I cannot be sure whether or not this is true but it sounds credible and I wonder if anyone can confirm it? I was told recently that Iain Duncan Smith wanted those on benefits to keep 50% of anything they earn despite withdrawal of benefits and taxation.
The Treasury, apparently, said it would cost too much and wanted a much lower figure. In the end, they compromised on 35%.
Supposedly the Treasury wanted to know what evidence there was that people who kept more money from working would be significantly more likely to work.
I guess the question is not wholly unreasonable. And yet their own studies have shown that increasing income tax for high earners significantly reduces the amount of money declared to be taxable at that level. They know very well that tax changes the behaviour of the rich. Why should they think that it would not also change the behaviour of the poor?
Posted by James Bartholomew • Indexed in Reform • Welfare benefits
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Suggested experiment for the treasury- put a special tax on treasury employees, raise it by degrees, and record how many people leave for each increment. Interview those that do leave to determine whether loss of net income was a factor in their decision. Ask those remaining why they are staying- does the reduced income make them less inclined to stay.
By this means employees of the treasury can be certain of the answer to their question.
Of course, if it turns out that they are all happy to work for zero nett income, that knowledge can be used to eliminate the cost of paying the civil service- thus freeing up money so that the less saintly have an incentive too work.
Posted by: Pat at September 24, 2010 11:14 PM