Britain has increased employment over the past two decades by moving people into chronically low-paying jobs that offer little career progression and must be topped up with around £50 billion ($62 billion) of in-work benefits, a survey of the UK welfare system has concluded.
(Bloomberg) — Britain has increased employment over the past two decades by moving people into chronically low-paying jobs that offer little career progression and must be topped up with around £50 billion ($62 billion) of in-work benefits, a survey of the UK welfare system has concluded.
The Institute for Fiscal Studies says in a new report that stricter benefit rules since the late 1990s have succeeded in improving work incentives but a vast majority of the new jobs have been part time, paying on average just £8,000 a year – trapping people in dead-end jobs and continuing welfare dependency.
Some incentives have been perverse. Introducing job-search requirements pushed many out-of-work single parents from unemployment into long-term inactivity where they claimed incapacity payments, a less restrictive and more expensive benefit.
Those moving from part-time to full-time work keep just 42p of every £1 extra they earn, the think tank found. Under universal credit reforms introduced after 2010, workers can lose 76p of every £1 earned above an earnings threshold. The marginal tax rate was even worse before, at as much as 96%.
“We spend more than £100 billion each year on working-age benefits,” Tom Waters, a senior research economist at IFS and an author of the report, said. “About half of it now goes to families in work.”
“This reflects changes in the underlying nature of low income in the UK, to which the benefits system naturally responds: we have high employment and chronic low earnings growth, meaning that an increasing share of the lowest-income families contain someone in paid work.”
Reforms have tended to produce part-time and low-paid work that generally fail to provide a stepping stone into higher-paid work.
Waters said: “Policymakers would do well to look beyond the headline employment number when setting benefits policy, and consider how the system – and other parts of policy – can be shaped to promote longer-term career progression.”
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