§ 55. Mr. David EvansTo ask the Secretary of State for Social Security what assessment has been made by his Department of the impact of changes in recent years in social security benefit payment on financial incentives to work.
§ Mrs. Gillian ShephardThe effects of changes which may affect financial incentives to work are monitored constantly. As indicated in the Government's expenditure plans 1990–91 to 1992–93 (Cmnd 1014, chapter 14, paragraph 35), the impact on incentives is one of the criteria used to assess potential changes in social security benefit policy.
The Government have made considerable progress on improving financial incentives by alleviating the unemployment trap and eliminating the worst effects of the poverty trap. Far fewer people are now financially better off not working than only a few years ago. It is estimated that of 14 million working heads of households, only about 15,000 would receive more in benefit than they receive in wages from employment. The Government have virtually eliminated the possibility that a person can experience combined tax and national insurance deduction rates of 100 per cent. or more, which means that virtually no one now suffers a reduction in net income as a result of increased earnings. There have been significant increases in the real value of take-home pay through reductions in income tax, increased tax thresholds and restricting of national insurance contributions. Real take-home pay for a married couple with two children on average earnings has increased by 34 per cent. in real terms since 1978–79.