One to watch

As if evidence were needed that our current benefit system is not fit for purpose: http://forums.moneysavingexpert.com/showthread.php?t=3655837

Basically, there's a chap who earns £65k and faces losing his child benefit.  He asks if it's possible to use salary sacrifice to commit enough of his salary to pension so that he won't lose the benefits, and wonders what happens if he goes further.

Based on the responses and what I know of the matter, if he were to put £50k a year into his pension (plus another ~£2k into childcare vouchers) he'd be assessed for benefits as if his income were just over £12k - meaning he'd get all sorts of benefits.  He reckons he'd go from an income of £3300 per month (after paying for childcare vouchers and nearly £4k a year into his pension) to about £3100 per month thanks to all the benefits he could claim.  He'd lose £200 per month, but would have an extra £46k in his pension pot per year (nearly £4k per month).

Sounds like a good deal?  So the benefit state is really good for people with incomes of £65k or so...

Transferrable allowances?

I was reading a post on Tim Worstall's site that started out as an indictment of the taxation system but some interesting points came up in the comments.  People were talking about making the tax free allowance transferable within a household - if one person works and supports another who doesn't, then why shouldn't they be able to share their tax free allowance.

It's something that I've considered before, but I'd take it further.  Why stop at household level?  Why not make the tax free allowance saleable?

Consider: If I pay 20% tax and my tax free allowance of £6750 (or whatever it is these days), then that allowance is worth 20% x 6750 = £1,350 to me.  To someone paying 40% tax, it would be worth £2,700 - so if I sold it for £2k, I'd be £650 better off, and the purchaser would be £700 better off.  Everyone wins (except the state - but the state needs cutting back massively anyway).

Now, there's only so many people earning enough to put them at the 40% rate of tax, and it may well be that the total allowances from everyone in the country is enough to reduce all of their incomes below the 40% level - in which case those people who didn't get off their backsides and sell their allowance quickly would lose out.  So why not just scrap the higher rate tax and the tax free allowance altogether and dish out some sort of citizen's income (while taxing all other income) instead.  If you made it big enough, you could even wipe out most of the welfare state.

So - transferable allowances could lead to flat rate taxation and citizen's income - what's not to like?  :D

(do please note that hte proposed merger of NI and Income tax would change the numbers significantly, but don't change the argument)

Sickness

http://www.guardian.co.uk/society/2010/nov/24/young-british-claim-disability-benefits

"Young people in the UK are twice as likely as their counterparts in other rich countries to be so seriously ill or incapacitated that they cannot work and must live off disability benefits, an international study on welfare has found."

Surely that should read: "Young people in the UK are twice as likely as their counterparts in other rich countries to claim to be so seriously ill or incapacitated that they cannot work and must live off disability benefits, an international study on welfare has found."

"The Paris-based Organisation for Economic Co-operation and Development said it was an "extremely worrying fact" that among 20- to 34- year-olds, rates for disability payments are around 2% in most countries, but 4% in the UK."

No kidding

"Chris Grayling, the work and pensions minister, said he thought the high rates in the UK were a result of 'more children growing up in workless households than in other parts of Europe. Growing up with high levels of dependency shapes your outlook.'

Around 2 million children live in households where no one works – one in six youngsters in Britain. This rate is almost twice the EU average."

Sounds about right - so why not (a) make it so that benefits are always worse than working, by a significant amount (ffs, it's meant to be a safety net, not a hammock) and (b) discourage the continued spawning by those who are not working (when the system makes it impossible for people in low paying jobs to afford kids, but those with no jobs are advantaged by having kids, something is wrong)

"The report says ... there has been a "big shift" in the reasons for making a disability benefit claim. Mental health problems have replaced physical causes for long-term sickness payments."

That might be because we're checking for physical problems now.  If you can fake a mental illness, you've got it made.

"In Britain, two-fifths of those claiming benefits because of depression or mental health issues are aged between 20 and 34."

See above.

"Professor Malcolm Harrington, the occupational health specialist tasked with improving the government's medical assessments, has told ministers that 'people do not attempt to get benefits by pretending they are mentally ill'."

Oh, well that's ok then.  He's a Professor, so he must know what he's talking about...

"In the mid-eighties, the number of people receiving unemployment benefit was "three or four times" higher than those claiming disability benefit. But an inexorable rise in claims saw the number of people on disability benefits exceed the number of unemployed in 1997.

Today 7% of Britons of working age receive disability benefit, above the OECD average of 5.7%. In Japan the comparable figure is less than 2%."

WTF?  7% of our working age population are apparently so disabled that they can't work?  Seriously, that can't be right.  And there were more people disabled than unemployed?  I really hope that's no longer true...