In a word choice. Giving people a simple choice will cut the social security budget massively.
People who are claiming benefit need to be given the choice of whether they receive benefits or not.
If they choose to receive benefits as now then nothing changes.
If on the other hand they choose not to receive benefits from the government then the government must meet them half way.
This would mean the government cutting the taxes on these people and the associated costs incurred by businesses that employ these people.
Total government tax revenue for 2011 was 528 billion GBP. The total cost of benefits to the UK government in 2011 was a 133.5 billion GBP.
So if people were to choose to opt out of receiving government benefits they should see their tax bill reduce by 25% (133.5/528).
This is a conservative measurement as it assume all taxes are paid by citizens when in fact large businesses pay a huge amount of tax (over 30% of total tax revenue, chart data 2). In reality, cutting the tax burden on people who choose to opt out of the government benefit program will pass on more savings to the government.
Businesses would still be paying the same tax but the number of people receiving benefits would be less.
Of course some people will say that the rich will be the first ones to opt out.
In order to make sure this does not happen and to make sure any changes are limited, the choice to opt out should only be given to those who are either in receipt of benefit or those people earning the minimum wage, close to the minimum wage or those who are working part-time for close to the minimum wage.
By doing this it can be ensured that only those who would benefit the most are given the choice.
Depending on how many people choose to opt out plans could be developed on how to roll out the choice to more people.
So what would a 25% cut in tax look like?
The most obvious tax is VAT (Value Reduction Tax). It is currently set at 20% in the UK. Although this tax is only 20% and the savings to the government would be over 25% for the reasons mentioned above, I believe elimination of this tax burden would be the easiest to administrate and be the most beneficial.
How would it be administered?
People who opt out of receiving benefits will be registered as VAT exempt. This will have certain administrative costs but I see no reason why accountancy firms would not start offering specialist services specifically for people who opt out if demand is high enough.
Other benefits
Administration. In addition to the obvious cost savings of the government not having to pay out, there is the knock on benefit of the reduced welfare administration load on government and the reduction in the likelihood of fraud.
Potential for Fraud
It could be argued that people who are VAT exempt will be going on shopping sprees and selling on the products they bought at a reduced cost.
Of course this is a very real possibility but given the fact that VAT is paid in advance by the VAT exempt individuals and the fact that they need to submit their records in order to claim back the VAT it will be impossible for this kind of fraud to turn into a major problem.
The amount of products being bought versus the persons supposed income will make any large frauds abundantly obvious.
Conclusion
Giving people the choice a no-lose situation for everyone involved, people claiming benefits, taxpayers & the government.
People have the choice to opt out & government reduces its overheads, this article illustrates the immense amount of administration work that is carried out for zero gain to the receivers of benefits, cutting the amount of claimants will inevitably reduce the admin costs as well as the costs of actually having to pay out benefits.
The worst that can happen is that no-one opts out and things stay the same as they are now, I think it is a choice that the UK government is obligated to give. Not only for the government and for the benefit of the taxpaying British public but also for the benefit of those towards the bottom of the economic ladder.
Like I said, there is nothing to lose.
More Stories
Why Greeks Want The Bailouts To Stop
Banking Panics/Bank Runs – Government Created?
Banks – Have Governments Forgotten Their Purpose?