crossing between Sloane Av. and Fulham Rd (arguably one of the most expensive areas of London and it has been so for ever) there is a nice little council flat.
Anyway, before starting to argue with examples, the simpleest thing for anyone is to take Google Earth and "fly" over Central London. In a city know for low rise buildings the council flats stick out like sore thumbs particularly in the traditionally expensive areas.

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