December 20, 2024 - 4:00pm
New figures published by the Office for National Statistics (ONS) this week, which show that more than half of Britons — and almost half of working-age Britons — receive more from the state than they pay in taxes, ought to be a nasty wake-up call for the Government. Not only is this fact at the heart of the impossible position Rachel Reeves finds herself in over the public finances, but it is only set to get worse.
As Karl Williams of the Centre for Policy Studies set out last year in “Justice for the Young”, the forward projections for the most expensive budgets, such as pensions and social care, are currently only going up. Servicing our current, ramshackle state has taken tax to 36% of GDP; in 50 years’ time, just serving the cost of an ageing population would take it to 46%.
Labour would be very wise to get a grip on this — and might, in a Nixon-goes-to-China fashion, have an easier time doing so than the Conservatives. But that process must start by being honest about what the problem is: that many people are currently receiving money they should not, not necessarily because they don’t “deserve” it but simply because the UK is living wildly beyond its means.
This is baked into the fundamental structure of what is called “entitlement spending”. The clue is in the name: if you meet a certain set of criteria, you are entitled to a certain payment. Yet two problems arise from this. First, there is no top-level control of the growth of these budgets; the Government discovers how expensive they’re getting as the bureaucracies overseeing them sign more people on. At the same time, it creates no disincentives or barriers to administrators signing people up, and creates huge incentives for people to claim they qualify for the benefit in question.
The result is a ballooning bill — or rather, because a lot of Government spending goes to programmes run on this basis, a lot of ballooning bills. Servicing this “Annually Managed Expenditure” now takes up almost 57% of all Government spending, over 25% of GDP.
Consider one example: spending on Special Educational Needs and Development (SEND) in education. There is no fixed pot for this and schools are mandated to pay the first £6,000 in additional costs for any qualifying child, after which the local authority has to pay the rest.
The result? A perfectly predictable explosion in claims, from 240,185 in 2014-15 when the system was introduced to a whopping 1,673,205 in 2023/4. In Wales, it emerged this summer that almost half of all children born in 2002-3 were assessed as having special needs — a figure only plausible if the Welsh Government quietly put lead back in the petrol.
Labour’s instinct will be to believe that all of this is valid spending claimed in good faith, and focus its efforts on trying to reduce the number of people who qualify for various welfare payments via even more spending, such as programmes to get people back into work.
While well-meaning, this approach is not fit to either the scale or character of the problem. What is required is a fundamental shift from a “needs-first” model of welfare spending to a “means-first” one — not in terms of means-testing, but simply the state’s actual ability to pay. Creating fixed pots for as many welfare budgets as practical would change everything, capping runaway growth in spending and shifting the incentives of administrators to concentrate resources on the most deserving cases.
It could also tie into the devolution agenda: if councils are responsible for a budget (as with SEND), let them decide the qualifying criteria. Without this fundamental rethink, the share of Britons who are net contributors to the Treasury will only continue to shrink — and any push for sustainable growth is doomed.
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SubscribeHenry Hill puts his finger on a massive issue and one that has grown under governments of all stripes.
The departmental cap has some merit, in ultimately controlling expenditure, but the real change will only come when we revive the basic idea that welfare is not a ‘lifestyle choice’ but, at best, only a limited safety net. It follows therefore that individual benefits should also be time-limited, after which the individual is expected to support themselves.
I absolutely agree with you. We need to be rid of lifestyle ‘rights’ and focus instead on lifestyle responsibilities.
As far as the lifestyle hypothesis goes it should also be considered that it is not just laziness. In many Western countries we see this phenomenon where you either have to be on benefits or have a high income. If your income is in between, you get no benefits and you don’t own assets. Well, then your life is going to be increasingly hard, especially in major cities. You pay much of what you make on rent alone. Of course buying a house is not possible anymore at all. So then it makes some sense not to lose those benefits and your social/council house if a normal job does not provide you with a normal life anymore.
But why is this? Well, we constantly overlook that the upper echelons of the economy are also on benefits. The City, the financial industry and asset economy have been on central bank support at least since the 2008 crisis for most of the time. Many do not notice this because it happens in a stealthy way, in the end much of the economy is a complete paper reality. But it has real world consequences. This monetary policy pumped up assets – such as housing – with free money and cheap credit. And we should also consider the possibility that many people with well-paid jobs actually have bullshit jobs in this paper economy. In any case, if you did not profit from the benefits at the top, or are protected with benefits at the bottom, you will be paying the bill for both.
It’s not a lifestyle choice for many though. Most of those who claim some form of benefit are actually working. However a combination of stagnant wages and runway rents/house prices (as well as expensive utilities) mean they’re simply not paid enough to live on.
Reduce the living costs (predominantly housing) and you can severely reduce the number of people in need of government assistance
I have heard your comment hundreds of times from left-leaners. The state should build 5 million houses in record time without sufficient skilled people, the state should seize all empty houses, the state should force pensioners to move into one-room flats. Then, after all this is achieved in a few years from now, house prices will miraculously fall, everyone will have a house and we will all be smiling. Then – and only then – people will go to work happily. It isn’t even a good theory because it relies so much on state control that corruption will stop it happening. It is merely wishful thinking.
An alternative. All immigration should stop so that numbers of people will fall. All people working from home should return to work to set a good example (people working from home telling other people to get out to work is a nonsense). Pensioners – thousands of people who actually want to work – should be offered 20hr/week jobs without tax penalties and in this way lost skills can be regained quickly. Those on benefits need more regular reviews by civil servants who actually go out to work. Timescales need to be set on benefits.
As an aside, getting civil servants back to work outside will speed up the process of dealing with immigrants to allow proper management of the situation.
You might have heard it hundreds of times but he’s correct – rents / house prices are the fundamental issue.
If you want to bring ‘state control’ into it, consider where all the housing benefit ends up and how house prices got to be where they are.
How housing prices got where they are? Debasement of currency theough excessive money printing – ie government. And the financial repression of the next 10 years will make it much worse.
Yes, that is probably the biggest single way the state has interfered with house prices. Immigration is another (if you assume it’s under state control). Overly restrictive planning perhaps a third.
And not even recognising that asset inflation might be a problem a fourth.
Asleep at the wheel, or just happy lining their own pockets?
Exactly. Many people are obsesses with public spending by the state but forget that the free money tree now also grows at the central bank. Essentially just another part of the state of course. Central banks have put trillions on their balance sheet pushing up asset prices such as housing. Especially after 2008 and 2020. Nice if you have assets, but the bill is presented to everyone who does not. Worse, it might produce an incentive to actually maintain the housing shortage. The inequality produced by monetary policy needs to be reversed somehow. It is unearned.
Great posts. Thank you.
I once had the eye opener of working with civil servants, specifically as sub-contractor for Schlumbergersema for Defra circa 2003 as a software developer to help them develop a livestock tracking system, after the ‘foot & mouth’ scandal, of that time. I was told by my manager, to slow down, as the amount of code I was producing was showing up my team-mates
And were they benefit claimants?
Or just lazy middle class people with no umph, not only not working hard, but taking up a space someone with more motivation could fill.
Why is building council houses worse than paying billions annually in housing benefits? Surely it’s better the state owns an asset for the outlay rather than simply using taxpayer money to line the pockets of wealthy landlords and keeping rents artificially high? We’ve built council houses in the past (I grew up in one, as did most of my mates) and it allowed our parents generation to get a foothold in life. Paying extortionate rents means people have less money to spend on productive businesses that create jobs and growth, so the state building council houses to keep rents low would help the wider economy as well as helping young families.
The bulk of Singapore’s housing was originally built by the state to alleviate their housing crisis, and only sold off when the crisis was over, and many neoliberals always point to those as a nation to copy.
I grew up in one
Likewise.
It also allowed people to have children at a reasonable child bearing age, and it would help with job mobility if young people could leave home and expect to be able to find somewhere reasonable to live. At the moment we are incentivising lack of adventure.
Spot on. The real beneficiaries of many of these benefits are landlords and low wage employers who are effectively being subsidised by the tax payer.
And if house prices had not been allowed to run out of control (benefitting the well off by increasing their wealth) people in work who are currently claiming benefits would have enough from their wages alone to afford a reasonable life for themselves and their children.
how might someone born with complex disabilities support themselves?
Which disability prevents a person to work these days?
My daughter suffers from a chronic neuropathic condition which means she can be absolutely fine for anything from a couple of days to a couple of weeks and then completely bedridden for days. She’d love to have a job but no employer will consider her because she can’t predict when she can work and not.
She’s tried freelancing but again she can’t guarantee to meet deadlines.
Do you mean the special needs lifestyle?
Honestly ever since I learned about British NEETs were even a thing I’ve been shocked by it the fact that
> “New figures published by the Office for National Statistics (ONS) this week, which show that more than half of Britons — and almost half of working-age Britons — receive more from the state than they pay in taxes”
That is astounding to me, that explains why Britain has no economic growth and no entrepreneurship. It’s a really hard truth that we need to accept, if you don’t work you don’t eat, because those who don’t contribute anything to society, even if it is just capital, are then essentially living off the labors of others, forcing others to provide the necessities of life for them.
If you don’t work, you starve it’s as simple as that, goods and services don’t appear out of nowhere they have to be produced by people working, anyone who tries to obfuscate that fact is deluding themselves.
“He who does not work shall not eat” – Vladimir Lenin
“almost half of working-age Britons receive more from the state than they pay in taxes”
There’s about 37.5M working age Britons, and about 33M in employment.
So a large number of the working age people taking more out in benefits than they are paying in taxes, are in employment.
One of the problems for young people who end up NEET is the government’s obsession with qualifications and academia. Many young people struggle with school for a variety of reasons and they’re pretty much stuck in education till 18. Getting a job without GCSEs isn’t easy either. The school system also instils a fear of failure in these kids and many are too scared to try. If they don’t try – they don’t fail.
Many looked after children struggle with school because when you life is a mess, you’ve been ripped away from everyone you know and love, the idea of focusing on school work is unrealistic for a lot of these kids and schools don’t want them. These academies are too big to have time for troubled kids and IF these kids attend, they often spend most of their time in reflection or wandering the corridors until school just kick them out. The system is failing many kids in many ways.
When I was a younger, you could leave school at 16 and walk into somewhere and ask for a job. Now you need CVs, apply online and if you’re lucky, someone might reply.
Yes you’re right. The state’s infatuation with pieces of paper “proving” a particular skill has pretty much killed getting a job by “knowing someone who knows someone who needs a worker”, personal introduction and recommendations being the key to it. Now extremely rare.
The Gods of the Copybook Headings…Kipling
“If you don’t work, you die.”
It is not 1800 anymore. There are good reasons to assume that much of our wealth is actually not produced by labor at all but by technology. Okay, it starts with labor but of course we can now produce a lot of things without or very little work. In fact, because of this puritan mindset and old economic paradigms we might actually be working a lot for the sake of it, while things that actually have to be done are understaffed and underpaid.
Also research by, for example Lockwood et al., shows there is basically no connection between what one earns and what one contributes to the economy.
Link to Lockwood please.
I believe that the only way to break the problem of benefits being a lifestyle choice is to ensure that the recipients have to spend 8 hours a day earning them.
The physically fit could be put to work filling potholes, sweeping streets, weeding parks, etc. whereas the unfit could be tasked with say, sorting recyclables into metal, cardboard, plastic etc.
Once people realise that receiving their benefits would take as much of their time as working for a living, a good portion of them would choose the better paid option of actually doing so.
The key point is to ensure that whatever tasks are set to earn benefits are achievable by anyone, no matter what their skill level, thereby shutting down liberal complaints of being unfair to the disadvantaged.
Just getting those who can walk to clock-in twice a day at a nearby venue would have a dramatic effect on take-up.
Please, no common sense ideas here. Next you’ll be suggesting that government workers should not have jobs for life and gold plated pensions,
I’ve thought the same for many years, community service in exchange for benefits.
The facts Author anchors his article should clearly worry all. Can Labour after 14 years of the Tories just making it worse, do better? It certainly won’t be easy and their Welfare White paper expected next year will be crucial. And that’s because the vast majority is not simple feckless idle youngsters that the Golf Club brigade like to assume. It’s the pensions, the in-work benefits because wages so low, and the fact by miles the biggest growth in economically inactive are 50-65yr olds. And our younger generations inheriting this mess when we’ve made sure they can’t even get on the property ladder.
As we know there has been a cohort who have moved further and further away from the rest on wealth and UK capitalism has favoured low return, minimal trickle-down asset accumulation. That has to be tackled. This disaster is in large part the result of inherent growing inequality. Nobody expects everything to be equal but drive it even wider and you end up here. But there is also an ‘entitlement’ issue. The rules on sickness benefit need changing – and remember before we blame the claimants the Tories changed the rules. Reframing the ‘contributions’ debate is crucial, but it must be done alongside other things that give the less fortunate a fairer chance of success too.
As one of the unhappy few who contributes to the nation’s finances, I’m getting really f@*$ing sick of this.
”In Wales, it emerged this summer that almost half of all children born in 2002-3 were assessed as having special needs”
Probably unlikely, but it does say ‘In Wales’
I think the rest of us were holding back on that one 🙂
I know I shouldn’t. But I burst out laughing at that line!
As somebody from elsewhere, is there some “in Wales” implication or reference which the locals could explain?
It’s a burn against the Welsh.
But I’m just joking… Or am I ?
Let no one forget the power of the quintessential Welshman:
“Glendower: I can call spirits from the vasty deep.”
Thank you, Henry. Simply explained. Labour provide a benefit with criteria. Those not eligible on the first read exaggerate their right under the criteria Then another benefit or programme devised to lift the latter out of their perceived disability. And so on ad infinitum.
If you had a fat and lazy general getting rich and complaisant on his pay who told you the reason for his defeats was that his soldiers wouldn’t fight – you’d sack the general.
Britains problems don’t lie below, and they probably never have. The people running the place, top and middle, just aren’t up to the job. They’re lazy and complaisant and getting more wealthy by the day.
And they are currently in process of handing on the running of the show to their children.
Judging by the performance of the latest ‘Transport Secretary’ they already have.
They may be complaisant, but more likely complacent.
Oops – thanks for that.
The Govt spends around £17,000 per person in the UK. That is every man woman and child. So if your family isnt paying £17,000 or more each in tax you are a net cost.
Guess how many immigrant children and wives or lower paid folk pay that much tax. Answers on a postcard.
I am wary of proposals to withdraw benefits or refuse NHS to non registered people etc. Because in practice it does not happen. No hospital refuses to treat a broken limb because of lack of citizenship. And no public servant to likely to let a child starve if their feckless parents run out of benefit.
The other dimension is housing benefit (which is a big item). Who suffers if the benefit stops ? The landlord ? Or the Housing Association ?
The Author is right. These overall benefits need an overall limit of what the country can afford. Say 2% of GDP like the military . No more benefit money after that is spent.
Welfare state reform being politically impossible, defence spending will not rise to compensate for US reductions in NATO spending. Between them, Trump and Putin will ensure that Western Europe is neutralised.
“receive more from the state than they pay in taxes, ought to be a nasty wake-up call for the Government” –
In any redistributive system that would be the case. The issue isn’t people who work in a ‘valuable to the economy’ low wage job but then the added state expenditure for their healthcare, 2x kids education, 2x child benefit, mowing the lawn in their local park and fixing potholes on their local roads is more than their tax.
The issue is a) people who don’t work at all but can b) people who work far fewer hours than they can, c) people who have 3+ kids even though they can’t afford it.
But do we really want to take healthcare away from someone on £26,000 a year so they pay the same in tax as their effective receipts from the state so that someone on £200,000 a year can have a tax cut or an inheritance of £2 million can go tax free?
The only answer I can see – politically impossible – would be to set a zero budget across all departments, i.e. to require each department to justify all its expenditure from scratch. The present system largely proceeds on the basis that current levels of expenditure are embedded, and the only question is how much they should be increased by. The vast cost of government today is really the result in a growth in government activity over many decades – since the War really. Even the Tories’ efforts in the early 1980s made little difference to that.
we are going nowhere on this issue unless the state (and partners, public and private) recreates a funded supported employment service. Anyone deemed fit for work will be paid and guaranteed employment (at least minimum wage). Would rather pay extra in my taxes rather than continue the pretence that the current system is able to meet everyone’s needs.
In The Year 1000 about England a thousand years ago I read that a serf could go to his lord and request to become a slave. “Head for food,” it was called.
So nothing has changed, Sir Humphrey.
A glaring example is social housing. Over 17% of British people live in social housing compared with about 5% in other Anglo Saxon countries. It costs a fortune, it embeds dependency, the people who need it most are at the back of the queue and it is an instrument of political power. And if you dare, look at the religious and ethnic groups and the percentages of them that live in social housing. Homes for heroes has led to the financial and social collapse of the uk.