Mad Frankie ‘The Welfare Reform Messiah’ Field is at it again in the Torygraph.
Gordon Brown’s flagship tax credits programme “brutally discriminates” against two-parent families and actively discourages single parents from forming stable relationships, a damning report says today.
Frank Field, the former Labour minister, has produced findings that show how the Government’s campaign against child poverty has “stalled” by making it more financially attractive for lone parents not to seek partners.
His most telling conclusion is that a single mother working 16 hours a week, after tax credits, gains a total income of £487 a week, while a two-parent family on the minimum wage has to work 116 hours for the same income.
The report is a serious embarrassment for Mr Brown, who has championed the role of means-tested tax credits in tackling poverty and helping low-income working families.
Mad Frankie’s full report can be downloaded here (.pdf), which I’m not going to fisk in detail this time, mainly because I can’t be arsed to wade through all the bullshit. But what I will look at is this headline claim that that “a single mother working 16 hours a week, after tax credits, gains a total income of £487 a week, while a two-parent family on the minimum wage has to work 116 hours for the same income”.
So lets start with the single mum with two kids, working sixteen hours a week on current minimum wage rate of £5.35 an hour. She has an annual income from employment of £4451.20, which equals £85.60 a week on which she’ll pay no income tax or NI because she’s below the lower threshold. On top of that, using a pretty standard online tax credit calculator, she is entitled, in the first instance, to tax credits amounting to £6685 per annum, giving a weekly income from tax credits of £128.55 and a total weekly income of £214.15.
Oops, we seem to missing something here. The little matter of an extra £272.85 a week, which Frankie claims our single mum is getting. Where does that come from?
Well, the answer is simple. In addition to supplementing earned income, tax credits also subsidise 70% of the child costs incurred as result of our single mum going out to work, which is what the 272.85 per week is. So what this tells us is that our single mum is paying £389.78 per week for child care, the princely sum of £20,268.85 per year, i.e. £10,134.43 per child – and one has to assume that both are aged under 4/5 and therefore not in full-time education.
That seems rather a lot of money, especially when one considers that our single mum works only 16 hours a week. Mmm… a bit more maths seems necessary.
Let’s allow our single mum an hour either side of her base childcare requirements for the time taken in getting the kids to the child-minder/nursery and travelling time to and from work – that’s not an unreasonable figure – so her childcare needs are for 24 hours per week per child and the hourly rate she’s paying is, therefore, £8.12 an hour.
That’s a pretty decent nursery school her kids are going to there, with or without claiming the additional nursery education grant of £1248 per year she’s entitled to once any of her kids reach the age of three, even if we not looking at a Montessori school. By way of contrast, the registered child minder who looked after my daughter before she started full-time education and still handles the morning school run, so that both myself and my partner can get to work on time, charges a cool £2.50 an hour for her services.
And while were on the subject, let’s not forget that this additional £272.82 per week of income that Frankie has thrown into the calculation without any explanation has zero impact on the living standards of our single mum, because no soon as the money comes in, its also paid out to cover the cost of childcare and is also leave our single mum to find £116.85 per week out of the rest of her income, to cover the 30% of childcare costs that tax credits don’t pay for, which eats up 91% of her income from tax credits, giving her a net gain of £11.70 per week, an effective increase in her hourly rate of £0.73 per hour.
(If that leaves you thinking ‘regressive effect of marginal tax rates’ then, like me, you’ve been reading Messrs Dillow and Worstall for quite long enough to have come to understand what they’ve been going on about for ages)
What about our ‘brutally discriminated’ against two parent family slaving away for 116 hours a week in their minimum wage McJobs?
Well is one takes into account the totality of single mum’s income, which at the quoted £489 per week amounts to £25,428 then, ostensibly, such the parents in such a family would need to be working for 116 hours a week at minimum wage, giving a gross income of £32271.20 per annum, in order to pull down the same annual income after tax and NI… but this also presupposes both that this two parent family incurs the same childcare costs as single mum and make no tax credits claim of its own.
This is a patently unrealistic scenario – or more simply, a load of bollocks.
Instead of taking Mad Frankie at face value, lets look at a more realistic scenario – a two parent family with a single wage earner in the same minimum wage McJob, with all other factors (housing benefit, child benefit, etc) being treated as equal and, therefore, excluded for simplicity.
Straight away, we can toss out the childcare costs, so the income that two-parent family needs to hit for parity in living standards is not the full £25K+ but single mum’s net income after she’s coughed for someone to look after the kids, which amounts to £97.30 per week.
Fortunately, that’s still below the lower threshold for income tax and NI, making our next calculation very simple. The number of hours that our wage-earner in tow-parent family must work to achieve parity in base living standards with single mum is £97.30 divided by minimum wage (£5.35) which equals 18.18 hours a week, and if we allow single mum a couple of hours per week for all the to-ing and fro-ing to the nursery and back, both couples probably work about even.
Even if we factor into the calculations the estimated 30% premium in income necessary to deliver strict parity in living standards between a lone parent and two-parent family (two, it seems, cannot really live as cheaply as one) then that leaves our wage earner needing to work a matter of 24-26 hours per week at minimum wage (allowing for the small tax and NI contribution he or she will make) to break even with single mum.
But that’s not the end of the story…
You see, that all presupposes that two-parent, one wage-earner, family don’t put in their own claim for tax credits. If they do, then their annual earned income of £6577.48 (after tax/NI) gets a further top up of £5898 in tax credits, giving a total annual income of £12,475.48, or £239.91 per week – and no child care costs.
So our two-parent, one wage-earner family are brutally discriminated against by the tax credits system to the tune of an extra £142.62 per week of net income over and above what single mum has to look after her two kids, give or take the extent to which two-parent family get screwed over by marginal tax rates resulting from the loss of housing and council-tax benefits due to their increased income.
Oh, and lets also not forget that its extremely likely that a portion of the £20K+ that single mum is paying out in childcare costs is going to find its way back directly to the Treasury by way of income tax and NI deductions from the earnings of childcare staff or corporation tax paid by the nursery, its is commercial business.
As with his previous efforts to rubbish New Deal, Mad Frankie the Welfare Reform Messiah barely struggles over the starting line before he finds himself with his trousers round his ankle for putting up a piss-poor analysis based on shoddy evidence, or no evidence at all. Frankie’s report doesn’t show his working out, he merely provides references to information published elsewhere – the 116 hour joint working week claim is actually cited as being from a House of Commons Library Note, dated 16 May 2007 and appears to stem from answers to written questions tabled by Frankie himself.
In fact, a look at Frankie’s recent House of Commons activity shows a long stream of written questions (at an average cost to the taxpayer of £140 per question) most of which relate directly to his two recent papers for Reform, so one could be forgiven for thinking that he’s getting a fair chunk of the research for these papers done at our expense.
As for what Frankie would like us to do about the supposedly brutal discrimination that two-parent families face under the present tax credits system – the one that leaves them £140 a week better off than a single parent – well this is what he suggests.
Working Tax Credits increase the incentives to work for first earners in a couple while decreasing the incentives to work for the second potential earner. This comes about because Working Tax Credit is only available to households with at least one earner but is then means tested against the income of both adults. Hence, if the second adult were to get work too, payments would be reduced. According to IFS evaluations of the impact of the former working families tax credit (which was structured similarly to WTC), on the employment patterns of couples, showed that it
increased employment amongst parents whose partner did not work and reduced it for parents where the other partner did work.
One way of reducing child poverty would be to remove the bias against two parent families by re-weighting the tax credit system to take account of both the extra costs of two parent households and to encourage work of both parents in those households.
This is patently nonsense, as what the detailed like-for-like analysis of Frank’s headline claim actually demonstrates is that the big disincentive for ‘second potential earners’ within two-parent families is not the impact of increased earned income on entitlement to primary tax credits but the high marginal tax rate arising out of the requirement that working families meet 30% of their childcare costs, a disincentive that, of course, largely disappears once all children in a family are in full-time education.
This suggest that the better solutions would lie in either the provision of more free childcare, either by means of greater statutory provision/subsidy or by increasing tax incentives to employers who provide free childcare to employees or, more radically, by tackling the issue of high marginal tax rates head on by means of replacing the present welfare system with a Citizen’s Basic Income.
Mad Frankie is now two for two in producing policy research papers on welfare reform in which his arguments fail to stand up to scrutiny due to very basic and obvious flaws in analysis and the presentation of incomplete and misleading data as supporting evidence, from which I can only reasonably conclude that he is committing what would, were he an academic and not a politician, be the near-unforgivable sin of choosing and presenting his evidence in such a selective manner to support his own preconceived views on welfare policy, rather than deriving both his analysis and policy from substantive evidence. Not so much evidence-based policy making as policy-based evidence making.
Given the timing of the publication of these papers to coincide with the transition in Labour Party leadership from Tony Blair to Gordon Brown and his past history with the latter, who is widely held to have been responsible for blocking Frank’s proposals for welfare reform during the period from 1997-8 in which Frank served as Minister for Welfare Reform in the then Department of Social Security and his aspirations of becoming Social Security minister, it is difficult not to see this as a continuation of an ongoing personal vendetta against Brown.
Moreover, the obvious and abject falsity of his comparison of single mum and two-parent family seems less an attempt to advance an argument for substantive, evidence-driven, reform of the welfare system and more an attempt to smuggle a personal moral position on the desirability of marriage onto the agenda in the guise of welfare reform and little more than variation on the general theme of Tory promises to reinstate the married couples tax allowance, which serve the same basic purpose and, in coming from a policy group led by Iain Duncan Smith, derive the same basic source.
Yet again, Field demonstrates that he’s little more than a busted flush and the Labour MP most likely to fuck off and join the Tory Party before the next general election – and if any Tories are looking in, you can have him so far as I’m concerned. As for quite what the laudatory reaction his papers for Reform are getting from within Tory ranks has to say about the general standard of economic literacy in the party, I’ll leave that to you to decide, but Alan Walters it ain’t…
Nevertheless I am looking forward to his next paper, the subject matter of which will no doubt be as extensively trailed in much the same string of £140 a time written questions in the House of Commons as the last two.
Personally I’m looking forward to what I expect will be a devastating critique of the Common Agricultural Policy in which fearless Frankie proves without any shred of doubt that apples are really bananas and that that is completely unfair to the grapefruit.