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 [1].
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 [2] 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 [3] 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 [4]:
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 [5]).
- 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 [6]
- Poorer people (in the US) are poorer than you think – Yglesias [7]
- Diworsification is good for you – The Psy-Fi blog [8]
- Are you a long tail investor? – Oblivious Investor [9] (by SVB [10])
- Gold at $1,350: Now what? – The Big Picture [11]
- What’s your inflation number? – The Coffeehouse Investor [12]
- Nothing wrong with schizophrenic investment – Simple in Suffolk [13]
- Cyclically adjusted FTSE 100 P/E graphs – RIT [14]
- Passive vs Active: Changing the guard – Investing Caffeine [15]
- Acadametrics: UK house prices flat [PDF] – Acadametrics [16]
- Why index funds receive only three stars – MoneyWatch [17]
- Build your own annuity [US, but useful] – MoneyWatch [18]
- Your life explained in scientific graphs – The Big Picture [19]
From the big financial sites
- The Economist’s global debt clock – The Economist [20]
- Emerging markets: The next bubble? – The Economist [21]
- The £1 million ISA investors – FT [22]
- On Japan: Maybe Merryn’s been reading Monevator [23] – FT [24]
- Mortgages feel the squeeze – FT [25]
- Lord Hutton on his public sector pension report – Telegraph [26]
- Absolute return fund flunks [I’m shocked! Ahem.] – Telegraph [27]
- US stock ETF purchases surge [graph] – Business Insider [28]
- British jobs, for German workers? – Peston/BBC [29]
- Who’s risky now? [On emerging markets] – Flanders/BBC [30]
- Charlie Munger: Various soundbites – Motley Fool UK [31]
- “The riskiest market I’ve ever seen” – Motley Fool US [32]
- The bond ‘bubble’ – Wall Street Journal [33]
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