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.
