THE BLOG

Cutting the Welfare Safety Net Is Not the Way to Make Work Pay

04/04/2013 13:05 BST | Updated 03/06/2013 10:12 BST

How does one assess the cuts to the welfare safety net? Let us, for the sake of argument, put aside whether cutting the deficit should be the priority in the depths of a recession. The argument of the government seems to be (a) we must make work pay and (b) there is no alternative.

Making work pay could be achieved by a number of actions: raising the minimum wage for example, restoring the 10p tax band at the bottom to be paid for by restoring the 50p tax band, and introducing a higher band at the top. It is not right that the method chosen to make it appear that work pays is to cut the welfare safety net to the poorest and most vulnerable in our society.

Over 10 years up to 2012 executive pay trebled despite the double dip recession and the economic crash of 2008, with the average pay of chief executives of Britain's top companies at £4.8m, equivalent to 148 times the average wage. It is this skewed system of rewards that is keeping wages low, with taxpayers having to supplement the income of the working poor for them to survive. These in-work benefits, together with pension, constitute a substantial share of the welfare bill.

The in-work benefits are tantamount to a taxpayer's subsidy to enable those at the top of the income pyramid to receive such inflated salaries. How wrong can that be? The taxation system should be used to try and narrow the income and wealth gap between the very rich and the rest of society. Certainly there is a strong case for that.

The treasury is also being defrauded by illegal tax evasion estimated to be £69.9bn a year. If we are only as good as the US in stopping it, the treasury would be able to recover a third of it, £23bn. On top of this illegal tax evasion there is an additional £25bn of tax avoidance. Closing loopholes and simplifying the tax system should help the treasury recover a substantial part of that. The Labour party is just as much to blame as the Tories in not vigorously tackling tax evasion and avoidance.

Richard Murphy of the Tax Justice Network, in an article in the Guardian puts the solution thus:

"Most importantly, though, I believe that this reduction in tax evasion in the UK and elsewhere is possible. As the Tax Justice Network's new Tackle Tax Havens website shows, tax havens help serious tax evaders hide their crime. We could stop that by demanding that tax havens be transparent about the individuals, companies, trusts that use these places, starting with the UK's own tax havens and then moving on from there. The world's shadiest places and their users would then come under

the scrutiny that's needed to make sure tax is paid."

The press has conditioned the British public to believe that benefit fraud is a big problem. An article in the Guardian cites a recent poll by the TUC showing that people believe 27% of the welfare budget is fraudulently claimed. "The reality is very different. Last year, 0.7% of total benefit expenditure was overpaid due to fraud, according to the DWP's official estimates. This totalled £1.2bn over the year". Welfare fraud is miniscule compared to tax evasion and avoidance.

So, there are far better and just ways to tackle the deficit and make work pay than going after the poor and vulnerable in our society. A prime example of that meanness of spirit is the bedroom tax that saves £465m and will impact 660,000 people, two-thirds of whom are disabled.