UNEMPLOYMENT: COST TO THE EXCHEQUER (Hansard, 12 November 1980)

§ Lord COCKFIELD

The monthly financial cost to the Exchequer will vary according to how long the worker has been unemployed. The following tables, which update those given in the Manpower Services Commission's Review and Plan, 1977, therefore show the costs for the first twelve months separately, as well as the average for the first year. The example used in the answer is an adult male on average weekly earnings. This is not typical of the unemployed as a whole who tend to have lower than average male weekly earnings when in employment.

1465WA

FINANCIAL COST TO THE GOVERNMENT OF UNEMPLOYMENT SINGLE MAN NO CHILDREN
LOSS OF REVENUE	1979 Dec.	1980 Jan.	Feb.	Mar.	April	May	June	July	Aug.	Sep.	Oct.	Nov.	Monthly Average (Dec. 1979-Nov. 1980)
Income Tax	111.80	111.80	111.80	111.80	137.47	137.47	137.47	137.47	137.47	137.47	137.47	137.47	128.91
Net loss of Indirect Tax	31.97	26.92	29.22	28.07	46.71	45.45	52.47	54.14	55.07	55.07	54.14	51.78	44.25
Employee National Insurance 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	36.13
Employers'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	73.93
Total loss of Revenue	239.80	234.75	237.05	235.09	301.32	300.06	307.08	308.75	309.68	309.68	308.75	306.39	283.27
TRANSFER PAYMENTS
Flat rate unemployment benefit	70.92	83.25	77.08	80.17	80.17	83.25	77.08	83.25	80.17	80.17	83.25	79.23	79.83
Earnings related supplement	31.10	59.98	55.54	57.76	57.76	59.98	24.43	—	—	—	—	—	49.51
Supplementary benefit	24.25	—	—	—	—	—	22.17	42.75	41.17	41.17	42.75	58.58	38.98
Income Tax rebate	32.25	32.25	32.25	32.25	—	—	—	—	—	—	—	—	32.25
Rent Rebate	7.26	14.00	12.96	13.48	17.90	18.59	7.57	—	—	—	—	—	13.11
Rate Rebate	3.10	5.99	5.54	5.76	7.32	7.61	3.10	—	—	—	—	—	5.49
Total Transfer Payments	168.88	195.47	183.37	189.42	163.15	169.43	134.35	126.00	121.34	121.34	126.00	137.81	153.05
Total Financial Cost to the Goverment	408.68	430.22	420.42	425.32	464.47	469.49	441.43	434.75	431.02	431.02	434.75	444.20	436.31
NOTES—(for Single Man)
1. The man is assumed to be single with no children. He becomes unemployed on 1st December 1979.

1466WA 1467WA

2. Earnings: 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 per cent, 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 insurances 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 conttacted-out of the state pension scheme.

4. Flat rate unemployment benefit is not paid for the first 3 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. Supplementary Benefit: 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 £5.40 per week and rates £2.30 per week (Hansard, v. 973, no. 61, col. 217 et seq). For 1980–81 rent is assumed to be £7.10 per week and rates £2.90 per week (Hansard, v. 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 with 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 consisting of one non-retired adult with income around male average earnings, 19.5 per cent of disposable income in 1978 went on indirect taxes. Excluding rates, which we have already allowed for, and allowing for the offsetting effect of subsidies, gives a figure of about 15.6 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 per cent, to 19 per cent, in 1979–80. The April 1980 budget is assumed to have increased the share of indirect taxes by 1 per cent, of disposable income, making a total of 20 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 tax in the table.

1468WA 1469WA

FINANCIAL COST TO THE GOVERNMENT OF UNEMPLOYMENT MARRIED MAN WITH 2 CHILDREN
LOSS OF REVENUE	1979 Dec	1979 Jan	Feb.	Mar.	April	May	June	July	Aug.	Sept.	Oct.	Nov.	Monthly Average (Dec. 1979-Nov. 1980)
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	73.93
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	24.43	—	—	—	—	—	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	506	9.77	9.04	9.40	11.41	11.85	4.83	—	—	—	—	—	8.77
Free School meals	4.50	600	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	5.10	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	450.15	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—(for married man with 2 children)
1. The man is assumed to be married with two children, one aged under 5, one aged 5–10, and his wife is assumed not to be working. He becomes unemployed on 1st December 1979.
2. As for the single man.
3. As for the single man.
4. As for the single man.
5. As for the single man.
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 op cit).
7. As for the single man.
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 per cent, to 21.5 per cent, in 1979–80. The April 1980 budget is assumed, to have increased the share of indirect taxes by 1 per 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 tax in the table.