18 February 2007

The best form of welfare is work

In my final year of university I took a course which covered the welfare state from 1943 to about 1954. Bit of a narrow subject for a history degree, but was quite fascinating. My main problem with it was that the reading lists were dominated by lefties who started from the position that the welfare state was the best thing since sliced bread - or possibly before sliced bread - I was never much good with dates.

I recall being more than a little confused by the assertion that one the biggest providers of welfare was "private business" -- meaning that people had jobs which provided them with money and sometimes fringe benefits such as health insurance. From one point of view, I can understand the argument, but I had to disagree with the concept of putting state support on a par with earned income.

New Labour's flagship "Welfare to Work" scheme has been missing in action, presumed dead for many years now, but it did recognise the simple truth that it is better for the economy to have people working than claiming benefit. The problem with the New Deal and "Welfare to Work" scheme in general is that they are always overly bureaucratic and costly for the employers to administer.

One defining feature of the British economy is the success of small business. A culture of enterprise and entrepreneurs has allowed Britain to generate jobs in new industries as old industries decline and fall. The boom in house prices has allowed the middle classes to unlock the wealth contained in the bricks and mortar of their properties and use that money to start endless small ventures. Those without the funds can turn to an increasingly efficient (if often ruthless) banking sector or turn up on Dragons' Den to beg for the cash from those with an eye for a good opportunity.

For many businesses, the biggest single cost is paying wages. Under the current government, the cost of paying wages has gone up as National Insurance contributions have been increased and income tax bands and relief have risen slower than wages.
A simple scheme to boost employment and small businesses would be to give exemptions from NI to all businesses for their first one, two or three employees (starting with the lowest paid). The cost of this tax break might be substantial, so could be met with a slight increase in employers' NI contributions. The beauty of this tax break, unlike everything done by Gordon Brown, is that it would be no-questions-asked available to all. No forms to fill, no accredidation process, nothing more than a head count of employees: one, two, three - ok now pay...

Of course, I am not expecting an immediate annoucement of this proposal from David Cameron, but if the Conservatives are to win the next election, they need some eye-catching policies which are easy to explain and, more importantly, easy to understand. Either that, or just phase out NI altogether and add the difference onto income tax, which would probably be much fairer as it would hit unearned income as well.

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