Escaping the poverty trap: how to help people on benefits into work

Document type
Lawrence Kay
Policy Exchange
Date of publication
4 March 2010
Employment, Poverty Alleviation Welfare Benefits and Financial Inclusion
Social welfare
Material type

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This report analyses the financial costs and benefits of employment for people receiving welfare payments.  Nine of the most typical claims for welfare – encompassing Jobseeker's Allowance, Income Support, Incapacity Benefit (the Employment and Support Allowance), Housing Benefit, Council Tax Benefit, Child Benefit, Working Tax Credit and Child Tax Credit – are compared to what a person would earn as they work for between one and 40 hours at the National Minimum Wage. In other words, how someone’s income changes as they start to work a normal week is analysed for how the withdrawal of benefits and levying of taxes affects the financial incentive to work.  This report also takes into account the costs of getting a job. Using up-to-date  figures on what some of the poorest people in Britain spend on just travelling to work and being appropriately dressed, the analysis reveals the total financial decision that a person on welfare is likely to face.  The results show that in some cases people are worse off by working and in many cases the rewards for work are minimal.  The combination of benefit withdrawal and levying of Income Tax and National Insurance contributions produces some of the highest tax rates on anyone in Britain and are a substantial disincentive to employment. The author makes recommendations to remedy this situation, including raising the earnings disregard on all means-tested benefits to £92.80 per week. This would especially help the long-term unemployed who need to take incremental steps into work.

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