Moral Hazard isn’t just for Poor People

By DeusExMacintosh


What has amused me most about the financial crisis are the endless media interviews with “real” people (and the occasional self-confessed bludger auditioning for Shameless). Those chosen are more usually hardworking folk previously on average incomes who are claiming welfare for the first time in their lives and getting a rude shock at the paucity of what is considered ‘adequate’ financial support. Having believed government tropes about the laziness of the unemployed and the overgenerous levels of benefits they received, these new recruits to the dole-queue unanimously wail “but I PAID my national insurance!”.

Funnily enough, so had most of the people receiving benefits whilst these newbies had a job, but it has served recent political interests to create maximum division between those on welfare and the rest of Britain’s ‘honest workers’ (who often aren’t earning much more).

The primary motivator in recent years has been Labour’s successful campaign to abolish Incapacity Benefit. For those not familiar with the British welfare system or my earlier posts, IB provides a basic income to those unable to work due to medium or long-term sickness or disability. In order to qualify for IB you need to have worked for several years and contributed a generous amount of national insurance, plus the income you receive from it is taxable. For those not qualifying for Incapacity Benefit the alternative is means-tested Income Support which is slightly lower, not taxable and automatically qualifies you for free prescriptions and various discounts.

The actual difference between the two basic allowances is about £10-15 a week though someone who is sick or disabled or has children can qualify for multiple premiums that can boost basic Income Support to a level more than double the highest possible rate of Incapacity Benefit, which has a single age-based premium depending on how old you were when you became unable to work.

Determined to eliminate the last contributions-based benefit, Labour and friends simply lied.

It started as far back as Prime Minister’s questions on 4 July 2001 when Tony Blair told parliament:

It cannot be right that we have a situation in which people coming on to incapacity benefit will be paid on average about £4,000 a year for, say, 10, 15 or 20 years, with no one ever checking whether they have recovered from their injuries and are able to work.

Except that the Benefits Agency already had the power to demand a medical reassessment at any time and was conducting a million personal capability assessments every year, half of them on existing claimants [Baroness Hollis of Heigham – Official Report, House of Lords, 4 July 2001; Vol. 626, c. 858.]. Successful IB claimants were also required periodically to complete the IB50 questionnaire detailing any change in their condition (I was doing it every six months at one stage).

Expecting resistance when their welfare reform consultation reached the “white paper” stage, Labour pre-emptively commissioned a former investment banker to write an ‘independent’ welfare review. In March 2007 after three whole weeks of research David Freud told The Telegraph that he was assuming up to two thirds of people then claiming incapacity benefit were not entitled to it.

When the whole rot started in the 1980s we had 700,000 [claims]. I suspect that’s much closer to the real figure than the one we’ve got now

His report makes no mention of the effect the baby boomer demographic bulge might have had on claimant numbers. No mention that this alone will achieve the former government’s aspiration of removing a million claimants from Incapacity Benefit over the next decade as they reach pensionable age (beyond which IB is not paid). No mention that the increasing involvement of women in the workforce over the same period meant that many more had made enough National Insurance contributions to become eligible for the benefit, often at higher rates as they are more likely to be responsible for children. No mention that ALL the claimants who qualified for Incapacity Benefit and its predecessor had paid their National Insurance contributions. In fact, there was repeated condemnation of any such “sense of entitlement” from the front benches. Freud spent most of his report talking up the financial potential of privatising all the placement services that would be required for all those claimants losing IB. The Tories liked it so much he joined the party and has since been ennobled as Lord Freud, the Conservative Welfare Reform Minister.

Like Freud, both Labour AND the Conservatives publicly concluded that the explosion in the IB costs was due entirely to undeserved claims and determined that introducing stricter re-assessment for existing and future claimants was the solution (thus avoiding accusations of bashing the disabled by denying they’re disabled at all!). Pity that both the numbers and Ministers were actually saying that the explosion in costs was really due to longer claim lengths rather than a rise in claimant numbers.

Just to help their arguments along, ministers emphasised the unfairness of IB by comparing the highest-possible weekly rate of Incapacity Benefit WITH premium to the lowest-possible rate of Income Support WITHOUT premiums. Documentaries and news stories on Benefit Fraud were constantly on television. Any moment I was expecting an Australian-style reference to “sit-down money”.

What’s most frustrating is the occasional glint of diamond in the dross. In that sliver of the debate actually directed to those of us on Incapacity Benefit the rhetoric was more reassuring. Of all those previously left to “languish” on old-style Incapacity Benefit, a select few disabled enough to qualify for the Support component of the new Employment and Support Allowance will be henceforth “left in peace” – at least until someone decides they’re languishing too or their Disability Living Allowance is abolished, whichever comes first. Even the majority shunted onto the Employment track were assured by Ministers that the rates they received would be higher than the Incapacity Benefit being replaced (in the case of people eligible for the means-tested version that again comes with premiums, this is clearly not true).

Having spent the last five years complaining about the unsustainable expense of the current welfare rolls, Labour appointed a fresh new Work and Pensions Minister to handle the changeover – James Purnell. He placed the final cherry on top of the whole propaganda sundae by telling The Guardian

The reason we want to reform the welfare state is not to save money, but because it transforms people’s lives.

After the global financial crisis and general election in May, the new Conservative/Liberal Democrat coalition government has been pretty honest that they’re doing it for the money, and have gone gone to town with the “cheats and scroungers” rhetoric and divisive politics to nullify many valid objections to the changes.

Two years ago Incapacity Benefit was replaced for new claimants with Employment and Support Allowance and existing claims will be migrated between the benefits from this month on for the next two years, aiming for an assessment rate of 10,000 people each week. The migration process was trialled in only two test-areas, Aberdeen in Scotland and Burnley in the north of England and has featured the typical ATOS incompetence we’ve all come to know and hate. The commons committee responsible for work and pensions sat in Burnley on Monday in order to take submissions from individual disabled people. (I hope there was a swear jar with proceeds to benefit Citizens Advice). Oh, and the trials were all done on paper so the IT system to support that massive administrative reclassification… totally untested.

Perhaps you think it doesn’t matter because receiving benefits is something someone like you will never have to worry about?

The exposure of the MPs expenses scandal by the Telegraph was essentially that last nail in the Labour Government coffin. That and the economic meltdown meant that we have seen a change of government, but no change to the programme of ‘welfare reform’ or the double standard. This is how “us and them” politics really works…

In the latest scandal if an MP is suspected of “misusing” the expenses system he gets a polite chat with a whip, the chance to repay the money in doubt and make a grovelling public apology about careless bookkeeping.

If a claimant is suspected of “misusing” the benefits system it will be treated as deliberate Fraud and a combination of the Regulation of Investigatory Powers Act and Social Security Fraud Act (2001) authorises the DWP or local council (who administer housing/council tax benefits) to follow them with cameras, access the details of bank accounts, credit cards and utilities expenditure before an interview under police caution on the assumption that the subject is guilty.

When it comes to prosecution all benefits can be stopped leaving a claimant with nothing to live on let alone afford legal advice with. They will then be formally arrested, charged with a criminal offence and taken to court to face imprisonment, large fines and repayment of a vastly inflated DWP estimate of all the undeserved support received.

Defenders of MPs will argue that this analogy is unfair. Social Security Fraud is governed by detailed Acts of Parliament that define it as criminal in a way that the Green Book rules on permissible expenses does not.

So if not, WHY not?


Two Labour MPs, Paul Kenyon and Elliot Morley have been exposed claiming thousands of pounds of interest (£13,000 and £16,000 respectively) on mortgages that had already been paid off. This appears to be clear misconduct.

Mr Morley said the claim had been a “mistake” due to “sloppy accounting” and said he had paid the money back.

These “mistakes” don’t happen to welfare claimaints. We have a strict legal obligation to disclose any “changes in circumstances” in impertinent detail to the relevant authorities and can now be fined at least £50 if we don’t. Not doing so is an offence in itself and the clawback of monies is expected to reach £60 million, all coming from the poorest in society. MPs? Apparently they can just be trusted to mention the changes that they feel are relevant.

It took an official complaint to the police by the Taxpayers Alliance campaign group before it was announced that a panel of Metropolitan Police officers and lawyers from the Crown Prosecution Service would “…hold its first meeting on potential criminal investigations…” Almost two years later, the bodycount to date (Feb 2011) is nine including jail-time for the Conservative Lord Taylor “everybody does it” of Warwick and two “let me mock you up a receipt for that” Labour MPs (Eric Ilseley and David Chaytor) with fellow former Labourite Jim Devine convicted and awaiting sentencing.

This high profile expenses probe may have cost in the vicinity of half a million pounds but so far has shown savings of close to £4 million, which is how much MPs expenses claims for housing have dropped since the scandal. No wonder the government believes in the efficacy of “sending a strong message”. If nothing else, the revelations surrounding the expenses furore have at last proven that The Rich are EXACTLY like us… and just as prone to take the p*ss.

Ironically, it is probably the expenses scandal that has done most to undermine the traditional “Us and Them” politics of welfare and governance as the derision of MPs was suddenly turned back on them by the public and media. If we are serious about holding officials to the same standards as everyone else, there could be considerable knock-on effects for policy.

Why has the treatment of couples been so different, for example?

In Social Security legislation, a couple is treated as a unique financial unit which is assumed to have reduced living expenses with the effect that benefits for couples are significantly less than those that would have been received if the pair were treated as individuals. This is why one of the favourite fraud investigations on housing estates is single mothers living with a partner while claiming as an individual. However The Green Book makes no such distinction for MPs, who are always treated as individuals.

I have no personal objection to the basic expenses provision that covers rent or mortgage interest payments to support a second London-based home for those MPs whose constituencies are far outside the capital. But not making a distinction between single MPs and couples is what enabled husband and wife Andrew MacKay, MP for Bracknall and Julie Kirkbridge (also a Conservative MP) to claim second home expenses on TWO DIFFERENT London properties without breaching the rules. For those concerned with political balance, Labour’s power couple Ed Balls and Yvette Cooper were at it too.

Is it fraud? No, it’s entirely within the rules, but you won’t find many who think it was inappropriate for MacKay to resign as a “special advisor” to David Cameron, the Conservative Party Leader. Which is more wasteful of public cash… paying the same, low individual rate of benefits to a couple living together in social housing, or helping a family to afford THREE homes when both partners already earn over £60,000 annually just in basic salary?

This sea change has finally led even the Tories – who tend to be highly vocal about “encouraging marriage” via tax breaks on the grounds that children brought up in a two-parent household achieve more in society than those of single parents – to speak up about the punitive benefit rules that discourage single parent households from creating new two-parent families. Was the assumption previously that low-income parents can’t possibly be good ones?

Talk about being hoist by your own petard. For the first time I can remember, politicians today are receiving the kind of public and media censure they have spent the last few years quite deliberately directing at those on welfare in order to make their spending cuts more palatable.

A Conservative MP says he believes many of his parliamentary colleagues have considered quitting amid revelations over their expenses claims.

Monmouth MP David Davies said it had “undermined” them, and he feared he was now seen as “a thief on the make”. However, there has been no suggestion that Mr Davies has done anything wrong.

BBC News

Well, diddums! Welcome to MY world, chummy.

Examining the public outrage over the current expenses scandal and you’ll find it has overwhelmingly focused on the “double standard” between what is considered acceptable behaviour for politicians that of ordinary people. And yet as angry as the whole mess makes me, I don’t think that increased regulation of MPs expenses is the sole solution to the problem of “expenses fraud” any more than it is the solution to “benefit fraud”.

The latest parliamentary scandal has shown how a totally open system has been abused by MPs to support personal speculations in real estate, dodge capital gains tax and write off personal expenses as professional ones.

In the stricter confines of the benefits system, few claimants have either the money or professional advice needed to abuse the system. However the controls and restrictions are seen as so unfair that most cases of fraud are by claimants who simply ignore them – refusing to acknowledge partners or working “on the hobble” (cash-in-hand) rather than live in penury. They do this not for property investment or £5,000 home cinema systems but for the extra £30 a week it takes to repay debts, maintain and furnish a home and clothe their children.

As someone who also gets their entire income from the state I’m not willing to say that all politicians are opportunists and cheats. I won’t even be joining calls to make the MPs expenses system stricter – I’ll be calling for all the systems of financial accountability to be made fairer for those in receipt of state monies whether they are politicians on £60,000 a year or the unemployed on £6,000.

Sauce for the goose, gentlemen… Perhaps you’d now like to include yourselves in that “we’re all in this together” mantra.



  1. Patrick
    Posted March 9, 2011 at 6:11 am | Permalink

    Hey, I have no problem tarring and feathering politicians the length of the country in a cart – and mine is a bloody long country! And in your case, any pro-European rights mush ones I’d have in a boat right to France.

    Not sure that was where you wanted to go with this, though….

  2. derrida derider
    Posted March 9, 2011 at 7:07 am | Permalink

    To the list of things driving increasing IB numbers, you should add one adverted to in your cartoon – modern medicine is far better at keeping people alive than keeping them well.

    A lot of people now on IB would not have got IB in the 1980s because they’d have been dead.

  3. Posted March 9, 2011 at 5:04 pm | Permalink

    DD, this is, unfortunately, true. Saying so in public without being accused of being some sort of evil eugenicist is nigh on impossible, however.

  4. Posted March 9, 2011 at 8:38 pm | Permalink

    It’s difficult to see what’s going on because the government is deliberately “fudging” those actually receiving Incapacity Benefit (based on contributions) with those receiving Income Support on the basis of Incapacity (means-tested). But as the quote from Danny Alexander in the Scotsman shows, they know damn well that the numbers had plateaued in the early ’90s before Blair was elected, it’s only the OVERALL BILL which has risen. Which is not that surprising as people with health problems tend to get MORE disabled over time rather than less. It’s just generalised as “Incapacity has exploded” and they don’t point out this is referring to the budget rather than claimant numbers. It’s quite deliberate spin… and it’s ticking me off!

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