THE UNIVERSAL CREDIT: WHY DOES IT WORK?

Transcription

1 THE UNIVERSAL CREDIT: WHY DOES IT WORK? PROF. DR. B. JACOBS ERASMUS UNIVERSITY ROTTERDAM EC MUTUAL LEARNING PROGRAMME - LONDON 30 NOVEMBER 1 DECEMBER 2015

2 LABOUR MARKET SITUATION NL AND UK Netherlands Double-dip recession Output lost (structurally) compared to trend: 15% (11%) GDP Unemployment 2008: 3.6% 2015: 6.8% No of unemployment / welfare recipients 2008: 161,450 / 344, : 419,570 / 490,000 Long-term unemployment 2008: 35% 2015: 44% Non-employed/employed at risk of poverty 2008: 26.1% / 5.4% 2015: 29.2% / 6.2% United Kingdom Single-dip recession Output lost (structurally) compared to trend: 11% (7%) GDP Unemployment 2008: 6.0% 2015: 5.4% No of unemployment recipients 2008: 986, : 706,600 Long-term unemployment 2008: 24% 2015: 30% Non-employed/employed at risk of poverty 2008: 40.6% / 10.2% 2015: 38.2% / 11.3%

3 ASSESSMENT UNIVERSAL CREDIT UC mostly resembles a combination of the Dutch general welfare benefit and the Dutch tax allowances Strong overlap between the Dutch tax allowances and the measures that the UC aims to replace Dutch welfare benefits: conditional, means and wealth tested, local implementation Dutch tax allowances: rent, health care, children and child-care Also in NL: unemployment, sickness and disability insurance, 70-75% final earnings, not means-tested, not for self-employed

4 LESSONS / DISCUSSIONS IN THE NETHERLANDS The tax-benefit system can be organized via the web as in the Netherlands The Dutch experience reveals that the revenue service can become overburdened by the complexity of the tax-benefit system, inviting evasion, avoidance and fraud The UC is similar to Dutch proposals for a household allowance, merging various pre-existing tax allowances, stranded supposedly due to legal and budgetary issues Unlike in the UK, some Dutch cities are experimenting with relaxing rather than tightening conditionality in welfare benefits

5 Marginal tax rate (%) MARGINAL TAX RATES IN THE NETHERLANDS Pension contributions EITC + EITC working couples Child-related allowance Rent allowance Health allowance General tax credit Income tax rates Individual gross labor earnings (x 1000 euro)

6 Participaation tax rate (% gross earnings) PARTICIPATION TAX RATES IN THE NETHERLANDS Income tax rates General tax credit Health allowance Rental allowance Child-related allowance EITC + EITC working couples Pension contributions Welfare benefits Individual gross labor earnings (x 1000 euro)

7 THE TRADE-OFF BETWEEN EQUITY AND EFFICIENCY Marginal tax rates Redistribute from rich to poor Distort incentives to work more hours Participation tax rates Redistribute from workers to non-workers Distort incentives to participate in the labour market Policy makers often confuse marginal and participation taxes The holy grail question: how can UC both alleviate poverty (= redistribute more income) and stimulate labour-market participation/hours worked (= more economic efficiency)? Answer is not at all clear

8 QUESTIONS: WHY DOES UC WORK? 1. How did the UC change marginal tax rates, participation tax rates and average tax rates, compared to the pre-existing system of incomedependent support? 2. Does the UC indeed strengthen effective conditionality compared to preexisting income-dependent arrangements? 3. To what extent is the success of the UC in bringing down poverty and boosting employment the result of additional public resources made available for UC? 4. How much would tax burdens rise and what are the macro-economic and labour market consequences of implementing UC in the entire UK? 5. How are the costs of administration and compliance affected by UC?

9 QUESTIONS: WHY DOES UC WORK? 6. How did the UC affect benefit take-up among poor individuals that did not claim the benefits they were entitled to in the pre-existing tax-benefit system? 7. Can the positive estimated policy impacts of UC be due to the nonrandom allocation of UC-participants? 8. Can the UC be paid out to UK citizens living abroad? What would be the budgetary consequences? 9. How confident can we be that the UC is successful in complex cases (couples, home owners and people with children)? 10.Have there been issues in streamlining different income concepts used in the various income-support programmes for the implementation of UC?