UK welfare reform

Iain Duncan Smith has got the go ahead for his “revolutionary” plan to transform the UK’s welfare system, David Cameron, the Conservative party leader, has confirmed.

Under it a clutch of out-of-work and in work benefits, including income support, jobseeker’s allowance, disability and housing benefits will be combined in to a single universal credit.

A single means-test will be applied to ensure that “it will be worth it for everyone to work, wherever they are in the income scale, whatever benefits they receive. It is truly revolutionary,” Mr Cameron told the Sunday Telegraph.

There is more here (possibly gated) and also here and on scrapping the child benefit for high earners, here.   In some ways this is a move towards Milton Friedman's guaranteed annual income proposal.

The details remain open, but strict means-testing will be applied to the single bundled transfer payment.  This will lower the net benefit for people who can earn money, but who earn money with pain or otherwise at high cost.  In relative terms, it will help people who have a single reason why they cannot earn or work, and hurt people who have multiple reasons why they cannot earn or work.  Under the current system, people with multiple "burdens" (e.g., jobless, child, disability, etc.) can claim benefits from multiple distinct programs (though there is a scaling back of some benefits as total benefits income rises).  You can think of the new reform as a lower net subsidy for "comorbidity."

The new reform seems to bundle two changes: 1. a greater emphasis on means-testing and less measurement and subsidization of "conditions," and 2. more will be done on a sliding scale and less will be done using discrete notches, based on definitions of conditions.  Furthermore there seems to be 3. means-testing brings higher implicit marginal tax rates, but this is to some extent offset by lower net benefits.