Wednesday, 27 June 2012

Looking at the consequences of proposed benefit changes part 2

As I discussed in yesterday’s blog post David Cameron gave aspeech on the future of welfare. One of the main themes of his speech was perverse incentives. This is the idea that you get more money for doing the wrong thing than doing the right thing. The first example he gives of this is the couple penalty where couples can receive more benefits if they live apart than if they live together. Recent research bythe Joseph Rowntree Foundation has shown that in most situations this isn’t the case. The second perverse incentive mentioned by Cameron is that people can be better off on benefits than in work. Again this largely isn’t the case, in the existing system and even more so under the soon to be introduced Universal Credit. The cases where someone would be better off out of work are mostly where there is already a single earner in a household and it would be more expensive to hire child care than for the second adult to stay out of work and look after the children. This has more to do with the massive cost of child care than the welfare system.

Another perverse incentive that Cameron’s speech focused on was the idea that the welfare system incentivises you to have more children. By providing support for families based upon the number of children they have, he argued, means that having more children gives more money to the family. One of the proposed policies that was briefed along side this speech was limiting support for families to a maximum of three children. The problems with this proposed policy are numerous. Firstly the amount of children a person has is not a very flexible number. If a couple has four children when they are both in work, and then they both lose their jobs, they cannot choose to have fewer children simply because they are now on benefits. Similarly if a couple choose to have another child when they already have two and instead have twins then this policy would significantly disadvantage them.  Secondly, one of the strongest incentives cited for claimants having more children is because it makes it easier to get a council house.  However eligibility, according to Local Authority guidelines, is set at three children rather than a larger number. But even if a family is eligible for a council house the massive demand for social housing and the limited supply mean the chance of getting a house (let alone one with more than three bedrooms) is very remote. Thirdly, although a greater number of children can mean more income from benefits it also means more expenditure and often a lower standard of living overall, with larger families disproportionately more likely to live in poverty.

The biggest problem with this policy is that there is little evidence suggesting more generous benefit payments lead people to have more children. Internationally the countries with the most generous welfare systems have smaller family sizes and the largest families sizes are found in countries with little or no welfare system. Similarly over time the size of families born in the UK has not increased as the welfare system allocated more significance to children. This suggests that the numbers of children born would not be affected by the policy, whereas the life chances of children living in poverty would be affected as larger families see support withdrawn. International evidence on the other hand does suggest that the most successful way of decreasing family sizes is by increasing education and employment.