Thursday, February 17, 2011

the £90 billion welfare bill

David Cameron today announces action to cut our £90 billion welfare bill, complaining about the way in which it encourages 'dependency' (where have we heard that before) and doesn't 'make work pay'. Within this debate, the £90 billion cost of 'welfare' is waved around enthusiastically. The implication, of course, is that £90 billion is being spent on Waynes and Waynettas who don't want to work and prefer to live a life of indolence at our expense.

But what lies behind that number? Here is a bit more detail, courtesy of a link here.

First, £90 billion is a lot of money, of course, but in the context of government spending of over £700 billion it is by no means the biggest drain on the government budget: that is of course the NHS, which no-one these days dares to challenge. So we are talking here of a number which amounts to a bit more than 5% of GDP.

Second, 'welfare' is not just unemployed people of working age. The £90 billion includes child benefit, which everyone gets (although now, of course, higher rate taxpayers will lose it), and which is actually the second biggest share of the bill at £11 billion. How many of these children are undeserving?

Anyway, moving on, the next biggest chunk is tax credits (£23 billion), which are allocated to people working, and is in fact central to the last governments 'welfare to work' strategy. Cutting that figure would certainly save a lot of money, at least until you consider that it would push many people who are currently working back onto the unemployment register.

So, that is £34 billion already. What about the other £50-odd billion? The next biggest item is Housing Benefit, a colossal £14 billion. Some of this goes to the 'undeserving poor' I suppose, some of it goes to the 'deserving poor' - pensioners, the disabled, the involuntarily unemployed, carers. And, of course, all of it goes to private landlords who get rich providing this housing.

£7-8 billion goes on disability benefit. This is a large amount, and there is some evidence that disability allowances are higher in areas of high unemployment, suggesting that not all recipients are genuinely physically incapable of working. However, many recipients clearly are. Choosing between them is not easy.

Jobseekers' allowance and income support - what are generally regarded as 'the dole' - amount to 3.7 and 7.5 billion respectively. So cutting off all unemployment support would save about £10 billion, which is a bit more than 0.5% of GDP. My fear is that people think that £90 billion of 'welfare', is going on unemployment benefit - in fact the true number is a ninth of that sum.

I could go on, but you get the point. Look down the list and you see a number of items that are not obviously wasteful - statutory maternity leave, industrial injuries benefits - none of which amount to much more than a billion quid each. You can cut the welfare bill, but not by much, and not without creating real hardship. As we will see.