Cameron's missed Opportunity.

Cameron’s recent revamp of social welfare payments just tinkers with our basic problems. When there are no jobs, making welfare less economically viable than work simply reduces welfare. Our problems are far wider.

1/ the national minimum wage limits employment to a particular level of viability.

2/ our separate systems of taxation and welfare creates two unrelated zones.

3/ there is no logical or justifiable interconnection between high and low salaries.
4/ we desperately need to create more jobs.

There is a far simpler and more widely effective solution often referred to as 'Negative Income Tax.'. 

Abolish unemployment payments and create a lowest tax band of additive taxation. That means one ‘receives’ a positive tax payment if one is paid below a certain agreed living wage to raise one’s net pay to it.

The graph shows a wage based ‘tax supplement’ on left and a normal subtractive tax on right. The thick line is the paid wage; the thin line is the net take home pay. This approach integrates tax and benefit together into one continuous system allowing wages to begin at say £2/hr, a level at which many more jobs become viable. From £2 to £6/hr additive tax would raise net pay to the living wage, and above that subtractive tax would be levied in the usual way. Thus virtually full employment would result and end the social damage of unemployment, and promote growth, skills and experience. It gives the government the flexibility to find a viable, internationally competitive wage level whilst maintaining an acceptable living wage. One’s initial fear that employers would pay peanuts and rely on the government’s additive tax would not happen because full employment would create a sellers market for labour as each employee moves for better pay. As net pay always rises it matches the employee’s aspirations and peanut employers would be perennially stuck with the poorly performing monkeys. At the top end of the wage scale it’s recognised that over a certain ratio of max/min salary social cohesion becomes fractious and damaged. If government were to conclude this ratio to be 50 say then Nx, max net pay, must be limited to 50 times x, min pay. In this way the total additive tax could be set against the total subtractive tax to give the desired tax income to the government. The government has total flexibility to create employment, limit the highest salaries and collect the revenue it requires, all at a fraction of the administration cost of tax and welfare. This system was suggested many years ago and has had much investigation. At one time it only narrowly failed to be adopted by the US under Nixon and is the current policy of the Australian LDP.