Accounting fictions and welfare.

In the comments of my post about neds, The Candidate says:

Hari's problem is that he doesn't make the vital distinction between ordinary decent working class people and the underclass. The former aren't scared of a bit of work and object as much as the middle classes to their taxes subsidising the plasma screens and super sized Big Macs of the chav.

It is the blurring of these boundaries that has undermined the good (albeit antiquated) intentions of the welfare state - the difference between a safety net of last resort for those genuinely falling on bad times and a gravy train for the chav scum.

This is certainly true, but it isn't the whole problem. The really big problem is that the welfare state is run by accountants. Let me explain.

National insurance contributions are taken out of my wages every month. (I have no problem with the government offering a national insurance scheme, by the way, but I think it should be optional.) In return for those contributions, I get certain benefits: six months of dole money if I'm unemployed, incapacity benefit if I get so ill I can't work, etc. Fair enough. Where it all goes wrong is the way national insurance works for people who are long-term unemployed, like I very nearly was this year.

What the government do is, instead of just giving you, say, £55 of unemployment benefit, they give you £60 benefit while simultaneously taking away £5 national insurance contribution. This is obviously just an accounting fiction to keep the books balanced, right? You never, at any stage, give the government £5: they're just moving money from one account to another. The idea is that, if you're unemployed for two years, then get a job, but then get made redundant after four months, you will still qualify for unemployment benefit — which is fair enough. The problem arises because the accountants who run the benefit system treat this simple little book-keeping entry as The Absolute Truth. As far as the government are concerned, you have indeed given them money, and they treat it as income — and they treat you as if you're paying them. Conversely, if you don't claim benefits, they treat you as if you're not paying them.

Last year, Vic (my wife) changed jobs. As it happened, there were two weeks between one job finishing and the next beginning. No problem: we could easily afford the tiny shortfall in income. It hardly seemed worth bothering the government with. Big mistake.

We now know that, as far as the government are concerned, Vic's national insurance contributions are not up to date, so she doesn't qualify for any benefit in the event of her losing her job or being unable to work due to illness (which is a very real danger, as she is diabetic). She's been paying national insurance and income tax nearly every week since sometime in 1996, but, because she missed two weeks' payments last year, she doesn't qualify. But here's where it gets silly. If she had signed on and claimed dole money during those two weeks, her payments would be up to date and she would qualify for benefit, because the government would have a book-keeping entry marked "national insurance contribution". In other words, the more money you take away from the government, the more money they believe that you have given them. They actually penalise you for not claiming benefits.

I was unemployed for most of the first half of this year (I got a job about a week before my benefits ran out and I became officially long-term unemployed). As far as the government are concerned, my national insurance contributions are up to date, because I was "paying" them the entire time I was unemployed. If I had only been unemployed for one month (which was the plan), I might not have bothered claiming benefit, and would therefore not be due any benefit now. Here are some very rough estimates of the figures involved:

Scenario A: unemployed for 6 months, employed for 6.
I claim approximately £1430 in benefits; I pay (assuming my current salary) approximately £770 in national insurance contributions.

Scenario B: unemployed for 1 month, employed for 11.
I claim approximately £240 in benefits; I pay about £1410 in national insurance contributions.

As far as the government are concerned, I pay them exactly the same amount in scenarios A and B. But then there's

Scenario C: unemployed for 1 month without claiming benefits, employed for 11.
As before, I pay about £1410 in national insurance contributions. But, this time, as far as the government are concerned, I pay them less money than in either scenario B or scenario A, because I fail to claim money from them.

Earlier this year, Vic got a letter from the government giving her the option of bringing her contributions up to date by paying the shortfall. Think about that for a moment: she can make up for not having taken money from the government by giving them money.

The moral is simple. The only way to be absolutely sure of qualifying for benefits is by never working. If you think that you might ever have any need to claim them, start early and don't stop.