My weekly musings rant, plus some great reads from around the web.
Anyone who doubted the benefits system in the UK must be rolled back pronto should have got a slap around the face this week.
But sadly, I except many feel vindicated.
The truth is we must beat this monster back before it devours everything we think we stand for.
I’m not just talking about the £120 million in interest per day we’re spending to finance the deficit we ran up by living beyond our income.
I mean, too, the sentiment reflected in the reaction to the first two cuts announced by Chancellor George Osborne in Manchester this week.
What about the workers?
Firstly, Osborne’s proposed household benefits cap, which aims to limit total State benefits to non-disabled households to what an average family earns from knuckling down and going to work.
I’m not going to argue the cap is not a good thing. Clearly, it is a good thing.
What is incredible is that there weren’t riots in the street when people realized this wasn’t already in the statute books. What is flabbergasting is that it’s taken a financial meltdown for somebody in Government to think a cap might be rather a good idea, wot?
Think about the opposite for a moment – a benefit system where a household can claim more money from their fellow citizens than they’d get from working by doing absolutely nothing all week.
Madness – yet that’s the system we’ve got.
Proud workers who banded together to found the Labour movement a century ago did not seek social justice to this end – to actively incentivise people to loaf about laughing at the poor saps who trundle to the office every day.
They certainly didn’t strive and strike so privileged Labour politicians could bung bungs every which way to buy votes like a ghetto dealer bandying dirty money about the hood.
The idea of a State safety net – which I subscribe to – is to help people through temporary bad times, or to help those who genuinely can’t help themselves. It is not for the State to play Tamagotchi with some underclass of the spectacularly unproductive.
It always amazes me how muddled-headed left-wing politicians are about incentives. They paid kids to stay in school and argued it improves attendance, yet they think it’s morally reprehensible to suggest paying young girls who have kids or 30-something adults to smoke spliffs from 9-midnight might also have a distorting impact.
The thought that my father slogged even one extra day towards the retirement he so desperately needed and had saved all his life for just to keep some State-sponsored scrounger in tracksuits is too sad to contemplate.
Worst of all is the genuine trap this system creates for the many would-be working citizens currently on benefits. It’s one thing to give layabouts money, but it’s another to tell someone with some gumption that they’re better off staying at home.
This is why the aim of removing lower-earners from income tax is so laudable, and preferable to benefits and means-tested slap-downs. Work must pay.
Childish thinking
The wailing that’s met the cutting of child benefit for certain middle-class families is even more galling.
I’ll say up-front that I know £44,000 a year is hardly the riches of Croesus, especially in the South East.
I also appreciate the precipice nature of losing the benefit the moment you or your partner goes into the higher-rate tax bracket is simple for the Treasury, but a nightmare if you’re on the borderline.
Obligatory finance tip: If you’re on say £46,000 and you have kids, ask your employer to lower your salary to below the higher-rate threshold, and to top-up up your pension instead, or simply pay more in yourself. You’ll qualify for child benefit without losing out in income, albeit you’ll have to wait until you retire to enjoy the postponed fruits of your shenanigans.
Now, the fact I’ve told you a way to work around the move doesn’t mean I support middle-class moaning about losing this benefit. It’s just that it’s in my job description as a money blogger to suggest these moves. It’s all part of the service.
I’m not sure I really want any of my money going to fund people’s pastime of having children, but I can be persuaded the health of truly poor kids can be improved by what for low-income families is a sizeable tax-free sum.
But paying for the average kids’ weekly Xbox game or for an extra pair of Agent Provocateur undies to keep middle-class mum and dad busy on a Friday night? Not with my money, thanks.
As ermine wrote on his blog this week, citing one excessive whiner:
4 kids? Depending upon a State handout to make her personal finances work? This lady has got a PhD FFS – she should have seen how unwise that is.
And the throwaway reference to keeping the older children in their school, well, if it’s a question of paying Tarquin and Jemima’s school fees with my taxes, steady on there…
I’m happy enough for my taxes to put Brussel sprouts and mash on Jack and Shanice’s plate, but school fees? What’s up with that? What’s with the absence of savings, too? This little princess has got to get used to making some decisions about her priorities and values in life.
Unfortunately, certain elements of the middle-class – women, as a generalization I’m looking at you – have become just as addicted to State handouts as the Great Unwashed they cross the street to avoid.
As Stephanie Flanders writes on the BBC:
Voters, particularly middle class voters, have strong and often mutually inconsistent views on the subject of women, children and work, and different views about what constitutes a “family-friendly” tax and benefit system.
For some, it means subsidised childcare to make it easier for mums who work; for others it means extra incentives and payments for mothers who chose to stay at home.
Often, voters will believe both of these things. The government should somehow be giving women incentives to work, and incentives not to work.
Modern woman confused, Stephanie? Luckily for her, she can say these things without getting lynched.
Things can only get worse/better
The whole spectacle is completely depressing, and reminds me of why I invested a huge percentage of my net worth into VCTs a few years ago when the rebate rates were 40% in an effort to claw back as much income tax as I could.
Quick recap on my high-rolling lifestyle: I am currently renting a flat in London, earning nicely (though not excessively) above both the median and mean average full-time male worker’s salary.
- Yet technically, on my salary I cannot afford to buy even a grotty two-bed flat within zones 1-4 of London. (In reality I can thanks to adventures on the high seas of investing, but that’s another story).
- I save between 20-30% of my salary for my long-term provision, and I sometimes wonder if even that’s enough.
- I read about civil servants retiring on unfunded gold-plated pensions, yummy mummies of three getting £2,000 from the State just for making their Mamas and Papas dreams come true, and never-working mothers-of-five (though not their notably absent fathers) being hurled cash by the State to no obvious end except to perpetuate the cycle, and I find myself yearning for a nice right-wing politician to come take charge like, oh, Attila the Hun.
Okay, I don’t really – I don’t want to be a right-wing nutter. I went through my profile on Facebook after the General Election and realized I could only identify barely half-a-dozen of my friends who could conceivably have voted for the Conservatives. I’m well aware that people get different breaks in life, and I’m not against some redistribution to even out the genetic lottery.
But enough is enough. This ‘sweets for all, especially the naughtiest’ attitude isn’t just bad because it’s landed us in a hole deep enough to frighten a Chilean miner.
It’s pernicious because we’ve gone from a great idea – closing down workhouses, and getting Tiny Tim into long trousers and the classroom – and sleepwalked into a cross between Hungry Hippos and Animal Farm.
Even leaving aside the deficit: Cut, cut, and cut again.
From the money blogs
- Barclays’ inflation-linked bond – Fixed Income Investor
- Poorer people (in the US) are poorer than you think – Yglesias
- Diworsification is good for you – The Psy-Fi blog
- Are you a long tail investor? – Oblivious Investor (by SVB)
- Gold at $1,350: Now what? – The Big Picture
- What’s your inflation number? – The Coffeehouse Investor
- Nothing wrong with schizophrenic investment – Simple in Suffolk
- Cyclically adjusted FTSE 100 P/E graphs – RIT
- Passive vs Active: Changing the guard – Investing Caffeine
- Acadametrics: UK house prices flat [PDF] – Acadametrics
- Why index funds receive only three stars – MoneyWatch
- Build your own annuity [US, but useful] – MoneyWatch
- Your life explained in scientific graphs – The Big Picture
From the big financial sites
- The Economist’s global debt clock – The Economist
- Emerging markets: The next bubble? – The Economist
- The £1 million ISA investors – FT
- On Japan: Maybe Merryn’s been reading Monevator – FT
- Mortgages feel the squeeze – FT
- Lord Hutton on his public sector pension report – Telegraph
- Absolute return fund flunks [I’m shocked! Ahem.] – Telegraph
- US stock ETF purchases surge [graph] – Business Insider
- British jobs, for German workers? – Peston/BBC
- Who’s risky now? [On emerging markets] – Flanders/BBC
- Charlie Munger: Various soundbites – Motley Fool UK
- “The riskiest market I’ve ever seen” – Motley Fool US
- The bond ‘bubble’ – Wall Street Journal
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great, great article monevator. your best yet.
I know you think you’re just venting and having a rant but people have to stand up and say these things. I was also astonished by some of the facts that came out this week. How is it possible to earn more on benefits and actively choose to not work than to go out and work 40+ hours a week? I can’t understand the system that everyone here tolerates.
The problem is mostly that the Labour government turned almost everyone into a beneficiary. Why is anyone going to vote against getting a benefit? When given the option for free money, of course you are going to accept it. But ultimately when it comes to pay for it the country has become bankrupt, yet the whole turkeys don’t vote for christmas thing comes into play and no-one wants to lose their free money.
Part of the problem has been a woeful opposition during the labour government. Somebody needed to stand up and shout about how on earth the country was ever going to pay for all the benefits. Not to mention the made up jobs eg. bizarre government quangos and local authority jobs like trampoline coaches, skate park attendants, flower arrangers, a ‘befriending co-ordinator’; and a ‘street football co-ordinator’.
I don’t care if I come off right wing in this comment. A safety net is met to be just that – if the wheels come off your wagon and life deals you the worst then we all chose a long time ago to let the state pick us back up again. That’s pick us up, dust us off, put a few dollars in our pocket and then send us off out to work again, so that we can earn taxes for the government to spend on useful assets for everyone. Like roads, airports, ports, railways, education, a defence force, the odd cultural service like museums and a health service. Nothing else.
I have friends that have a council house. They both earn money. They have good jobs and earn in total more that I do. Yet because they have kids they are given a house. Why is that right?
Keep cutting Mr Osborne and Mr Cameron. Cut everything back. No-one will starve. In fact we may re-discover the benefits of a community again and rely on each other to look after us.
Rant over.
Yes, it’s really sensible to cut child benefit for higher rate taxpayers. The way they are gong to do it is to add yet another tick box to the tax return and yet another adjustment to the PAYE tax code.
So the benefit will still be paid out, and then clawed back – exactly as it would have been if they’d just put 1% on higher rate tax and been honest about it – and with less computer code alterations that costs *real* money.
It’s just a ideological smokescreen to avoid having to cap pension contributions or eliminate Venture Capital Trusts, which would have raised a lot more money, stopped people saving when we need them spending, and eliminated administration costs across the economy.
Having means tested benefits and means tested taxation means twice the administration for no advantage. For cost effectiveness you should have universal benefits and means tested taxation or means tested benefits and universal taxation.
The trap we have forged is not the lack of benefits, but the lack of universality. There is an amount of money below which no individual can be allowed to fall. That is the nature of a safety net. However if that isn’t available to all permanently then you create a benefits trap automatically. You can’t avoid it.
Everybody should be given a Citizen’s Pension and they should get that no matter what – as long as they are doing ‘useful work’ contributing to society or are exempt because of age or infirmity.
The state then guarantees, and creates if needed, ‘useful work’ that will be available to all who require it.
That would then be it – scrap everything else (including the minimum wage) and tax people on the profit they earn.
Once you do that, you find that work reverts to a pure market. Everybody has to work if they want any money. It always pays to do extra work because you are taxed on profits and lose nothing. It pays to get involved in the ‘big society’, since volunteer positions are ‘useful work’. It pays to look after children and bring them up properly because that is ‘useful work’.
And importantly economic demand is maintained during the deepest of recessions – like the one we’re having.
We’ve tried trickle down and it doesn’t work. Time for ‘bubble up’.
.-= Neil Wilson on: Resetting the lastlog file in Linux =-.
“I’m not just talking about the £120 million in interest per day we’re spending to finance the deficit we ran up by living beyond our income.”
That’s rubbish and demonstrates a lack of understanding of how the monetary system operates.
When a government spends £100 on its credit card, it has a magic cashback deal that means it gets a percentage back of that transaction. However one person’s spending is another’s income, and the cashback deal extends not just to the first transaction but to every transaction using that money. So as the money skips around the economy like a stone across a pond the government slowly gets its money back.
And when you do that, you find that for every £100 a government spends it gets £100 back in taxation if the tax rates are positive. Always. Every time.
So the only time a government’s spending is greater than its cashback in any account period all that tells you is that the transaction sequences on the money spent haven’t completed yet. In other words somebody has saved some money somewhere.
And that is what the deficit is. It’s not ‘living beyond means’, it’s just the other side of the double entry accounting to our savings.
If the deficit shrinks on the currency issuer side, then the ability to save and pay off debts on the currency user side shrinks along with it (or saving stays the same and economic transactions decline – which is worse!)
The money paid out in interest is just government spending like any other. And it is as voluntary as any other. There is no need to do it.
Some reading:
http://pragcap.com/mmt-101
http://www.3spoken.co.uk/2010/04/primer-on-modern-monetary-theory-mmt.html
.-= Neil Wilson on: Resetting the lastlog file in Linux =-.
Ha ha, very funny Neil. Now let me tell you one. There’s am Englishman, and Irishman, and a Scotsman named Gordon Brown, and…
Seriously Neil – did you wake up drunk?
Spending more money than you earn will have no effect and eventually come back to you?!
Neil, how does the government know what is “‘useful work’ contributing to society”? You have the central planners decide? Find me an Austrian already.
And as I said on SLS: no more to say to this Monevator’s post than: AMEN BROTHER
You can’t double your debt relative your income and there not be consequences.
In 2003, UK national debt was 30% of GDP. For 2010 the estimate is 53%. 2011 estimate is 61%. http://bit.ly/uk-debt-to-GDP
Top rant 🙂 I love the line
It is not for the State to play Tamagotchi with some underclass of the spectacularly unproductive.
Can’t really add any more, it’s perfect!
.-= ermine on: Rich Dad Poor Dad’s Increase your Financial IQ =-.
I think it does gross injustice to Monevator’s sublime rant to continue this discussion but I do find the increasingly widespread astroturfing by the MMT brigade quite intriguing, if only because MMT is so perplexing.
“And when you do that, you find that for every £100 a government spends it gets £100 back in taxation if the tax rates are positive. Always. Every time.”
Is this a rule in MMT? I’m not that familiar. Isn’t this about spending multipliers? Seems like a gross exaggeration. I get child benefit payments (government spending) and they go into savings for my kids; I don’t treat that as my money to spend – dirty money. So how is that cash then multiplied into >£100 tax revenue?
I think MMT doesn’t integrate government spending and other people’s over the same time, so that’s how they hide the obvious anomaly. AFAICS the problem is that it’s ok for governments to create money if the totality of wealth increases – it’s when it decreases that we have problems, as it comes home ot roost as sovereign debt. Wealth in the West has been increasing until the last 10 years or so. Even bullish Monevator acknowledged the prognosis by saying but we’ll be poorer in five years than you might imagine, though he’ll probably take me to task for viewing this through bearish eyes 😉
.-= ermine on: Rich Dad Poor Dad’s Increase your Financial IQ =-.
Excellent rant 🙂
I only parted company with you here: “we’ve gone from a great idea – closing down workhouses…” and I just thought, well, given the alternative of permanent lifestyles of glue-sniffing, Bucky-swigging and popping out hand-knitted burberry-flavoured babies by the dozen… was the workhouse really that bad an institution? Maybe I’ve not read enough Dickens, or am over-estimating the improvements a hundred years of technological advances could bring to bear on the operation of such institutions?
I also suspect George O has been trawling the comments here, as I’m pretty sure I made the suggestion (in answer to an earlier excellent rant) that combined weekly benefits should be capped at the equivalent of 40 hours-worth of minimum-wage 😉
I’d also like to add that we don’t just subsidise the feckless and fertile and middle-class SAHMs through Child Benefit. We also stump up for educating them, and I’m sure half the policing budget goes on keeping the little toerags in line as well….
Oh, dear, I think I need to go and have a nice cup of tea, I seem to be having another ‘Daily Mail’ moment, either that or I’m channelling Ghengis Khan 🙂
Better out than in, eh Monevator?
Good work on the link the Barclays inflation bond… interesting spot that, will watch with interest. Suggest someone at Bob’s Bank has their eye on the ball!
Link to the graph of yank wealth assumptions is an eye opener too. Land of the free is so pro Big Money because it’s the land of the deluded? Looks like the lefties were right all along…
Three cheers for the regular links…. not sure I’ve saluted them before… so consider them saluted chap.
The more I think about the CB move, the more political it seems. There are many ways for people to get round it, pensions is one, childcare vouchers is another and there are 2+ years to go. The practical economic effects will be limited. It was just a media experiment, really.
It needs to be taken together with the CSR which, I hope, will focus on deficit reduction while prioritising physical and intellectual infrastructure.
Well this woman agrees with you. Maybe there’s more of us?
Perhaps you’ve a whole coven of us reading, Monevator! 🙂
@teamdave – You’re too kind. Note that I am the archetypal floating voter who decides elections based on what I think needs to be done / slick advertising (depending on the floating voter) and I reserve the right to be on here demanding higher taxes some day, a la Buffett. But we’re a *long* way and 15 years of Conservative rule away from that, starting from here, I’d wager!
@Lemondy – There you are! Glad to see you’re still around. 🙂
@ermine and @Lemondy again – I have contemplated writing about MMT on here, but the heart quails. I blame the Internet. It encourages them to get together and sound consensual.
@Macs – It’s possible, I’ve felt the same before too! I wonder if David Cameron read my article about his curse?
@OldPro – Glad to know they come in handy. I sometimes wish I subscribed to a blog who collated them for *me* so I think they must have some appeal. 😉
@Salis – I think you may be right. It is designed to be seen to hurt. Shame the middle class chattering classes in the papers are as partisan as any other constituency.
@Sali – Very glad to have you reading! I’ve got nothing against either women who do think in this confused fashion about what society, tax and freedom of choice for men as well as women is all about, or women who don’t — I just think the former are wrong, and I resent being seen as a worker drone to keep Queen Bees in Brabantia bins and Flat White coffees. 😉