Social Welfare Reforms in the UK, Term Paper Example

Identify and summarize the research evidence presented in Chapter 3 of Mirrlees Review titled ‘Labor Supply and Taxes’ which is most relevant to the reform of the benefit and welfare system.

Studying labor supply is an essential tool for understanding the effects that taxation has on the revenue and welfare of any given economy. There are numerous aspects of labor supply that appear to be linked to specific groups within the economy. Mirrlees’ tax system takes this into consideration by analyzing three fundamental aspects; (1) hours of work per week and per year, (2) labor force participation, and (3) total taxable income (Megihr & Phillips, 2010). Using this three key concepts, one can effectively estimate the implications of taxes and benefits relative to the varying levels of incomes that largely stem from the differences in work preferences for every unit of labor within the economy. One can also trace the variations in work preferences to the numerous changes and reforms that have taken place over time.

One assumption is critical in analyzing the impacts of policy reforms; that aggregate shifts in the number hours of economic activity (work) are a reflection of the reforms made to policies. However, as Duncan, & Meghir maintain, the reforms made on policy affect every unit of labor differently. As a result, benefit entitlement to policy reforms will not be even throughout a specific country (Megihr & Phillips, 2010). Since geographic location also influences such an analysis, in-work and out-of-work income measures cannot be employed. Work preference has been found to have no effect on the range of trends existing within a specific interest group.

Income, expenditure and employment are important aspects of socio-economic wellbeing. As such, these factors are employed in the Family Resource Survey (FRS). The survey mainly measures the changes in probability of work, relative to a unitary increase in income. In measuring income, two factors are considered, (1) predicted income which is earned in employment, and (2) in predicted income which is earned when out of employment. These two actors are essential in depicting the return to work for each unit of labor within the economy.

The participation probability is based on income measures for individual units of labor within the economy, each assigned unique weights. This is because every income measure is valued differently relative to the employment status, i.e. when in employment and when out of employment. There is a substantial relationship between (welfare and tax) benefits and worker behavior. This is regardless of the level of education and skill. However, specific reforms do not conform to simple elasticity. Furthermore, they influence numerous part of the budget constraint which may lead to intertwining with other welfare benefits.

The estimated model for reforms is a sophisticated model that takes into consideration the need for three core pillars; (1) welfare benefits, (2) a tax system, and (3) complete structure. This model allows for endogenous change in hourly wages or post-tax income. However, this model fails to take the house dimension into consideration.

The most important fiscal tool is income tax. Mirrless proves this through a study of the social taxation model. When taxes were applied according to social factors such as marriage status, there was a considerable positive effect on employment for low-wage single men. However, individuals within the higher wage brackets experienced some drawbacks.

Where, is the utility function and is the production function. This means that when tax is imposed on income, consumption reduces relative to the tax applied. As a result, the production function will swing lower upon taxation, but increase upon the application of a subsidy.  He assumed that utility is as a result of the social welfare function and the government’s objective is to minimize overall welfare by applying taxation and subsidy intermittently.

Summarise the shortcomings of the existing benefits and welfare system identified by the document titled ‘21^stCentury Welfare’.

The 21^st Century Welfare program was presented to the Parliament by the Secretary of State for Work by Command of Her Majesty. This program was considered to be more efficient by targeting the core problems within society (poverty, alcohol, drug addiction, education failure and family breakdown). The significant difference was that the model would help realize economic dependency and eliminate personal indebtedness and dependence. Previous programs created a dependency effect in the long-term.

It is commonly accepted the welfare reforms could drastically remodel the benefits system to make it more efficient and just. Vulnerable individuals in society would be given a better life. The benefits system allows individuals to live a standard of life much higher than they can afford (Great Britain Department for Work and Pensions, 2010). This has a considerable ripple effect in coming subsequent generations. This is because children of families receive the assistance for the new benefits system would lack value in work. This is because they have witnessed their parent live a relatively comfortable life without having to work. The most ideal solution to poverty is work. A working individual has an opportunity to earn a living, potentially build a career and prevent poverty. An individual receiving benefits cannot realize any of the mentions opportunities.

These reforms are only possible due to increased saving. This increased saving cost the government £2 billion which went towards universal credit. Universal credit allows for individual to realize the same amount of income they did when they were employed. This principle id genuinely crucial to protect the vulnerable in the society. Without such principles, the social fabric of society would crumble. However, there is increasing need to place monitoring and management tools to safeguard the essence of such policies and programs (Great Britain Department for Work and Pensions, 2010). Such new reforms give room for the occurrence of the free rider problem, where certain elements within the economy would want to enjoy the benefits of the reforms without having to meet the criteria for vulnerability. Standards and checks have to be put in place to determine the level and degree of vulnerability, relative to the willingness to commit to undertake economic activities.

Reforms in an economy are quite complex and multifaceted. While new reforms may help the vulnerable avoid poverty and increase the general health of the economy, such an approach may have negative long-term implications. Tax reforms also carry a multifaceted characteristics. Government can apply tax increases to help finance budget deficits. However, such an approach destroys social consciousness by creating a less socially aware economy.

David Freud maintains that governmental proposals on social welfare improvement carry the best interest of the vulnerable within society. However, the current welfare system is a far cry from the intended goals during its inception. While the welfare system could realize its intended goals in the short-term, its social impact in the long-term warrants considerable changes in structure and philosophy employed in developing social welfare reforms. Owing to the fact that the approach is flawed, the government continues to attempt to create a fairer system by the day as a result of redundancies created by the system itself.

The development of welfare reforms in Britain are as a result of direct involvement of vulnerable populations such as the disabled. The key to developing a fair and just system is to allow for the participation of all parties with vested interests, especially the vulnerable. This is evident in the changes that were recently mad in the United Kingdom’s tax system. The changes resulted from feedback from vulnerable groups and organizations representing their rights. The changes within the tax system directly affects each social group and as such has solicited mixed reactions from the demographic.

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),  Directgov websites and any other publication which are relevant.

Government of the United Kingdom government developed a new policy document, Universal Credit, which targets individuals of working age by creating an affordable platform and a revolutionary support system. Universal Credit aimed to make a simpler tax and benefits system by adopting a long-term approach as opposed to the previous benefits system that focused on the short-term (Baldock, 2011). This program would execute its core functions through a number income-related support programs that are targeted at providing integrated befits for working-age individuals, both in and out of employment. This program entailed two main facets, (1) personal amounts, and (2) additional amounts. Additional amounts referred to special populations, such as individuals with disability, single parents, and individuals with a caring responsibilities, such as those taking care of a family member with terminal illness. However, Universal Credit would only applicable to new claims ensuring that no one realizes a decrease in their benefits.

The outstanding feature Universal Credit is the fact that it is founded on two vital components, (1) monthly income, and (2) other special circumstances. The program is mainly founded on monthly income so as to encourage work. By pegging a considerable amount of the valuation on monthly income, individuals are driven to work harder to be entitle to more benefits. Special family circumstances are important to take into consideration. Families living with a member with a terminal illness in naturally predisposed to become financially vulnerable. However, the program is designed to provide incentive for such special populations to work.

Government maintains that the reforms embodied in Universal Credit will seek to support those in need while motivate the economy to work. While the program is one year away from commencement, it may begin in as early as in six months in some areas of Britain. The viability of the welfare reform is under great scrutiny and scepticism is high (Great Britain Work and Pensions Committee., 2012). This is because there is very little information to project the impact it will have on individuals within society. This is because one claim in Universal Credit subjects one to six means-tested benefits and credits on tax. Some of these means-tested benefits include housing benefits. The government seeks to fully digitize this programs by allowing one to apply or transfer the credit online.

As mentioned before, the outstanding feature of Universal Credit is the work ethic that has been applied. The initial benefits programs encouraged dependency through automatic entitlement to welfare benefits. However, Universal Credit increases an individual’s work support relative to the increase in the monthly income. As a result, the more an individual works, the more work support he receives and thus increased profit on a monthly basis. However, there is considerable evidence that shows a portion of the population currently receiving benefits would want to start working to earn their living. The program’s core philosophy is instilling a work ethic in the vulnerable and needy in the society and eliminating dependency. This policy encourages individual to find full-time work as soon as they can. To help in this endeavour the government places credit restriction on individuals with part-time jobs. However, in special cases where there exists genuine reasons for not being able to undertake full-time employment, exceptions are made.

There has been considerable opposition to the welfare programs, and partially towards the Universal Credit program (Great Britain Department of Work and Pesnions, 2014). Opposition maintains that these programs have been developed and structured in a very complex manner. Owing to this, the Universal Credit program is likely to be stalled for a considerable amount of time before it is operational. In order for such a reform to be successful, there has to be a global approach that aligns the principles and foundational IT programs that are required to deliver it.

The Universal Credit program has received considerable scrutiny and attention. While the programs was initially believed to have been created to help save money, the government has ended up incurring increased expenditure to the tune of £2 billion (Great Britain Department of Works and Pensions, 2015). According to the monthly experimental official statistics released by the DWP, this largely stems from the fact the economy support families under childcare programs with £80,000 annually. Despite the fact the Universal Credit program assists up tom 3 million people in the United Kingdom, these individuals have been found to be in a worse socio-economic state under the program.

References

Baldock, J. (2011). Social policy. Oxford: Oxford University Press.

Cahuc, P., Carcillo, S., & Zylberberg, A. (2014). Labor economics (2nd ed.). Cambridge: MIT Press.

Drewe, P., Klein, J.-L., & Hulsbergen, E. (2011). The challenge of social innovation in urban revitalization. Amsterdam: Techne Press.

Great Britain Department for Work and Pensions. (2010). 21st Century Welfare. July: Crown Copyright. Retrieved March 20, 2015, from www.dwp.gov.uk/21st-century-welfare

Great Britain Department for Work and Pensions. (2010). Universal Credit: Welfare that Works. Norwich: Crown Copyright. Retrieved March 20, 2015, from www.dwp.gov.uk/universal-credit

Great Britain Department of Work and Pesnions. (2014). Universal Credit Employers Insight. London: Crown copyright.

Great Britain Department of Works and Pensions. (2015). Universal Credit – monthly experimental official statistics to February 2015. London: Government Statistical Sevice. Retrieved March 20, 2015, from https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/404207/universal-credit-statistical-first-release-feb-15.pdf

Great Britain Work and Pensions Committee. (2012). Universal credit implementation : meeting the needs of vulnerable claimants. London: Staionery Office.

Laing, D. (2011). Labor economics : introduction to classic and the new labor economics. New York: W.W. Norton.

Megihr, C., & Phillips, D. (2010). Labour Supply and Taxes. In J. A. Mirrlees, & S. Adam, Dimensions of tax design : the Mirrlees review (pp. 202-274). Oxford: Oxford University Press.

Sirovátka, T., & Greve, B. (2014). Innovation in social services : the public-private mix in service provision, fiscal policy and employment. Farnham: Ashgate Pub. Limited.

Thomas, A., & Organisation for Economic Co-operation and Develop. (2011). Taxation and employment. Paris: Organisation for Economic Co-operation and Development.