§ 42. Mr. Wigleyasked the Secretary of State for Employment what is his estimate of the additional cost to the Government for each additional man who becomes unemployed, assuming that he has a wife and two children and was previously earning the average industrial wage.
§ Mr. BiffenI have been asked to reply.
The additional cost to the Government will vary according to how long the man has been unemployed. The following table, which indicates that given in the Manpower Services Commission's review and plan, 1977, therefore shows the cost for the first 12 months separately, as well as the average for the first year. The individual specified in the question, a man receiving the average 335W 336W industrial wage, is not typical of the unemployed as a whole who tend to have lower than average male weekly earnings when in employment.
337W
338W
Financial cost to the Government of unemployment—Married man with two children 1979 Dec. 1980 Jan. Feb. Mar. April May June July Aug. Sept. Oct. Nov. Monthly Average (Dec. 1979-Nov. 1980) Loss of revenue Income Tax 95.55 95.55 95.55 95.55 118.22 118.22 118.22 118.22 118.22 118.22 118.22 118.22 110.66 Net loss of Indirect Tax 17.76 11.24 14.94 12.90 38.25 34.87 44.45 44.61 47.71 45.52 43.66 44.05 33.33 Employee NI contributions 31.21 31.21 31.21 31.21 38.66 38.66 38.66 38.66 38.66 38.66 38.66 38.66 36.18 Employer NI contributions 64.82 64.82 64.82 64.82 78.48 78.48 78.48 78.48 78.48 78.48 78.48 78.48 73.79 Total loss of Revenue 209.34 202.82 206.52 204.48 273.61 270.23 279.81 279.97 283.07 280.88 279.02 279.41 254.10 Transfer Payments Flat rate unemployment benefit 127.84 150.08 138.96 144.52 144.52 150.08 138.96 150.08 144.52 144.52 150.08 149.58 144.48 Earnings related supplement 31.10 59.98 55.54 57.76 57.76 59.98 24.3 — — — — — 49.51 Supplementary Benefit 37.53 — — — — — 30.56 56.25 54.17 54.17 56.25 56.53 49.35 Income Tax rebate 48.50 48.50 48.50 48.50 — — — — — — — — 48.50 Rent Rebate 14.93 26.81 24.88 25.87 28.12 29.21 11.90 — — — — — 23.10 Rate Rebate 5.06 9.77 9.04 9.40 11.41 11.85 4.83 — — — — — 8.77 Free School meals 4.50 6.00 7.00 7.35 4.20 9.90 9.45 6.30 — 9.90 10.35 9.00 7.63 Free Welfare milk 1.35 — — — — — 3.14 5.12 5.27 5.10 5.27 510 4.34 Total Transfer Payments 270.81 301.14 283.92 293.40 246.01 261.02 223.27 217.75 203.96 213.69 221.95 220.21 246.43 Total Financial Cost to the Government 480.15 503.96 490.44 497.88 519.62 531.25 503.08 497.72 487.03 494.57 500.97 499.62 500.52 Notes: 1. The man is assumed to be married with two children, one aged under 5, and one aged 5–10, and his wife is assumed not to be working. He becomes unemployed on 1 December 1979. 2. For each financial year, the man's earnings are assumed to be at the level of average earnings for adult males whose pay was not affected by absence, all industries and services covered by the New Earnings Survey, updated to October using the average earnings index (old series, all industries and services, adjusted). If he were not made unemployed, it is assumed his earnings would increase in April 1980 to the average level for 1980–81, assuming a 19.3 percent. increase over 1979–80. Average earnings each year are then (£per week): 1977–78:82.27; 1978–79:94.71; 1979–80: 110.81; 1980–81: 132.19. 3. Tax payments, national insurance contributions, and tax refunds are assumed to be the same in each month regardless of the number of days in the month. He is assumed not to be contracted-out of the state pension scheme. 4. Flat rate unemployment benefit is not paid for the first three days of unemployment and earnings related supplement for the first twelve. Once awarded, unemployment benefit is paid for 312 days and earnings related supplement for 156 days. 5. It is unlikely that supplementary benefit would be paid for the first few days of unemployment, pending receipt of unemployment benefits. The final wages received would be taken into consideration, and in most cases would cover requirements for this period. 6. Rent and rates: For 1979–80 rent is assumed to be £6.90 per week, and rates £2.78 per week. For 1980–81 rent is assumed to be £8.20 per week and rates £3.55 per week. (Hansard, Vol. 983, No. 167, cols. 660 et seq). 7. Income tax refunds are not counted as income when calculating entitlements to rent and rate rebates. There is no entitlement to rebates whilst in receipt of supplementary benefit, which includes an allowance for full rent and rates. 8. Net loss of indirect tax: His loss of purchasing power when unemployed compared to his position if in employment was calculated first, taking into account all transfer payments. According to the Economic Trends analysis based on the family expenditure survey—the effects of taxes and benefits on household income, 1978 Economic Trends, January 1980—for a household with around average earnings, 21.5 per cent. of disposable income in 1978 went on indirect taxes. Excluding rates, which have already been taken into account, and allowing for the offsetting effect of subsidies, gives a figure of about 18 per cent. The increase in VAT and hydrocarbon oil duty in the June 1979 Budget could be expected to raise this by about 3.5 to 21.5 per cent. in 1979–80.The April 1980 Budget is assumed to have increased the share of indirect taxes by 1per cent. of disposable income, making a total of 22.5 per cent. in 1980–81. These percentages have been applied to the loss of disposable income when unemployed to give the figures of net loss of indirect taxes in the table.