Friday 30 July 2010


TPA Bulletin - 30th July 2010
Welcome welfare changes

The TaxPayers' Alliance today welcomed 21st Century Welfare - a report released this morning by the Department for Work and Pensions which actually cites TPA research and argues for a major simplification of the benefit system. The proposal in our recent major report Welfare Reform in Tough Fiscal Times is cited as the illustrative example of a "single benefit/negative income tax model".

The TPA has recently made benefit reform a priority for our research and campaigning, and in the TPA Manifesto reforms to taxes and benefits were set out as one of our priorities for this Parliament - and we think that there's a lot to like about Iain Duncan Smith's new proposals.
With the current system so complicated that £4.5 billion a year is lost to error and fraud, working at the minimum wage of £5.80 an hour can be worth as little as 26p an hour and too many families slip through the net so the number living in severe poverty has actually increased from 5 to 6 per cent in the last decade. There's obviously considerable room for improvement and so it is great news that the Government are planning to overhaul the system properly instead of applying more counterproductive sticking plasters. 21st Century Welfare sets out a number of options for reform that would create a drastically simpler system.
It is extremely good news that Iain Duncan Smith has released such a serious statement of intent to do something about our failing welfare system. There is a huge opportunity for the coalition to achieve great things in this area. But we'll get a better welfare system, and better value for taxpayers' money, if he takes some tough choices over the poverty line instead of getting into a fight with the Treasury for more money from overstretched taxpayers.
Matthew Sinclair, Research Director at the TaxPayers’ Alliance, said: "It is great news that Iain Duncan Smith has not backed down from radical reforms, of the kind recently recommended by the TaxPayers' Alliance, to benefits that are costing taxpayers a fortune but failing the poorest. Continuing to trap people in the treacly complexity of a welfare system that has suffered from too many sticking plasters over the years just isn't acceptable, and a new approach is clearly needed to get people back into work. But with taxpayers struggling under a rising tax burden and the public finances in a crisis thanks to sharp rises in spending over the last decade, more money just isn't there to smooth the path. It is vital that the Government make the tough choices that would make it possible to reform welfare and save money now".
Time for a new pension plan

On Thursday morning the Audit Commission released a report on the Local Government Pension Scheme and found that in its current form the scheme is just not sustainable in the long term. Though this was good to hear from the auditors of local government, it’s hardly news to the TPA or our supporters as it’s something we’ve been saying for quite a while now. In fact, in March we released research that showed councils had a total pension deficit – that's how much larger liabilities are than assets – of £53 billion, an eye-watering figure. When we released the report, we had the inevitable backlash from the unions, with Unison saying that the number didn’t matter, because not everyone would be retiring tomorrow. This is akin to a credit card junkie ignoring their total balance owed, because they manage to scrape by paying the minimum payment each month. The Audit Commission report very firmly confirmed our research findings, stating that “the current approach cannot continue” and “action is required now”. Things that we wholeheartedly agree with, as outlined in this blog by Deputy Research Director, John O’Connell.
Of course, even outside of local government pensions are a huge issue for central government too. With the scale of the fiscal crisis, urgent reform is needed across the entire public sector. The coalition have asked John Hutton, former Defence and Business Secretary, to conduct an inquiry into public service pension provision. Earlier in July, his commission issued a call for evidence on fairness, cost and ideas for short-term solutions, in lieu of a second inquiry to look at long-term and structural issues. We submitted our evidence this week, and this can be read in full here.
Revisiting The Spirit Level
Earlier this month, we published a report by a group of Swedish economists on The Spirit Level – the influential book by Richard Wilkinson and Kate Pickett which claims a range of social maladies are driven by income inequality – which found many of the book’s empirical claims don’t stand up to scrutiny. That report was the basis of a comment article in the Wall Street Journal and last week, in Prospect magazine, TPA Research Director Matthew Sinclair wrote about the book and asked how “all those enthusiastic evangelists for The Spirit Level will respond as many of its empirical claims fall apart like an ageing Trabant.”
At a debate organised by the RSA the authors of the book debated the merits of the book with two of their other critics. One of the critics at the debate was the author of The Spirit Level Delusion, Chris Snowdon. Chris wrote a blog for our website recently about his work fact-checking The Spirit Level. The authors of the Spirit Level promised, at the debate, to post a full response to three critical reports including the one published by the TPA.
We have published a full response to their defence of The Spirit Level. The same Swedish economists who wrote our original report make it clear that on a wide range of issues the authors’ of The Spirit Level continue to distort the evidence. For example, they cite the work of a Nobel laureate as support for their book but the study they refer to was actually about a very different issue and when the authors of our report contacted him he said that "[t]his is a misrepresentation of my work".
Another example is their numbers on patent intensity. At the RSA debate Matthew Sinclair asked the authors to defend their claim that Portugal was as innovative as the United States, home to Silicon Valley and most of the world’s top research universities. They responded that they stood by their numbers. But it looks like they just got inaccurate figures from a website instead of checking the original source. The United States is actually, as you would expect, far more innovative.
These are just a few examples of the problems that are covered in the full response on our site. The TPA is going to stay involved in this ongoing debate.
Quango cull (continued...)

The unchecked growth of the quango state is something that the TPA have long fought against. Whenever there’s a political issue being debated, or a disaster or tragedy occurs, for too long now the answer has been to establish a quango to deal with it. This way politicians look like they’re taking decisive action and, if their new body or agency fails, they're also convieniently able to duck any criticism.
We have produced the two most comprehensive surveys of quangos in the UK (here and here) and the numbers are now widely accepted as reflecting both the real number of quangos and the true cost to taxpayers. Many of these bodies perform roles that the state should simply not be performing. So good news then this week, as ministers have been out in force promising to cull many of these bodies from their departments.
We saw the UK Film Council dissolved, along with several other culture and health bodies too. Some of the others abolished this week are merely layers of bureaucracy whose removal is long overdue. There is a cautionary note to add, however: it’s essential that if a minister says that a body is going to be abolished, this is followed through. It would just create even more problems if they played politics by celebrating the saving of money to their department, only to simply shift the functions and cost to another quango. Rest assured the TPA will be keeping an eye out for this!
If you'd like to read more about this do take a look at John O'Connell's excellent blog on the subject.


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