Britannia Radio

TUESDAY, MAY 25, 2010

Tackling The Welfare Problem

"My Government’s legislative programme will be based upon the principles of freedom, fairness and responsibility...

The tax and benefits system will be made fairer and simpler... People will be supported into work with sanctions for those who refuse available jobs and the timetable for increasing the State Pension Age will be reviewed."

Thus spake Her Majesty today.

As we mentioned a couple of days ago, the welfare bill is now running at £200bn pa, around 15% of GDP, and increasing rapidly. The chart above shows how it has soared over the last century since the Liberals began the huge expansion of welfare just before WW1.

And under successive governments since then, it's grown into a serious problem. The blunt truth is that we can no longer afford it, and Dave is quite rightly set on cuts.

But what cuts? And how can we cut without having people starve in the gutter?

Here's how that £200bn breaks down between the three key "client" groups (2008-09):

• Old people - £90bn, mainly in the shape of the state pension.
• Sickness and disability - £40bn, including the 2.5m people of working age who are on those notorious incapacity benefits.
• Families and children - £30bn, plus another £20bn in the form of tax credits which also largely goes to them.

The remaining £20bn goes mainly on housing, spread between all three groups. Unemployment support comes in at just £5bn - the rest having been redefined as something else.

So what to cut? In truth, there are no easy answers, and there will inevitably be losers. But the current level of welfare benefits is targeted on 60% of median income, which is now around £23,000 pa*. By no stretch of the imagination is that starving in a gutter, and given our dire fiscal straights, a 60% target is no longer sustainable.

And all those old people are going to have to be even older before they can retire. Given their increasing tendency to have 100th birthdays, the state pension age is going to have to rise to 70 soonest. Because if Her Majesty can still work at 84 -and wear that huge crown - working to 70 without the crown ought to be a breeze for everyone else.

The poverty line redrawn at 50% of median income; state pension age raised to 70; and forced sterilisation for anyone who has children they can't afford to support. Well, no, OK, the last one was the Major's and might not make it through to the final programme. 

Nobody would start from here, but Dave does sound like he might be ready to take some real decisions. Let's hope he gets on with it.

*Footnote - The government's poverty benchmark is median household net income on an equivalised basis. Que? That's median household income, adjusted for household size and composition (equivalised), net of income tax and National Insurance, and gross of social security receipts (for more detail see here). Gross of social security receipts? But surely that means the target is chasing its own tail, and the higher the government makes social security, the higher will be the poverty benchmark, and the higher will be social security payments to close the gap, and the greater will be the cost. Well, yes, that's right - it's one of the very many bonkers features built into our current system of poverty relief. 

PS So what does the Imperial State Crown actually weigh? An incredible 32 ounces. All set with 2,868 diamonds, 273 pearls, 17 sapphires, 11 emeralds, and 5 rubies.

Absolutely Free

Free fountains for all

On BBC R4 Today this morning they discussed the imminent move by the Times to charge £1 per day for access to its online edition. You and I know there's no way we'll now start paying for Finkelstein and the rest of the Times output, and the BBC clearly agrees. Which will be great news for the BBC themselves, whose audience/readership should get a big boost. As Evan Davis chirped in his link to the subsequent item: "here's a review of the papers, and it's absolutely free".

Yes, ladies and gentlemen, absolutely free.

A single phrase that precisely captures the BBC's approach to public spending. Public spending is free, so cuts must be a bad thing. More is good, and less is bad.

Yesterday's Newsnight was a classic. It kicked off with their Trotskyite economics editor frowning his way round Westminster, and telling us how the cuts will bring massive job losses (he's clearly cranking up to announce the final crisis of capitalism). That was followed by a lengthy report from a sun-drenched Sheffield, where billions have been spent on public sector jobs and those arty fountains that spurt up unexpectedly from pavements for drunken unemployed teenagers to run through (vid). The message was the same - the cuts will extinguish the sun, destroy this city, and destroy these vulnerable lives.

Not once did anyone mention that fact that all those jobs and pavement fountains are not actually free, but have to be funded by taxpayers. That the cuts are not being made for fun - some evil Thatcherite whim to punish the poor - but simply in order to get the books back into some vague approximation to balance.

No mention of the fact that spending money on things that cannot pay their own way means taxing things that can. And that when you tax those things, you weigh them down and make it more difficult for them to succeed. Or that returning to prosperity depends on stimulating the things that can pay their own way - ie the private sector chasing private profit. 

Of course, the tax-funded BBC doesn't have to worry about such tiresome details as paying its own way. They get £3.5bn from us whether or not we like what they produce. 

Which means they don't have to charge for use. 

But free it ain't. 

PS As we've said many times, for those of us who believe in smaller government, the BBC is a major roadblock to progress. Like all the big public sector institutions it is impossible to reform, so breaking it up is the only option. Some had hoped that a Tory victory might have secured early action, but there's not a prayer now. We'll just have to keep plugging away for a brighter tomorrow.