Free «Examining Benefits and Welfare Projects» Essay

Examining Benefits and Welfare Projects

Identify and summarise the research evidence presented in Chapter 3 of Mirrlees Review titled ‘Labour Supply and Taxes’ which is most relevant to the reform of the benefit and welfare system.

One of the evidences created was that hour of work does not respond particularly strongly to financial incentives created by tax changes for men. This is because the harder one works, the more he pays through tax and insurance. Furthermore, it is noted that for highly educated men, job decisions are not very responsive. The highly taxable income that men earn does seem to be responsive. This is due to the fact that they shift their spending and income into non-taxable forms because there was a decrease in work effort. This move is a very costly move economically. The decision to take up a job that is entitled to taxation is quiet sensitive to women and mothers. Although unlike most men financial incentives are more responsive to women, especially married and lone mothers.

Taxation has numerous impacts. One of the impacts is definitely on work effort. Inefficiency of a distortionary tax system is one of the impacts. The level at which the magnitude of inefficiency is felt depends on how sensitive effort is to incentives depending on the level of education for both men and women. To cope with the issue of taxation, effort becomes adjusted in different ways and margins. Some people may change their working time either per week or per year or still decide whether they want to work at all or not and the amount of effort put in. Some may decide to change the way they receive or get their income to avoid tax liability. For many people hours worked is a good gauge to measure the effort put in. But this is not always the case for highly trained individuals as hour is not the best gauge. So basically, hours that an individual has worked and the much effort that has been put in does not represent incentives correctly. For the skilled men, the effort is not always in form of physical effort, rather it can be in form of ideas. Tax system does not always work correctly as different people have come up with ways around it.

 Review of literature portrays an extremely interesting picture. Under this observation it is stated that incentives always matter. However, the important margin varies with demographic and educational nature of the group. For example, a group of women with young kids may affect the way they work. Taxes and benefits can make one decide whether one should work or not and how many hours one can work. In case the group includes uneducated men, tax and benefit incentives are important but only for participation decision. It is in education that incentives cause differences. For highly educated men, taxes do not determine how long they work or the amount of time they put in place. Although taxes do affect the amount they earn, they find a way to earn more through shifting consumption to deductible resources. They can also adjust the amount of time they work and the effort they put in place.

Empirical approach does not describe behaviour of one group. This is individual, who chooses time so that it is exactly on the kink where tax rates marginally change. The reason behind this problem is that people involved wish to work more than tax threshold. This is simply because they are subjected to lower tax rate and lower tax threshold when faced with higher tax rate.

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In observing the distribution of weekly hours, one gets the impression that work hours are discrete with numerous focal points where individuals bunch together. While the explanation as to why people bunch together at a certain point keeps eluding people, discrete labour supply makes us realise there is a phenomenon. It is evident that male working hours is completely irresponsive to changes in work incentives. Participation of males, especially the low-skilled ones, can be responsive. Participation elasticity is very positive and illustrates quite a lot of sensitivity to incentives to work or not. For the highly educated people, sensitivity of both participation and hours of work is almost zero. Total income elasticity is substantial for higher skilled and higher income earners.

Summarise the shortcomings of the existing benefits and welfare system identified by the document titled ‘21st Century Welfare.

Due to the rate at which the economy is changing, systems that are in place have had numerous shortcomings. For example, there is rising cost of state support. Dependency on welfare programme became a major problem together with huge cost incurred by the claimant and the wider society. More often than not multiple agencies use valuable information to gather and manage the same information in similar ways. The system overpayment tends to hit the poorest people really hard, while underpayments leave customers without entitlements. Instead of solving the problem of social exclusion and poverty, the welfare programme is creating sprawling bureaucracy.

The state is currently experiencing increase in support cost as even people who are able to work are looking up to the state for help. For instance, currently, 12 million citizens of working age are benefiting from the welfare programme. This costs the government 85 billion pounds every year. This money can be used in more constructive ways to provide help for the needy and elderly citizens. A big percentage of households are poverty stricken when parents get job, yet a sizable chunk receive working tax credit. The system is to blame for failing to tackle intergenerational change. The fact that a big number of teenagers are brought up in workless environment increases the chances of them leading a life stricken by poverty. The bigger is the number of parents suffering multiple disadvantages, such as low income, lack of qualifications, and poor health, the higher are the chances that their children will suffer the same.

The oher shortcoming is system's failure to produce positive behavioural consequences. The complexity and limited financial incentives that the system gets is a factor that leads to joblessness. The state of being workless has a strong nexus to poverty, poor mental and physical health, and even increase in crime rate. The fact that more deserving people may be locked out of the system leads to crime as victims have to make the ends meet.

The system can also make working incentives to be poor. The higher the number of parents suffering numerous disadvantages e.g. low income, lack of qualifications, and poor health, the higher the chances that their children will suffer the same. Earnings disregard is a condition where the amount a person earns does not affect the amount they will get as benefits. This will promote laziness amongst workers due to the fact that their benefits will not be affected. They will put absolutely no effort to increase their earnings. The fact that if one works more hours and earns more will lead to benefits being deducted and will make people more and more reliant on the welfare system. The system does not encourage people to work hard. This is because they are at least entitled to a certain claim in the long-run.

The system is too complex. Attempts to amend the system to meet immediate priorities have resulted in numerous ill-fitting changes that steadily contributed to its complexity. This complexity makes it difficult for people to decide on the best benefit and tax credit system to embrace. Complexity of the system undermines trust, and in the long run customers lose interest in work. Also, it creates confusion, thus some customers may fail to take up their entitlements. Transition between work and benefits can cause severe financial hardships and emotional stress (Harris 2013). The complexity may negatively impact the few people who use English as their second language. There is also factor of complex delivery. Due to the fact that customers deal with multiple agents leads to a conclusion that the system is complex. It asks for too much unproductive time and entails a lot of paperwork, which makes is even more complicated. Customers may be required to go through a tedious process more than once trying to communicate changes. It may also cause unnecessary customer contacts. If there is change of work, the delay in delivery may affect crucial support. Delay can also cause negative experiences of the entire system. Overpayments made may cause a rift. This is because some people may not be in a position to cope with fluctuations.

Summarise the proposed changes to the welfare and benefits system with reference to the document ‘Universal Credit: welfare that works’ and other documents available on the Department of Work and Pensions (DWP), Her Majesty’s Revenue and Customs (HMRC),  Directgov websites and any other publication which are relevant.

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Due to susceptibility of the current benefit system, adaption of universal credit will reduce scope of fraud and will be much easier to understand. Under the universal credit, it will enable to trace people through their real time earning system rather than through them. It will also facilitate people to save bigger parts of their earnings. It will help reduce risks in several ways. It will help reduce complexity and supporting staff. Introduction of universal credit will help reduce complexity by replacing an array of working-age benefits. It will enhance understanding among the staff the recipients thus reducing the chances of error caused due to complicated interactions. It is also expected that it will be administered and processed using an integrated computer system and processing team thus driving out much of the fraud and error. Through this, the process will be easier because one can get much of the information via the Internet thus reducing time to consult with customer service. It will also help in the process of retrieving documents.

Knowing people’s real circumstances is another proposed change that would enhance welfare and benefit system. It is an important aspect of any organisation to really know and understand its customers. Understanding one's customers will help in many different ways. Under this system, having knowledge of customers will help avoid errors. Lack of knowledge about customer’s current earnings leads to a higher number of errors and increases fraud. Although sometimes the error may be deliberate and fraudulent, at some other times it may originated from typing error or due to a complexity of the system. Through the real time earning system, the chances of having misreported earnings are minimized. This will help ensure that you will have timely and accurate information about the earnings of different people. It also helps reduce the overreliance on self-based reports. Apart from reducing fraud cases, it eases the process of feeling in lengthy income forms for recipients. It also goes a long way in helping the customer receive sufficient level of support.

Making work pay is another proposed change. It helps one receive maximum benefit even from small amounts of work. Benefits for any long-term recipient are positive. Through the small amount of work one can refresh his skills, gain valuable experience, and rebuild confidence while being assured of benefits later on. Under the current system, it discourages small amount of work. It may also encourage work as people will be less worried about occurrence of fraudulent cases. It will also help people rely on benefit schemes to earn as they look for a way out. This will gradually increase earned income thus reducing support. It will play a major role in making people comply with the rules rather than commit fraud. The introduction of new error and fraud strategies by the government will help tackle areas falling outside the scope of universal credit programme. It will also help lay down the necessary infrastructure so as to help protect integrity of the universal programme.

Renewwal of the Department’s programme will go a long way in helping fight the fraud. Introduction of 50 pound civil penalty will help keep the correct information on any given customer. It will also help the recipient be more serious with their claims. In order to avoid more fraud cases, if a recipient is found to be a victim and there are sufficient grounds to institute criminal charges, the recipient will be required to pay a hefty penalty to avoid them. It will also make the recipient lose 4 weeks of benefit payments. Introduction of reliable mechanisms to help recover fraud debts more effectively is another proposal. Deductions of up to a quarter of one's savings is another strategy. Introduction of a fast-tracking system will be used with those who moved off their benefits, but are victims of court-authorised deduction. They will seek to recover their debt by deducting money from employee’s earnings.

Summarise the criticism which has been published by different organisations and in the press about the proposed changes to the benefits and welfare system.

With the implementation of universal credit programme, the latter is receiving wide range of criticism. Regulations for a single benefit payment proposed by the government are causing concern among members of the public. According to the Mirror, the introduction of universal credit will punish struggling families that cannot even make their ends meet. Introduction of the system will isolate more than 2.8 million Britons, and more than 1.7 million workers will lose their benefits. The Mirror goes further to explain that the out-of-touch government did this and introduced the credit programme without informing people about this step. The government argues that the credit programme is for the benefit of the community as many people will find themselves working. According to Mirror newspaper, those who benefit more from current benefits programme will lose more in entitlements. The new programme will make a staggering 900 lone parents worse off. They will also be made to do with a reduction of 90 pounds a year. There is more danger associated with the programme as working families will be forced to do with fewer 534 pounds a year. It is also viewed as a way used by the government to make the public pay for its economic failure.

According to the Telegraph newspaper, it is understood that it will make more and more people suffer. Despite efforts by David Cameron to reassure the public that job is more paying than benefit programmes. It is clear that most women will readily abandon their full-time jobs and become programme beneficiaries. This caused a public outcry as the cost and dependency level may be on the rise. While this is one of the major causes of concern, there are others that are causing even more protests. For instance, according to the Telegraph newspaper, it is clear that couples with children will be among the losers if the programmes are to be introduced. The programme seems to be punishing hardworking citizens. It is understood that the more one works hard, the more one will pay in form of taxes and insurance. Although the number of workless households will reduce by a sizeable margin, second earners may choose to reduce working hours or leave the job all together. According to Telegraph, it is clear that the programme is self-defeating as it is basically punishing hard-working people and promotes dependency as the programme will decrease motivation of more than two million people to work harder than they currently do.

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A lot of criticism has appeared since programmes became known by the public. According to the Dailymail newspaper, one minister labelled the universal credit programme as a disaster waiting to happen. He also went further to claim that the programme simply paid people not to work. A reliable source also labelled the programme as out of shape and borrowed.

The Guardian newspaper stated that new demands will be placed on self-employed citizens. The universal credit programme is perceived to allow people to pursue hobbies, earn nothing, and have their income subsidised through state supports. The Department for Work and Pension was for letting one of the suppliers to develop the benefit scheme off- shore. Some unions have also criticised the Department for Work and Pension for working against the will of the public.

The decision to exclude council tax benefit from universal credit has proved to be disastrous for the government. According to the Huffington Post, this was a result of having several cabinet secretaries being at loggerheads. Thus, the prime minister had to overrule Iain Duncan Smith. Thus, a key potential benefit of the plan is perceived to be undermined severely. Other problems include issues such as the IT angle. Research published by the Social Market Foundation has shown that the proposed new system is rigid, and thus there are problems that will emerge due to the system. Moreover, there are problems that will emerge due to people not being familiar with the system while making applications online. Unfortunately, it will be hard to find help when problems occur. More work needs to be done in order to ensure that the system is implemented in a manner that is faultless.

All in all, the universal credit programme is a bold step taken by the government to ensure equality among its citizens. The programme has run into head winds. However, the truth of the matter is that not everybody can be pleased with the outcome. However, the government could have done much better in communicating its message. This also includes communicating in a better way with self-employed people in the country. A more straight forward and consistent message needs to be realised. As the plan had originally been envisaged, it had called for all new applications for benefit would be for universal credit from October this year. However, universal credit will be rolled out gradually. The details have not been communicated well and this is a key area that requires improvement.

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