Iain Duncan Smith deserves credit for fully understanding the nature and scale of the welfare problem. But that’s the easy bit. Finding a solution with the right balance of carrot and stick and making it somehow affordable in these austere times is the tougher part of the equation. And it’s not at all clear that the IDS proposals have either enough carrot or enough stick.
He has certainly gone some way to tackling the lunacy of huge withdrawal rates – if by entering the workforce your new post-tax pay packet is less than the benefits you stand to lose, then don’t be surprised when an entrepreneurial work ethic fails to emerge in some of the country’s poorest areas. However, even under these new reforms, effective tax rates of 65 percent will be fairly standard. How much of an incentive does this really provide? If you’re only going to be trousering thirty five pence from each additional pound you earn, is this really enough to encourage someone to make a herculean effort to secure gainful employment rather than remaining on state hand-outs? You wouldn’t actually be worse off, but being very marginally better off by taking a relatively boring or unfulfilling full time job.
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