Identify and summarise the research evidence presented in Chapter 3 of Mirrlees Review titled ‘Labour Supply and Taxes’ which is most relevant to the reform of the benefit and welfare system
As the matter of fact, labour supply study is very important for understanding revenue and welfare effects of taxation. Many dimensions of labour supply seem to be relevant to different groups of people. Mirrlees’ tax system considers hours of work per week and per year, labour force participation, and total taxable income. At various points in time, numerous reforms took place to change the tax system and benefits it gives. It is possible to estimate effects of taxes and benefits considering that these incomes varied across time and individuals for unrelated reasons of work preferences. We can assume that the effects of policy reforms could be confounded with aggregate shifts in hours of work. Blundell, Duncan, & Meghir consider that reforms affect different individuals differently (Mirrlees 41). Given the above discussion, there will be substantial differential effects on benefit entitlement due to the reforms in different parts of the country. Instead of using in-work and out of work income measures, there are predicted these and thus average different types of religious and educational groups. It has long been known that preferences for work do not exhibit variety of trends across the group.
Family Resource Survey (FRS) has been designed especially for socio-economic researches with a focus on employment, income, and expenditures (Mirrlees 42). These are changes in probability of work corresponding to unit increase in the income measure. Each person has two income measures: one is the predicted income (in-work income) and the other is the unpredicted income (out-of work income). The combination of these two measures together with their coefficients reflects the return to work for each individual. The participation probability does not depend on the difference in incomes, but on the income measures individually with separate weights: each income measure has a different weight because income is valued differently when in-work than when out of work. Welfare benefits and renew tax system can have substantial effects on the worker and his behaviour. There is no difference whether it is an unskilled worker or a man with high school education. However, as we argued earlier, simple elasticity like that can be quite misleading as far as evaluating specific reforms. Moreover, reforms we are likely to consider in practice may affect incomes at many parts of the budget constraint and there may be interactions with other welfare benefits (Mirrlees 43).
The estimated model for reforms ignores the house dimension. This model is quite sophisticated. It allows for complete structure, the welfare-benefits, and tax system. In addition, such reform model allows for endogeneity of either post-tax incomes or hourly wages. Principles of this tax model were combined by investigation and analyzing information from a number of tax reforms and the way they have affected different groups of individuals living in different parts of the country. The context of the model approved simulating a tax reform implies changing the required parameters of tax and welfare systems and then determining how this will change the out-of-work and expected in-work income of each individual and the resulting work probability. It is significant because the elasticity alone is not sufficient to predict what effects the reform will have.
Income tax is the most important fiscal tool in the country. Mirrless investigated the model of social taxation. According to the tax system, there were set different parameters for single and married people. This reform predicted a substantial positive employment effect for low-wage cohabiting men with some small negative employment effects for higher wage individuals.
He argued that people taxation should be provided according to their abilities. Nowadays, people tend to think that Mirrless tax model is contradictory, inoperative, and subjective. However, by using taxation Mirrless tried to collect revenue. As a typical person, Mirrless wanted more goods (x) and less work (y). Anyway, one must work for the goods. The tax model of Mirrless is as following: Max ui = u(xi, yi ), s.t. xi = f (yi ). In the model "u" means utility function, "y" is a productive function. The model means that if there is a tax on the income, consumption would be smaller. Therefore, the productive line would swing lower. Hence, any taxation will reduce person’s utility, while any subsidy will increase it (Choi 1). Mirrless supposed that all peoples’ utility includes social welfare function. The objective of the government is to minimize such overall welfare by shuffling subsidy and taxation.
Mirrless principle has been disproved by many others. His first suggestion is subjective, while the second is contradictory. There is no such thing as an optimal income tax.
Summarise the shortcomings of the existing benefits and welfare system identified by the document titled ‘21st Century Welfare’
The Secretary of State for Work and Pensions by Command of Her Majesty presented to the Parliament a new ‘21st Century Welfare’ program. It is considered to be simpler and efficient. It has a view of fewer benefits and fewer layers of bureaucracy. Financial support of the program is firmly based on making work pay. The main duties of reforms were decreasing poverty, family breakdowns, educational failure, and alcohol and drugs addiction. 21st Century Welfare program was aimed to serve economic dependency and personal indebtedness (Secretary of State for Work and Pension 7).
To the best of our knowledge, welfare reforms would make the benefits system work better. It would give support to vulnerable people, but does not abandon them to live a life without benefits. However, it can be useful to observe the way government will make the benefits system work, and how the changes would affect people. It is obvious that the welfare system must serve people. According to ‘21st Century Welfare’, people left on diseases for years. The government supposes that ill people will never work again. The fact that the sickness might change, improve, or the person can be cured is not accounted. New benefits allow people to live in houses they could not afford themselves earlier, when they were not on benefits. It makes children think that life without job is possible. Such children never saw their parents going to work. Collecting a dole cheque in the country turned out to be a norm, instead of doing something during difficult times. In a nutshell, the work is the best way to avoid poverty (Freud 2012). It is hard to imagine that a person can be poor by going to work. Going to work gives person a chance to earn money, build career, and prevent poverty. If one is on benefits, all these aspects are impossible.
However, the reforms were engaged because of money saving. Universal credit is the part of new reforms. It takes an extra £2bn from national economic. Sometimes, Universal Credit gives people more support than the current system does. Such implications do not make people worry about their working conditions. They can bring benefits and get the same money as they got while they were working. The benefits system is a good idea to protect people who are in need. Admittedly, the way these reforms work must be changed. It is important to set some rules and tests for people to determine if they are able to undertake some kind of work or not. Such system of determination is very important for society. New reforms give possibility for cunning people neglect rules and get money being on benefits. Reforms must protect not only people in need, but those who fairly do their duties and try to set the economy of the country on a high level. There should be an encouragement for working people, as well. Each of us wants to live in a welfare state, which takes care about citizens and supports vulnerable people if there is a need. However, the country abandons people to a life on benefits now.
All changes in the country, including reforms, have a doubtful impact on the society. On one hand, new welfare reforms help people avoid poverty and save their health. On the other hand, such approach lead the country straight to crisis. The government wants increase taxes to reduce budget wholes. Unreasonably high taxation will destroy social consciousness.
David Freud argues that in the heart of governmental proposals is a desire to help those who are in need. The welfare system is out of control nowadays. The government deals with difficult choices trying to create a sustainable fairer system. It is believed that welfare reforms will help do it. Recent changed prove that the welfare system needs to be improved. For example, last decision taken by the House of Lords was to amend the welfare reform with the aim to lengthen this time limit to two years.
To sum up, development of welfare reforms in Britain is listened to disable people and is acted on their feedback. Majority of changes, which took place in UK tax system are a direct result of comments government has received from disabled people and organizations representing their rights. Admittedly, each social group faces the changes of tax system. Opinions of citizens about the changes differ very much.
Summarise the proposed changes to the welfare and benefits system with reference to the document ‘Universal Credit: welfare that works’ and other documents available on the Department of Work and Pensions (DWP), Her Majesty’s Revenue and Customs (HMRC)
The Government of UK designed particularly new document that creates affordable platform to introduce a radically different system to support people of working age. This program has a name ‘Universal Credit’ (Universal Credit: welfare that works 6). These changes were prompted by Queen’s speech. It was said that the tax and benefits systems would be easier and simpler for claimers. By all means, the Universal Credit is absolutely new and long-range approach to welfare system. It is expected to combine different forms of income-related supported. It is aimed to provide integrated benefit for people in and out of work. Universal Credit includes either basic personal or additional amounts. Additional amounts mean disability, housing coasts, caring responsibilities, and children. As a matter of fact, Universal Credit initially applies to new forms of claim. No one sees his\her benefits reduced as soon as Universal Credit is introduced (Universal Credit: welfare that works 13).
It is important to note that the amount of Universal Credit directly depends on monthly income and other family’s circumstances. The key feature of Universal Credit is improving the incentive to work. According to it the complicated rules, which are current will disappear when people start and leave the job.
Government says that the benefit reforms, including ‘Universal Credit’, will both help people to work and support those who are in need. Universal Credit means 12 months away from launching nationally. In other cases, it is a half of the year from the early rollout in definite parts of country (Freud 2012). There are some doubts as for the viability of a welfare reform. People bother about how Universal Credit will work and the way it will affect individuals. Making just one claim for Universal Credit, one gets six means-tested benefits and tax credits. In other words, Universal Credit consists of housing benefits and tax credits as well. In addition, it will be possible to take the credit online. However, those people who have no Internet access will be able to make a claim for the credit face-to-face.
The biggest advantage of Universal Credit is the way it shows people benefits of being in work. There is abundant evidence that many people see reasons to stay on benefits instead of working. In accordance with the Universal Credit, if a person on benefits takes a job, especially a part-time one, his/her benefits get a lower rate. Universal Credit pays out more in work support. As soon as people start working, they can obviously see their monthly profit. The Universal Credit is paid monthly. It directly depends on the salary’s time. Moreover, it is easier for people on benefits to get use for regular payments and money management. The main aim of the Universal Credit program is to help people in need and make them understand that it is far better to work if they can than to be on benefits only. Universal Credit is a kind of support, so-called smuggled by government a helping hand, which prompts people find a full-time work as soon as they are able. To achieve this goal, first of all, government places conditions on people who work part-time and claim for a credit. However, it acts if there are significant reasons for person who cannot work full-time. If there are no important arguments, the individual is asked to look for a full-time job to get a credit.
The opponents of the welfare program generally, and Universal Credit partly, insist that the way these programs were created, designed, and realized is very complicated. They say that sooner or later the Universal Credit will be delayed. For all the world, the fundamental principles and IT programs to supply the reforms are right. Nevertheless, a challenging level the reforms are organized is doomed to fail.
In conclusion, none other project has such public scrutiny or attention as universal credit has. It is often assumed that the Universal Credit is a project to save money. However, with it start the expenses have increased. The UK spends extra £2bn annually. Moreover, the country supports families with childcare programs giving more 80000 per year. Universal Credit helps almost 3 million people, but other people are worse off under it.
Summarise the criticism which has been published by different organisations and in the press about the proposed changes to the benefits and welfare system.
The House of Lords and the House of Commons actively criticize changes to the welfare reforms nowadays. Whether or not, press and different organizations argue about this theme, as well. As the matter of fact, there are several changes to the welfare system, which are currently debated by press, government, and people. Thousands of people who are on benefits or deal with Universal Credit in the UK will face the dramatic impact on their final outcome. Current changes of welfare reforms are based on the UK low and are approved by the House of Lords. In result, changed reforms, which finally take effect, are different to those listed first. Some critics say that 8th March, 2012 turned out to be the start point for welfare chaos in the country, but not for improving the current system.
According to Department for work and pension, it is seen that welfare reforms were created to change complex tax system and increase work incentives. The main duty of welfare reforms was to help people move into work and progress there, while supporting the most vulnerable. The government insisted that after reforming the benefit system will be more affordable, easier, and fairer. It will be able to attack welfare dependency, poverty, and wordlessness in the society (Department for work & Pension 2012).
Norman Smith, the chief political correspondent BBC News, informs that the welfare changes were implemented to cut the benefits bill, to reduce public spending, and to ensure that Britain can live within its means. The welfare reforms are also integrated to political philosophy to mend the so-called broken society. The Coalition shares this point with Mr. David Cameron. They believe that the only way to avoid a poverty of British families is to encourage or force people to work. The welfare reforms are the main tool to get the goal (BBC News 2012).
British people debate about new welfare reforms. Mainly, the public is disappointed about the changes in the benefit system. They say, it is the biggest welfare shake up since 1940s. On the one hand, the claimants are able to increase their income, if they start working. On the other hand, the claimants will lose their benefits if they refuse to work. As the matter of fact, the previous welfare system is costly and complex. It was vulnerable to fraud, and kept people on benefit avoiding a job or increase the working hours.
Mr. Duncan Smith proves that social changes will be affective as soon as minds of those who are on benefits and government’s cautiousness will change. The public must perceive the new welfare system as the springboard for the work, not the mean to make people on benefits dependent.
People on benefits were worried about intentions of changes that took place in the society. The government’s intention to change welfare system pointed out that many of poor children are living in families where parents work in low-paid jobs. However, the social indignation reaches the highest point as soon as working people began pay so much in and got so little back. Liam Byrne, shadow word and pension secretary, said that new welfare system was expected to be the welfare revolution. In spite of expectation, British society faces the welfare chaos. The main disappointing factor of welfare chaos is that the working people have to pay for. (BBC News 2012)
Recently reformed welfare system made society hesitate about its benefits. As the matter of fact, points of views differ very much. Nevertheless, there are either advantages or disadvantages in the current welfare system. There are satisfied and dissatisfied claimers of welfare system. The experience shows that primary designed changes differ very much from the current. However, the practice makes perfect sense. So, there is a hope that modern welfare system will turn out to be efficient, available, and beneficial as well.
To crown it all, it is important to say that the modern system needs time to become perfect and fruitful. Sometimes, positive changes bring negative implications. Therefore, the welfare system should be improved either technically or theoretically to make public satisfied with it. Each society is a great mechanism. It is important to make all its parts work systematically. Anyway, if some detail is outdated, the whole mechanism suffers. Therefore, spoiled details should be substituted from time to time. The same thing happens to the society. It is important to understand that politics are doing their best to make social systems impeccable. The fact is that they need time to bring everything in order.
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