23 Jul 2013

Everyone Pays Taxes and Everyone Benefits from Welfare.

In the UK it's easy to end up feeling guilty about living on social welfare. Most people don't choose that life but have it thrust on them and do what they can to get out of it. But the media seem to join with politicians in wanting us to believe that only income earners pay tax or that income tax is the only tax. It is not. Income tax is only about 25% of the government's income.

Everyone in the UK pays VAT. This is a 20% surcharge on goods and services. Food is excluded, but most other things you buy include tax. of the so-called indirect taxes, VAT alone accounts for about 17% of government revenue. Other taxes such as alcohol duty affect nearly everyone in the UK. So even if you pay no income tax because you have no income, you still pay taxes. So this mantra 'my taxes are paying your wages' is inaccurate. Everyone pays tax.

Housing Benefit is a government subsidy of some
£17 billion per year to the housing sector.

What's more the benefit system represents a subsidy on many sectors. For example, despite the economic crisis and falling house prices, rental accommodation has steadily increased in cost. Housing Benefit is paid to many people who work as well as those with no regular income. This is a government subsidy of some £17 billion per year to the housing sector. And the scale of it helps to keep rental costs high.

The alternative to subsidised housing in the short-term, however, would not be lower rental costs. No, it would be mass homelessness, because demand so outstrips supply that even without subsidies the demand would be more than could be supplied.

The housing shortage has been left to the market to fix, but the market has a vested interest in not fixing the problems, in keeping supply restricted so as to keep rents high and rising. Especially when other forms of investment are struggling during the Long Recession. Some estimates suggest the UK needs 2 million more houses as of now. Immigration keeps the population growing, despite the baby boomer bulge now squeezing out of the top of the population pyramid.

At present it seems that the UK government are content to allow this situation to continue on the landlord side, probably because so many of the government are themselves landlords. But they are undermining it from the tenant side and so homeless and poverty are about to start rising.

Since people who accept social welfare payments tend to spend all of it, the government also subsidises supermarkets and pubs and all sorts of other businesses. About £167 billion per year is spent by the DWP and most of that finds it's way back into circulation in supermarkets, shops and pubs - and a percentage makes its way back to the government as tax, but most of it is either spent again (hence the infamous multiplier effect) or saved. Just imagine what would happen if this subsidy was suddenly withdrawn. On top of homelessness and all the other problems of poverty, many of the struggling businesses would go bankrupt. More especially in the present since so many companies are teetering on the edge of solvency anyway, or are zombie companies, technically insolvent but allowed by banks to continue trading because banks, themselves close to insolvent, can't afford to lose the revenue stream.

Those receiving welfare payments could think of themselves as low-paid civil servants distributing government subsidies to local businesses. 

I've often wondered why we call social welfare payments "benefits" in the UK. After all it seems strange to think in terms of the benefits of losing your job or becoming too ill to work. Social welfare is more of a consolation for misfortune. But society as a whole does benefit from supporting those people who cannot work. The benefit is for society as a whole, not one particular individual - hence in most places it is called social welfare. Keeping those who lose jobs or become ill in the loop of society makes the transition back into work smoother. It keeps people from becoming homeless for example, or from completely dropping out of society.

Far from being a burden on society, welfare is a massive subsidy that is helping to keep the nation afloat in a crisis. It's the remains of a from of economic thinking that is not based in the fantasy of the market will solve all our problems. Social welfare is still predicated on the idea that the market will not provide fairness and as such is one of the few remaining counter-weights to the fantasies of NeoLiberalism. It also provides a cohesive factor when centripetal economic forces are sending many people to the margins of the economy and beyond.

But make no mistake. The social welfare system is under attack by NeoLiberals aided and abetted by mainstream media who are largely uncritical of the NeoLiberal agenda. The real benefits of social welfare are systematically hidden and mirages of disadvantage are being created. The mythical "tax-payer" is told they are missing out when someone else gets welfare. The working person who has seen 40 consecutive months of contracting wages only knows that their money doesn't go as far as it used to. It's all too easily for them to buy into blaming the social welfare system, because the government are spinning it with everything they've got. Working people are squeezed because of government policies which are designed to maximise the wealth of the wealthy at any cost, but the government is seeking to deflect responsibility away from themselves. And such governments traditionally blame the poor for being poor. Being rich is a measure of moral goodness in their worldview, and being poor is laziness at best. There is not enough critique of these kinds of assumptions, no substantive opposition from the left, and precious little public discourse which does not come from spin doctors.

This same attitude means that political parties are unwilling to consider alternatives to the status quo of NeoLiberal values and NeoClassical economics. And not just the traditionally right-wing parties, but the left as well. The possibility that instead of using QE to directly subsidise banks with no great effect on the economy, that we might use it to stimulate the economy by giving money to individuals, especially poor individuals is not even considered. Not even by the left. Sadly I no longer see any possibility of the Modern Debt Jubilee taking place. Or anything like it. Combating government propaganda, combined with the propaganda of big business, is not yet effective - despite the state of the UK economy there is no sign of anyone offering a credible alternative.


  1. Many thanks for your continuing thoughtful and radical thinking, Jayarava. I find your posts both stimulating and - no criticism at all of you implied, given the whole thrust of your blog - a bit of a downer, in that they tend to paint a bleak picture for the future of the majority of the less well-to-do people in the UK. I wonder if it is possible for you to adopt - at least as an experiment - a somewhat different approach, i.e. not letting up on the implicit 'protest' side of things, but also by suggesting and affirming what economic measures might be confidence-building and of value for the stability and welfare of the less-well-off in the UK? With all good wishes and much gratitude, Ashvajit

  2. Yes. I think the picture for most people in the UK is bleak, and getting bleaker.

    No, I don't think that any kind of false optimism is warranted. What's more I don't think that pretending that there is any kind of positive debate going on is warranted either. The government are not listening to any of the many excellent commentators who offer alternatives, and as far as I can tell the opposition are not interested either. I did start out thinking that I could champion a particular approach that seemed hopeful, hence the title of the blog. But over the months I have seen the government systematically ignore any alternative and relentlessly pursue their NeoLiberal agenda.

    What's more most of the people I know are complaisant about what's going on. Uninterested in doing anything different. Many of the them benefit from the housing shortage by investing their savings in rental housing.

    The UK situation is depressing. My situation within that is deeply depressing. I don't see any realistic possibility for positive change any longer.


Keep is seemly & on-topic. Thanks.