Wednesday 29 January 2014

Should part-time work pay so much - the other side of the coin

I am going to get a lot of stick for this post but here goes. The Universal Credit is being made out to be big saviour by the Tories in terms of making work pay and benefits not. However, I have some personal experience in recent months which has made me look at what people are getting and why.

I have had requests to go part-time and people turn down jobs, all because of benefits, not career choices. As readers will surmise, its not like I work in a low-paid industry, but in the City.

But here we go, if you work part time for 60 hours a month and earn say £13 an hour, not great, but far above even the living wage in London, it comes to £720 a month - for effectively 2 days work a week. Annually that is £9360 per year, so no income tax to pay as it is under the free amount threshold. On this there is NI of course, which amounts to £193 per year, so net income is just £9,165.

Also let's say you are also a single mum, you would be in receipt of the full working tax and child tax credit of £7,165 per year. Then there is child benefit at £4175 for her child. Of course, this person lives in Southwark and so get housing benefit and income support to help with the rent and council tax - this amounts to another £7592 a year (I checked).

All in all this is a net amount of £28,097 income. Now, this is post-tax income of £2,341 a month, or a little over £500 per week. I am not saying this is some kind of luxury lifestyle in an expensive City, far from it. It is a net income equivalent to half of what someone would earn doing a full time £85,000 job. Or a normal full time job paying £40,000 a year.

So my beef is that the real cost per hour is huge, when viewing private sector income and state sector support together. The work value delivered is £9360, so even with a margin of 30% this equates to £3000 of added value - but the cost in benefits etc is £19,000. I am yet to work out a way to matrix this with gross productivity per hour which is falling in the UK, but given we are in effect paying £36 an for work that has a market rate of £13, there may be a link?

No wonder to me now why so many of my team are kicking their boyfriends out and begging to go part time. Maybe Universal Credit is the answer, but from my perspective we are a long, long way from a Capitalist economy now.


DtP said...

Absolutely bob on. I used to work at HMRC (never admitted to anyone at the time, though) but the incentives to stop at either 16 hours for single parents was immense. The sweetest blag and one which it seems most people have heard of is 'self employed doing 30 hours a week and curiously earning bang on £5k per year' - kkeerrcchhiinnggg!!

It's all a bit Keynsian for me, frankly.

Bill Quango MP said...

We have this all the time Cu. Far from people demanding a greater hour zero/4/816/32 hour contract, they want a guaranteed maximum of 8 or 12 hours.

Suits us. We don't pay N.I. jobs tax on their salary either.

Anonymous said...

"The sweetest blag and one which it seems most people have heard of is 'self employed doing 30 hours a week and curiously earning bang on £5k per year' - kkeerrcchhiinnggg!!"

HMRC are belatedly wise to that - Universal Credit will feature an assumed income for the self employed of minimum wage for 40 hours. Bad news for the single mum selling her hand made artwork, but it's targeting the taxi drivers.

roym said...

Have I missed the outgoings? how much does it cost to feed, clothe, heat and house 2 people?

Electro-Kevin said...

I won't give you stick for this posting. It's not the pay that's too much but the benefits.

And I wondered why part-timers in my vicinity seemed to be doing better than everyone else.

BTW average P/T wages around here are £7 ph.

Electro-Kevin said...
This comment has been removed by the author.
Budgie said...

CU, I am not convinced by some of your figures. I picked this up from HMRC for 2013 for weekly child benefit:
"Eldest or only child £20.30
Additional children - per child £13.40".

So one child means £1055-60 per year, not £4175. Moreover in the days of social security that amount of (child benefit) income was deducted from the available ss benefit, ie benefits did not "double-up".

I am not into this bash-the-benefits fashion. Yes, there are too many who either outright abuse the system or who have become too demoralised within in it, and because of it. But the fortunes sloshed into too many government Quangos, Ministries and contracts with little effective control over value for money, I suspect, far outweighs benefits abuse.

Anonymous said...

Just come back from a one-party state, Vietnam. The streets are buzzing with everyone doing something. Street vendors, small cafes, coffee pickers up at 5 in the morning. The only ones loafing around we the police but there was a well organised tic-tac system to alert drivers and others of their presence.

Should we abandon capitalism and embrace the vibrancy of one-party states such as China and Vietnam?

Nick Drew said...

are you so sure we'd need to abandon capitalism ..?

(only joking)

Timbo614 said...

I WAS Stupid. For years I tried not to underpay people or undervalue them. Cost me a fortune.

I came to my senses last year/year before. I already knew the the "big Boys" only paid the minimum wage. But me honest Tim couldn't or wouldn't see it.

Now every one is part time on "Living wage" - there's no need to go to the minimum - or self employed on commission only.

Took me while but the government pays the balance why should tiny Tim struggle (and fail) to compete with the others who only pay the minimum?

CU's Figures are not far out even if wrong from the the start (60x13=780!).

No complaints here CU - it just ain't capitalism as we know it, its the Subsidised Capitalist model :)

Timbo614 said...

Oh I meant to add:

This is the reason for the drop in "unemployment" The reason we have the big jobs increase. You can get 16 hours work done for £120/week. No NI or Taxes Involved. No real commitment, no Pensions.

These are Dave's "Jobs".

dearieme said...

I take it that it's also easy to do a bit of undeclared work on the side? I also take it that there can be no useful figures for that sort of thing?

rwendland said...

Your maths is well out somewhere CU.

Before the coalition came in, the govt published handy tables every year so you could easily look up these things: the Tax Benefit Model Tables.

Looking up someone with one kid in the last (2010) table, working 16 hours * £13 per week (£208/week) gives a net income of £11,397 per year. That's including tax credits, child benefit, housing benefit, council tax benefit; and after paying housing costs.

Unless the coalition has secretly increased benefits a lot (!!), it will be roughly the same now. The table has a ridiculously low rent for London of £149/week, but the extra rent will be balanced roughly by extra housing benefit, so won't make a big change.

For the record, this is the 2010 weekly calculation in the 16+ hours table for "Lone Parent with 1 child and no child care costs", £149 rent and £16 council tax per week:

208.00 Gross earnings (16*£13)
16.76 Income Tax
10.78 NI
39.87 Working tax credit
54.56 Child tax credit
20.30 Child benefit
88.90 Housing benefit
0.00 Council tax benefit
384.18 Income before housing costs
219.18 Income after housing costs

52 * 219.18 = £11397.36

Rather a long way from your net calculation of £28,097 income. Tax has been reduced since then but tax credits have also been tightened, so I don't think coalition generosity since 2010 can bridge that gap!

CityUnslicker said...

Rwendland - I used the govt tables too.

Admittedly I am out a lot - child benefit is near £1000 than £4000.

Apart from that, Southwark site shows the housing benefit and income support at a rent of £500pw. Govt sites show the paye and child tax credits....

so it nearer £24000 than £28000. I also am confident in this due to it being explained to me by said benficiaries...

Ryan said...

rwedland: Your figures are not correct, except for child bennies and tax credits

You won't pay income tax on an annual income that amounts to £10,000p.a.

Also, I believe CUs figures assume the more likely scenario of two children, so all the other figures more or less double.

Your figures for housing benefit are way too low. Even for Swindon the rate starts at £101pw for a one bedroomed place to £196pw for a 4 bed house. Basically in Swindon this means you will get a perfectly good rented place for free (in fact you can claim slightly more than your rent because it is a fixed allowance - so you'll have some spare for ciggies)

I can tell you that CUs figures are correct, because I am recently divorced and we are no worse off apart because my ex can claim full child tax credits for two children, which compensates for me renting a second home. Maintenance payments do not count as income for tax credit purposes.

So I'm guessing that in most, if not all, cities the housing benefit effectively gives you free housing wherever you can find a place to rent. So then the child tax credit for two kids, plus child bennies, plus free school meals, plus working tax credit, you are likely to have a net disposable income in excess of £10,000 per year. Should pay for a nice cruise or two and you've only worked for 2 days a week.

Of course if you go unemployed you lose the income and working tax credit but gain job-seekers allowance of £57pw. This is a big drop relative to a job paying £13 per hour, but not so much if you were on a minimum wage.

Gordon Brown achieved communism by the back door. We all earn almost the same, regardless of how much we earn: "to each according to his need" as Marx said.

I estimate the tax credit system costs about £100bn a year - almost all of the remaining deficit (so it isn't even funded by tax on the middle-class).

Everybody wants to drop down the earnings pyramid now, because you lose working hours but you can claim more bennies so often you can drop a day off your working week but only lose 10% of your income. It's a system that pays to do less and become less productive. So more money given out for free but less work actually done....

We, like most employers, work these in-work subsidies to our advantage. So do Buy-to-let landlords. It is the middle-classes that are paying for this crack-pot system, at least until they decide they don't feel it pays to work either....

rwendland said...

CU, one thing you've forgotten is the Tax Credit withdrawal rate - Tax Credits are withdrawn on a 41% taper when your income is above £6,420/year. Housing Benefit is also withdrawn on a sharp 65% taper of income above some threshold. See my calcs below.

My 2010 numbers came from a DWP publication. I'm 100% sure it is right. If Mark Wadsworth is about, I'm sure he'd double check for me - he was a great fan of using the Tax Benefit Model Tables (which sadly no longer seem to be online).

Note my 2010 £11.5k figure is post-rent and council tax, while your £28k number is pre-rent. The 2010 pre-rent+CT income would be £19977, call it £20k.

Tax Credit calc for 2013/14 from HMRC rate info

The parent's annual income is £10816 (16*13*52), which is £4396 above the Tax Credit Income threshold of £6420. So £1802 (41% of £4396) will be withdrawn.

1920.00 Working Tax Credit: Basic element
1970.00 Working Tax Credit: lone parent element
545.00 Child Tax Credit Family element
2720.00 Child element (1 child)
7115.00 Nominal pre-withdrawal rate
-1802.36 Tax Credit withdrawal rates (41% of £4396)
5352.64 Tax credits payable

(to be continued with housing benefit calc, if I can find a good source)

Ryan said...

It is complicated and you haven't worked out the figures correctly. There is an up-to-date calculator here:-

According to this calculator a single woman with two children working 17 hrs per week at £13 per hour would have an annual income of £11,000 but would be able to claim about £8000 in working tax credit and child tax credit.

Housing benefit does taper quite sharply - it looks like she would have to pay half of the rent, in Swindon another £2600pa.

So, basically our part-time lady will get paid £11,000 for her 2 days work and the taxpayer (or the next generation of taxpayers...) will more or less double that for her, and then feed the kids as well. Oh, and she can still claim maintenance off her ex- that isn't included in the calcs.

So rwendland, time to inform yourself of the realities of the bennies system. If I've got time at the weekend I might even try and graph the after bennies income of a family of four with pre-tax earnings from 0 to £60K. A lot of work though.

My kids are going to go to uni to pay the debt of a bennies system that allows people to take home >£22K for 2 days work. Stuff Britain and my money grubbing compatriots - I'm telling my kids to quit the UK before it gets any more barmy and any more communist.

Ryan said...

Oh, and in my last calculation I forgot child benefit, which is paid on top of child tax credit. For two children that's another £1700p.a. and there isn't a taper until you go right up in income.

So our example lady doing 2 days a week work will be getting a sum total of £23,000p.a. UNTAXED income, most of it from the taxpayer! This is living in Swindon, hardly the most expensive place to live.

You don't believe me do you?

You CAN'T believe it can you?

Put the figures in the bennies calculator and don't forget the child benefit on top. See for yourself.

rwendland said...

Ryan, CU, I've found a copy of the 2009 Tax Benefit Model Tables in the National Archives, so you can roughly confirm the numbers for 2010 I gave above.

Take a look at Table 1.2f on page 37 (pdf page 39), "Lone Parent with 1 child under 11 (working 16-29 hours) (Private Tenant)", the £210/week gross income line. You can also easily see how the tapers work as gross income varies.

In 2009 she got £364.40/week (£18949/year) before housing costs, and £203.40/week (£10577/year) after housing costs.

If your use of the online calculator is correct, we'd have to conclude the coalition has hugely increased benefits since 2010! (You did use 2 children, but CU and I used 1 child.)

Bill Quango MP said...

There's another post in this.

I was unemployed in 2005 for a year. And although my income was 1/4 what it was before,{ including mortgage protection insurance being paid out and the tax back from HMRC earned the previous year, redundancy money,and a few other things} I was only 20% worse off on disposable income than when I was working.

And I didn't have to leave home at 7am every day and arrive back at 7pm.
I didn't have to do anything at all except take 1 child to nursery {paid for 4/5ths by HMG}

I did seriously consider slipping into benefits street permanently.

Its the private house that kills it. You never know if your social housing is going to dump you in a tower block, 1000 house sink estate or a very nice, new 30 homes housing estate.

The worry for government should be that someone earning in the top 20% of the salary range for the UK could even consider doing such a thing.

Mark Wadsworth said...

Until a couple of years ago, the DWP published Tax Benefit Model Tables (see rwendland's comment above), then they replaced it with a clunky spreadsheet, which I can't find any more.

Suffice to say, bottom line benefits are what you think they are (IS-JSA-IB, child tax credits, child benefit, housing and council tax benefit) and the overall marginal withdrawal rate is about 80% up to an income of between £20,000 and £30,000, just depending on number of adults and children in the household unit.

And that's ignoring Employer's NIC and VAT, which pushes the whole thing nearer 90%.

Now, if you agree that marginal rates are far too high (they clearly are), basic benefits are too generous (point of view, but probably true) and that the 'tax free personal allowance' is too low, but think that some sort of welfare net is a good idea, what's wrong with replacing the whole shebang with a universal, fiscally neutral Citizen's Income?

Ryan said...

"You never know if your social housing is going to dump you in a tower block"

Wrong. Because housing benefit is paid as a fixed amount depending on your total income and the number of bedrooms. Nothing to stop you getting a 3 bed private rented house next to Prince Charles as long as the rest of your bennies covers it. Plenty of people in nice houses round here have found chavs moving in next door since Labour introduce these new bennies.

Don't forget also that the councils have a statutory obligation to house families on low incomes. A Muslim family across the road from me had a 4 bedroom house bought for them by the council and then two bedrooms added in an extension the council paid for - the only income comes from the father who works as a shelf-stacker in House of Fraser.

CityUnslicker said...

Rayn - Applause.

RRwendland. i stand by my post, bar the child benefit which i multiplied wrongly in the first place. I used goverment tabels and checked it with Southwrk council. Southwark counicl are paying my erstwhile employee's rent for £500 a week!!!

So mr BQ - that is not so worrying for you either. just make sure you are renting somewhere nice privately but within the bands before you start claiming and you will never be moved to the sink estate.

rwendland said...

CU, so you don't accept that Tax Credits are withdrawn at a 41% taper once pay exceeds £6420, as very clearly stated by HMRC here.

Nor do you accept that Housing Benefit is withdrawn at a 65% taper (described here) above a quite low income threshold (£137.32/week for mum + 1 child according to this)?

rwendland said...

Mark, the marginal withdrawal rate of 80% (to 90%) only applies to those on Housing Benefit as well as Tax Credits. For the majority not-quite-that-poor Tax Credit recipients it is 73%. The IFS reports:

"A basicrate taxpayer who is currently on the tax credit taper faces an overall marginal effective tax rate (METR) of 73%, and this will rise for most to 76.2% under Universal Credit."

Interesting that Universal Credit is increasing the mainstream deduction rate, despite what Cameron was saying about too-high deduction rates before the election. The reality that the two statements politicians like to make "focusing help on the poor" and "we must keep a strong work incentive" contradict each other has hit home, unless very much larger sums are spent to taper Credits slowly up into the middle income bracket.

Has anyone published something like the Tax Benefit Model Tables for the Citizen's Income proposal? I'd love to see how it compares to Tax Credits in a large variety of concrete situations. As work becomes increasingly automated, and employment decreases, I suspect some elements of the Citizen's Income proposal will need to be implemented to support more widespread part-time working.

Ryan said...

"As work becomes increasingly automated, and employment decreases"

Another Marxist myth. Work doesn't become increasingly automated, because the human machine is so much easier and cheaper to produce than a robot with the same functionality.

There is much to be done in the UK. Right now Oxford could do with some ditches being dug and dredged. We are paying people to sit on their butts when they could be putting in the hours. The whole country needs a make-over and we have billions of hours of wasted labour sitting in unemployment claiming huge benefit payments, and yet mnore doubling their income via the taxpayer but not doubling their output for the taxpayer.

The secret to a better life for all of us is not some Marxist dream where all of us only "volunteer" to do a bit of work when we fancy it. The secret is for us all to knuckle down to make a contribution to making it a better place.

The diaryman has to get those cows in the cow-shed twice a day every day for us to have milk in our fridge. What are the unemployed and the half-employed doing in return?

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