Better off on benefits than earning £15,000 a year?
“[Iain Duncan Smith] claims that at present it is not worth going from the dole into work if the job pays £15,000 or less.”
The Guardian, 27 May 2010
New Work and Pensions Secretary Iain Duncan Smith went to war on the welfare system today. In an interview with the Guardian, he said many people on benefits see those who take up job offers as “morons” and, the paper reported, claimed it wasn’t worth coming off the dole for less than £15,000 a year.
The idea that someone is better off on benefits than earning this kind of money was picked up by the Press Association and widely reported today. But Shadow Secretary of State Yvette Cooper disputed the figure.
There are families earning half that on the minimum wage, and “better off as a result of things like tax credits”, she told Sky News.
So how much do you have to earn to make it worth coming off benefits?
There’s no single magic pay threshold at which everyone is better off on benefits than in work, said Mike Brewer, director of the direct tax and welfare programme at the Institute for Fiscal Studies. There’s a complex interacting web of unemployment benefit, housing benefit, council tax benefit, as well as taxes and tax credits, which different people are eligible for at different rates.
But clearly, not everyone on less than £15,000 a year – £288 a week – would be better off handing in their P45 tomorrow.
Job seekers’ allowance for a single person aged over 25 is £65 a week, and £52 for someone aged 16-24.
Even at the higher rate, that works out at just over £3,400 a year. So get a job earning £5,000, or even £4,000, a year tax-free and you’d be better off.
However, Brewer thought IDS could be right at one end of the scale – say, for someone with lots of children living in rented accommodation, who could be eligible for maximum council tax benefit and housing benefit as well as unemployment benefit.
“But it’s definitely not right for a single adult with no children living with their parents,” he said. “The figure at least needs more caveats.”
Duncan Smith made no mention of the £15,000 figure in a speech earlier today, instead talking of someone on benefits who would be “little better off” than if they took a “relatively low-paid job”.
Once you factored in the costs of travel to work, said the secretary of state, you could see why work might not be the most financially appealing option.
A Department for Work and Pensions spokeswoman said Duncan Smith was reflecting the point of view of someone who was perhaps the second generation to live on benefits and might wonder why it was worth working if they could earn similar money on benefits. “Unless you earn quite a good wage, like £15,000, it may not seem worth it,” she said.
As Duncan Smith set out in his speech today, the tax and benefit system can mean there are pretty weak financial incentives for some people to get earning.
It’s certainly not the norm for someone to be better off on benefits than earning £15,000 a year. But once the costs of getting to work are taken into account, it may not be impossible – so we haven’t given IDS a fiction rating.