Yes, you're better off working than on benefits – but it's not enough to reduce poverty

One of the many poverty ‘zombie facts’ (which never seem to die) is that people in the UK are ‘better off on benefits’ than working. Look at the figures and you’ll find it’s simply not true.

An updated version of this blog is now available here: Yes, you’re (still) better off working than on benefits

'People are better off on benefits than working' is one of the most persistent myths about poverty in the UK. Chris Goulden explains why this simply isn't true - and why it misses the point anyway.

There were hints of this myth yesterday in response to the excellent Tonight programme on the working poor. While in some extreme cases, it may be true, the social security system, combined with National Minimum Wage policy, is designed specifically to make sure you get more money in a job than if you’re out of work. There seems to be inordinate public, political and media cynicism about this principle in practice. Let’s look at the figures:

If you are single person aged over 25 who is unlucky enough to lack a job, this is what you get each week (using JRF’s Minimum Income Calculator, which makes assumptions about rent and council tax, for someone living in social housing):

  • Job Seeker’s Allowance £71.70;
  • Housing Benefit £73.22 (enough to cover rent on your flat);
  • Council Tax Support £13.24 (to cover most but not all of your Council Tax of £14.47 following localisation and a 10% cut);
  • Total disposable income £70.47.

If you get a full-time job on the National Minimum Wage (£6.31 an hour) then you will:

  • Earn £236.63 gross;
  • Pay £11.12 in income tax and £10.52 National Insurance;
  • Receive back £5.54 in Working Tax Credit (and you don’t even get that if you’re working only part-time);
  • Get nothing in Housing Benefit & Council Tax Support as your earn too much to make you eligible;
  • Leaving you with a total income of £132.84 (disposable income of £62.37 a week more than on the dole).

Now effectively this is £62 for 37.5 hours work, which may seem like it’s not worthwhile, especially when doing a low-paid job long-term is likely to be bad for your mental and physical health. But it’s objectively not less money than you get on benefits (and unemployment is also bad for your health). What’s more, having to pay more than £20 a week to the Treasury and receive a fiver back in Tax Credits looks like an inefficient use of the State’s resources. The income tax figure has, in fact, dwindled and will do so further as the Coalition policy of raising the threshold to £10,000, and maybe beyond, plays out.

Fine, the cynics will say, but what about families with children? We know that they get loads of benefits. Looking at the figures, it’s again clear that financially they are better off in work. Here’s what a family of four gets when neither parent works:

  • JSA £112.55;
  • Child Benefit £33.70;
  • Child Tax Credit £114.94;
  • Housing Benefit £86.88 (for rent on a 3-bed terraced house);
  • Council Tax Support £20.59 (of a bill of £22.50);
  • Total disposable income £259.28.

If one of the parents gets a full-time job on NMW, they get:

  • Gross earnings £236.63 (i.e. same as the single person);
  • Therefore, same income tax (£11.12) and NI (£10.52);
  • Considerably more Working Tax Credit £43.34;
  • Retain their Child Benefit (£33.70) and Child Tax Credit (£114.94);
  • Reduction in Housing Benefit as it’s tapered away somewhat to £31.64;
  • With the same deal for Council Tax Support (to £3.59);
  • Leaving a total disposable income of £332.82; an increase of £73.54 per week.

Lone parents also get a lot of financial support in work that would produce a similar result. The fact that you’re not better off on benefits doesn’t imply that working poverty is not a problem – both are still poverty but they are experienced differently with varying consequences. And many go from unemployment to low-paid work and back again, with 4.8 million different people claiming JSA in the last two years. The real issue is that households relying on either the national minimum wage or out-of-work benefits do not have a standard of living that is sufficient or acceptable in the UK today. There really is no need to set them against each other.