I sincerely hope labour has not fallen into the trap of appealing to newspaper editors rather than the public again. A fair amount of the piss-poor former labour government’s policy decisions can be laid at the door of that muddled thinking.

Don

Dreams or reality?

Welfare bill approx 200bn
Income tax reciepts approx 140bn

You do the maths.

Cylux/1: I hadn’t actually seen any evidence that they’d pulled themselves out of that trap. They mostly seem to be going “Hey, this steep-sided hole we’re in. It’s cosy, isn’t it. //How about we stay here a while? // Lucky for us we stumbled across it, really.”

Agreed. Labour could call for rent reform – that would also reduce the housing benefit bill.

Too true, Don. Putting it bluntly, this triangulation is a disgrace, distancing Labour further from the poor, the disabled and the marginalised, and nearer the rabid,myth-peddling, Ayn Rand-ers. It’s only to be expected: dogma and imposing the (failed:they keep forgetting that…) Wisconsin model, and workfare, plus disability denial (cf Unum Provident’s malign influence) were Purnell tropes too.

How typical the Tories with Nick Clegg’s conspiring in this so called Coalition will create poverty for millions with all these cutbacks with a plan to give the majority a promised reduction on income tax at the next general election to gain votes. If the economy does pick up as it was predicted to do so before the last general election under the then Labour Government that is clear evidence that the Conservatives had always had a secret plan to Take From The Poor And Give to The Better Of at a later date when the economy picked up. The puzzle is beginning to become clear. If that becomes th case this Coalition is disgusting but it’s not surprising.

To be fair to Ed, when faced with a group of people getting seven shades of shit kicked out of them, most of us would rather join the group in the kicking than get on the ground share the bruises. A pity that Labour was actually supposed to help those on the floor. Still, I am sure the vapid leadership will find colours to nail to the mast at some point. There must be a group of nice middle class people losing out somewhere.

Welfare is now used to subsidise low pay, not for its real purpose of helping those who have no other means, which is why the bill is so high. It will go higher as the government intends to shovel money at welfare to work companies like £4Emma and Group 4 who’ve already been proved to fail. It is expected to be so profitable even tax dodging supremos Deloitte are tendering. So money needed by the poor will be diverted to corporate fat cats and the only way to make a “success” of the figures will be to leave those in greatest need ineligible for payments and utterly destitute

@3 Point taken.

Tyler, income taxes only make up about a quater of revenues, stop quoting stats out of context and then following them with a snarky comment.

You are not Tim Worstall

Don, I absolutely agree with the thrust of your article.

“Welfare bill approx 200bn”

Total bollocks. According to http://www.ukpublicspending.co.uk/uk_budget_10.html welfare is about 109 billion for 2010.

Plus we can expect some of that to go down when unemployment goes down.

Planeshift@11

Unemployment appears to be increasing and I suspect that it will continue to do so as the cutbacks really kick in.

Under David Cameron and George Osborne the Welfare Bill may end up 200 Billion Pounds if unemployment continues !

@ 10 LO

True, income taxes are about 25% of revenues….but the point I was trying to make is that having the welfare bill outstrip the revenues from income taxes is unfair and unsustainable.

Income tax is unavoidable for taxpayers, other taxes are to a certain extent through their value-added, use based nature.

Are you seriously telling me that taxpayers, on a net-net basis, should be paying more from their direct income to other people, than that they can benefit from themselves.

@ 11 Planeshift

Welfare, otherwise known as social security, INCLUDES pensions.

So your link reinforces my point – 226bn. Nice one.

Don: Labour can’t win on this issue by splitting the difference between the Tories and the people that the Tories are trying to hurt.

I think you’re right that not strongly opposing welfare cuts is bad political tactics for Labour, and you make a convincing argument for that.

However, it’s even more important – as others have already said – that doing so has a massive real harmful effect on a large number of people.

If it turned out that, no, actually, Labour can win this way, that wouldn’t make it right for them to try.

What I worry is that Labour think it is both morally right to make life even more difficult for people who weren’t lucky and privileged enough not to need benefits, and electorally sound to do so.

@ 14

Tyler,

I think it’s useful to separate “welfare” and “pension” spending. The Tories like to lump the two together to paint a picture of “out of control welfare” and “dole scroungers” taking all the cash.

“Pension” is where the pressure on the budget comes from – demographic changes are driving this. Raising the pension age is a decent start but no where near enough to handle this. Other than this modest change the government is doing nothing here – in fact it’s increasing future spending through the “triple lock” (pensions to rise by highest of average earnings, CPI or 2.5% in future years).

“Welfare” spending (the bit the government is savagely cutting) is currently at a lower level (as a % of either GDP or of government spending) than at any point 1979 to 1997.

http://duncanseconomicblog.wordpress.com/2010/10/27/welfare-spending-some-facts/

Of course it’s going to rise though – as unemployment ticks up this year. The OBR just added another £1.5bn to its estimate.

http://www.guardian.co.uk/politics/2011/jan/02/welfare-bill-soars-coalition-austerity

Even using the combined “social security” (IFS data here http://www.ifs.org.uk/ff/lr_spending.xls) it’s currently 13.2% of GDP, lower than in the mid 1990s.

To summarise – there is a long term demographic pressure on the pension budget, but welfare spending is relatively low. Your proposed solution (and the govt’s) is to attack welfare spending. These are ideological and electoral (the old vote) measures not financial ones.

14/Tyler: “Are you seriously telling me that taxpayers, on a net-net basis, should be paying more from their direct income to other people, than that they can benefit from themselves.”

1) People on benefits also pay taxes. Most people on benefits pay income tax, specifically, for that matter. Comparing headline figures gets you nowhere.

2) It’s rather disingenuous to only count “income tax” and not “National Insurance” as well in terms of “unavoidable” taxes. Nor is it actually possible to survive solely with VAT-free items.

3) Even ignoring 1 and 2, yes, that’s fine with me. I’m earning enough right now not to need benefits. If things go horribly wrong later, I would like there to be benefits available. Like any catastrophic-event insurance policy, I’m quite happy to potentially pay more in than I’ll ever get back, on the condition that support will be there if things do go wrong.

3a) If everyone got exactly as much as they paid for back in taxes, there wouldn’t be much point in having a tax system. It’s an inevitability of having one at all that some people will get more out than they paid in, and vice versa. The whole point is to provide services to people who need them rather than the people who could have afforded them anyway.

Thanks Duncan for making the reply for me.

Tyler, you know full well that in popular discourse welfare does not mean including pensions. Furthermore in the context of the article, welfare reform, it is obvious we are not talking about pensions. Indeed even the govt spending website seperates the two.

Most Pensioners have largely got off lightly, (not that I think they should suffer) and welfare reform is really not aimed at forcing pensioners into work or cutting the money we spend on pensions. So when you post a comment supporting the tory cuts by implying that the welfare bill is out of control it is perfactly reasonable to assume you are talking about welfare paid to people of working age.

Tyler, there are lots of good arguments for a small state, Chris Dillow makes a lot of them, you don’t need to go screwing with statistics in a LibCon comment thread to make your point, those sorts of things are picked up quite quickly and summarily rebutted.

@ Duncan

Sorry, but public pensions are definitely in the social security budget whilst they are not fully funded. Your point that demographics are making the problem worse is entirely correct though.

“as a % of GDP” is a terrible number to use really, as it doesn’t give a true measure of affordability, both in this welfare case and in terms of debt/GDP etc. It’s also a static number.

If GDP increases in a relatively low inflation environment with roughly static unemployment rates (which we had 97-07) the welfare/gdp ratio will collapse even as the actual amount spent on welfare could easily be outstripping inflation. That welfare has to be paid from income tax, receipts roughly run at 35% of GDP. If GDP collapses, so do tax revenues, but the now structurally increased welfare bill doesn’t – as you say it more than likely goes up.

This is case in point where (our) UK structural deficit has come from.

I’d love to know what should be cut though, if not welfare, pensions, education or the NHS if we are even going to come close to cutting the 150bn deficit even in the long term.

Before you start, growing our way out is laughable – we’d need comound growth of about 30% to achieve that (more than 2.5% annually for 10 years). That of course before accounting for the increasing debt interest payments….

So tell me please, what *do* you cut, or do you just stick your head in the ground and ignore reality?

20/

Tyler,

First we risk getting side tracked from Don’s excellent article here but…

(i) % of GDP is the best measure over time. Anything else is meaningless on any sort of medium term time frame.

(ii) I’d actually favour a short term additional stimulus focussed on public investment now and a long term promise of fiscal consolidation (not a vague one but with cuts and tax rises identifed). Much as Roubini is arguing for.

Let;s take the structural deficit as about 7% of GDP and say that can’t be closed by growth alone.

So I’d be looking at programme of cutting public spending by 3.5% of GDP and raising taxes by the same amount, dependent on growth (and in particular business investment growth).

That comes out as about 10% off each departmental budget over the next 5/6 yrs. Do-able.

Welfare might be only 7.3% of GDP but that is misleading. It is 21% of TOTAL tax reciepts or apprx 75% of all income tax reciepts. it costs each UK citizen about 2000 a head, or roughly half of all tax a person on the median wage pays in tax.

It IS expensive, unaffordable and unsustainable.

@ 17 CIM

NI is an income tax. VAT type items aren’t totally avoidable, but you do have a degree of discretion in paying those taxes by lifestyle choices.

The welfare bill in PS’s figures are a NET budgeted cost, as taxes are a net reciept i.e. that some on welfare pay taxes is accounted for on a total cost basis.

I’m not saying we should get rid of welfare, just that it has warped from it’s original goal of a social safety net. As documented, it can be better off for some to stay on welfare rather than work.

@18 PS

Social security includes unfunded state pensions. There is no question of that.

I don’t want to get into a discussion about pensions at length, but do beleive that bill should also be cut, through increases in the pension age and removing final salary schemes. Welfare should also still be cut though.

@ 21 Duncan

GDP ratios are misleading as I say, as they are totally static and ignore tax revenues (a), debt servicing (b) and deficits (c) and just look at spending as a % of GDP.

unsurprisingly enough you can maintain the same spending/GDP ratio after a big decrease in (a), a big increase in (b) by running a huge (c). The static sepnding/GDP ratio doesn’t tell you anything about the long term economics and financials of the situation because you are not factoring in the inputs which give you (c).

@22,

Tyler,

Try looking at time series data rather than getting excited by isolated numbers.

Welfare spending (the narrow measure) was nearly 40% of tax receipts in 1993 and 1994.

The average since 1964 is 25% of tax receipts.

(Using welfare data from Uk public spending and tax data from the IFS.)

Labour need to do a hell of a lot more than defend the welfare system c.2009 if they are to come across as a party with any vision.

They need to put forward more radical alternatives that help the worse off. The current system is messed up for a lot of reasons: it’s intrusive of privacy, degrading and humiliating, leads to poor take up of some benefits, is expensive to administer, and has disincentivises taking/declaring work.

I’d suggest campaigning for a Citizens Income – http://www.citizensincome.org

Good post Don – it strikes me that the triangulation on welfare is rather like the triangulation on immigration: it leads Labour into an electoral cul-de-sac.

Soon people like Frank Field and Tom Harris will declare that ‘welfare scroungers’ are the number one issue on the doorstep and that the party must do something about them etc.

“Welfare should also still be cut though.”

This is actually one of the areas where massive savings can be made through cutting red tape and technology. Most of the interaction welfare claimants have is through face to face contact with staff or call centre staff. Fuck all is online.

The figures I’ve heard (direct from senior officials) are that it costs the sate £6 per face to face interaction, £2.50 per telephone interaction, and 6p for an online interaction. So if we moved all applications and interactions for benefits online, we could have massive savings on administration and staff costs. (this is exactly one of IDS’s proposals worth supporting). This is before we consider additional savings that could be made through avoiding duplication by switching to one off payments administered by the same department, and before we should even be having a discussion on cutting the cash amounts actually given to people.We can then make further savings simply by reducing the taper rate to enable a greater incentive for people to work.

All of the above is the good stuff in IDS’s proposals – its just he and osbourne have to ruin it by headline grabbing measures and not reducing the taper rate (65% taper rate is still a joke – if somebody proposed a 65% income tax rate we would be hearing laffer curve this, laffer curve that..).

So we can cut welfare by billions before we even get to reducing entitlements and the actual cash payments.

We can cut it even further if we find ways to increase wages for low paid workers*, as a great deal of payments go to people in low wages (I think its 22 billion on tax credits), and another 9 billion can be saved through abolishing child benefit and replacing it with universal childcare (12 billion CB minus 3 billion cost of universal childcare).

We might also consider different ways to reduce rent costs, and a different way of financing local government.

All the above can be done without making thousands of people homeless, bullying disabled people and reducing the actual incomes of people who didn’t have the wisdom to work in an industry not bailed out.

Taxes do not pay for spending, whether that spending is welfare or anything else. We had the great good fortune of being detached from an (indirectly) commodity backed currency nearly 40 years ago, but economists insist on pretending it didn’t happen – that or they really don’t understand the consequences. The limit to spending is no longer the revenue available from taxes and/or borrowing; it is the capacity of the economy to respond to the spending. If the limit is exceeded inflation increases.

In response to this, Labour could
1 – decide to accept every single welfare cut the Tories propose, no matter how ill advised, savage or counter productive.
2- or they could agree with the need to cut welfare spending overall, but pick a few specific examples to oppose – as Miliband did over child benefit for higher earners, and as his brother did by suggesting a mansion tax instead of the housing benefit cuts.

But both of these are pretty weak options.

Implicitly, then, you prefer the third option: oppose every cut in welfare.

I can see the election posters now: “Vote Labour, the party of benefit scroungers”.

With the various grassroots anti-cuts movements Labour seems increasingly irrelevant outside Parliament. If I was Miliband I’d be worried.