Benefits in London – Personal social benefit or London business subsidy
With the full range of benefits being rolled in to Universal Credit, it seems worthwhile to review the role and purpose of the benefit system, and its application to London, as the UK’s premier city.
The national minimum wage is currently £6.19 per hour, and recently there has been talk of a living wage in London of around £8.50 per hour. On a 40 hour week, that translates to £248 and £342 respectively, or on an annual basis £12,896 and £17,784 respectively, before tax and NI.
With private rents in the cheapest parts of London at around £9,600 for a 1 bed flat and £12,000 for a 2 bed flat, it is fairly clear that the living wage must be based on something other than mere wages. And while there are other cheaper living accommodation, council flat and housing association for example, these are clearly not all that easy to access.
So it is right to ask, for the low paid worker, can benefits be deemed to be a social benefit for the recipient, or actually a subsidy for business. Just think how expensive you’re Starbucks, Pint etc. would be if those companies had to pay a true cost of living wage in London, without government subsidy (working benefits) for workers.
Take the single person, living in the smallest 1 bed flat, in the cheaper part of London (hardly a luxury lifestyle). Rent – £9,600; Utility costs – £1,200; Council tax – £700; Travel card – £1,200; Food – £2,500 = the absolute basics £15,200.
After tax income on the London living (!) wage = 14,332.
So even before we consider that person might want to, buy clothes, meet friends, or have any sort of decent life, they are already in a deficit position. So what happens to the person on minimum wage? Clearly it does not work, and these people, if they moved out of London, would face many thousands in travel costs per year, so that does not work either.
The living wage in London is calculated using vastly reduced costs (social rent), and includes a fair chunk of benefits, especially for those with children. In fact, it could be said that you are significantly better off with children, than without – no doubt those with children would differ on that opinion.
So, who actually benefits, from the benefits system?
Benefit recipient – but only to the extent that they can live a very basic lifestyle – just about meeting the ‘right to a human life’ requirement.
Taxpayer – to the extent that goods and services are much cheaper, and more available than they otherwise would be. Balanced off against the taxes they pay to enable the benefit system to exist.
Government – only to the extent that benefits probably help maintain social order, cohesive communities, and viable thriving cities, and do not discourage people from having families – we have a quickly ageing population.
Property owners and landlords – the local housing allowance places a floor under the value of property in poor areas, in wealthy areas it makes no difference as values far exceed reasonable rental income based on local housing allowance.
Business owners – without benefits, the cheapest labour in London might cost them £15-20 per hour, destroying margins, making low margin business unviable. This would also have a knock on effect on the property owners, and the rents they can charge, impacting property values.
So government is the enabler, smoothing the way for business owners and property owners, making investor returns more reliable, and making otherwise unviable businesses viable.
Removal of benefits would kill off the goose laying the golden eggs, not only do benefit recipients need them, the whole country and society does too