Scroungers: How Much Does the Corporate Welfare State Cost the Tax Payer

The UK Government has announced a war on the welfare state, claiming it has become too big a burden for the UK taxpayer to bear. They are correct.  The problem is that they are tackling the wrong welfare state.  It is the Corporate Welfare state that the UK can no longer afford.

What Does the Human Welfare State Cost?

The UK Government spend a total of £694.89bn a year, to do everything.  The amount the government spend on benefits is £159bn, with £72bn (45%) of that going on pensions.  So, we have £85bn (12% of spending) a year actually going on working age benefits.  The UK’s current unemployment rate stands at 7.8%, whilst 19%.  It makes sense that we spend this proportionate amount of shielding citizens from poverty induced by involuntary unemployment, and support sick and disabled people who cannot work or who bear additional financial costs to work.

The Assault on the Human Welfare State

In Language

The UK government’s assault on the welfare state has pivoted around the issue of benefit fraud, a mischaracterisation of the issues and outright lies.

Leading members of the government have repeatedly taken to the media to characterise some sort of cultural struggle in the UK between strivers and skivers. The Chancellor launched into false analogy worthy of Der Sturmer with his Party Conference Speech.  He imagined the scene of bedraggled British workers trudging pre dawn streets for the bus, past houses of benefit claimants slumbering peacefully with their blinds closed. This has created a conversation about an over generous benefits system based on no actual evidence that such conditions exist.

No interview or article on the issue is complete without a question to advocates of the welfare system along the lines of ‘but surely it makes sense that the taxpayer only supports the people who really need it?’ This is intended to leave the viewer or reader with the following affirmation:

Because it is right that the ‘right people’ get the support, the government is right to make their changes.

This is the kind of warped logic that inspired me to write the Parable of the Sinking Ship.  No one is suggesting benefits should be dished out to every person in the land so we can all down tools.  Instead, the argument is about people who believe that these cuts are ideological, cruel and will not produce anything other than human suffering.

According to the government’s own figures, overpayment of benefits due to fraud is just 0.7%, or a cost of £1.1bn a year. To put this in perspective, overpayment of benefits due to error is almost double this, at 1.3% or £2.1bn.  Yet, we are not launching a war on mistakes within the DWP.

99.3% of people claiming benefits are being attacked, for the actions of just 0.7%.

These figures alone suggest the government is deliberately framing the debate in a way which distorts the issues at hand and creates rather than reflects a perception of a ‘broken benefits system’.

In Practise

In a recent article, I detailed the raft of cuts coming into effect this month that will see disabled people lose up to £4,600 a year, single parents in part time work pay up to 333% extra in Council Tax and the working poor lose Housing Benefit support.

The Cost of the Corporate Welfare State

The Bankers Bailout

The most obvious recent example was the Bankers Bailout.   According to the National Audit Office, The UK taxpayer spent £850bn bailing out the Banks in 2008. This is almost twice the nation’s total annual budget.  For this amount, the UK could have funded the entire NHS (£106.7bn a year) for eight years , our whole education system for twenty years (£42bn a year) or provided two hundred years of Job Seekers Allowance (£4.9bn a year).

Socialised Losses

The Bailout is simply a scaled up version of the wider reaching problem of a private sector allowed to socialise its losses at the cost of the taxpayer.  The private sector is increasingly invited to deliver crucial services; the companies keep the profits of success, while the taxpayer is left to pick up the tab when they fail.

In the most recent budget, George Osborne offered another £130bn to banks in the form of mortgage guarantees, effectively making it so banks can grant mortgages to people, reap the profits, but never fear a default as the government (you and me) will pick up the tab.

When Rail Track, the company running the privatised rail network failed in 2001 it was allowed to hand its £3.3bn of debt to the tax payer.

The state had to step in and restore communications when private court translators failed to show up en masse.

The taxpayer funded the deep cleaning of hospital wards when outsourced cleaning firms delivered us a superbug epidemic.

The taxpayer stepped in once again when the privatised forensic service’s manifest cock ups failed to deliver justice.

The nation’s armed forces had to step in during the London 2012 games when private security firm G4S failed to provide a sufficient number of staff to fulfil its duties.

The taxpayer bought failed bank Northern Rock for £1.4bn to avoid a run on the banks. The bank was split into a ‘good bank’ likely to generate profits in future, and a ‘bad bank’ containing almost £50m of bad debts. Osborne then sold the good bank to Richard Branson for a measly £747m, while the taxpayer kept the bad bank and the associated debt.

Despite all these failures the same companies are invited to make profits and mistakes on further government contracts while the taxpayer is effectively frozen out of the decision making process.

Private Finance Initiatives

Our hospitals and schools have been built under private loans called Private Finance Initiatives, rather than government borrowing.  These loans are at least twice the rate of interest that government loans would have been.  These loans are then repaid over 25-30 years.

Today, 22 of the 103 NHS trusts to enter PFI are facing difficulty due to the exorbitant repayments required to pay back the so-called NHS Mortgage (paying back the company for building the hospital).  Some hospitals are having to handover a fifth of their annual budget on paying for the PFI deal.

In Education, it was revealed that we are due to have a shortfall of 250,000 school places for our children by 2014, whilst the tax payer has picked up a £70m bill for PFI schools which had to close.

Overall, for a capital investment of £54.7bn (that’s how much money we actually borrowed to build stuff), the tax payer will pay back an astounding £301bn in just twenty five years.  Given the disasters of debt witnessed so far, many of the 771 PFI projects currently running will bust the budget of these schools and hospitals long before then, leaving us with the debt but not the service.

Handouts, Tax Breaks and Tax Avoidance

While we have privatised rail, energy, utilities and energy – we continue to pay massive subsidies to the private companies running them now. When we aren’t handing money over directly, the government is letting them off paying their dues.

The Rail Service was radically downsized in 1963 as it was said it was losing £140m a year, which was the gap between ticket revenues and running costs.  It was finally privatised in 1993.  Since then, ticket prices are rising above the rate of inflation.  Train firms pay the government £1.17bn in premiums to run their franchises, only for the taxpayer to hand them back £4bn in subsidies.

So we are now spending almost £3bn a year (£500m more in real terms) today to fund the profits of private companies, while paying 66% more in real terms for our train tickets, with no representative to hold to account for the failure.

Network Rail profits doubled in 2012, and all rail franchises are running at a profit as the companies prioritise (as they have to, as businesses) making a profit rather than lowering ticket prices or investing in the network.  Despite all this, the government are not complaining as they were when the service was nationalised, of a loss making service.

Gas and Oil prices were subsidised to the tune of £3.6bn in 2010, whilst renewable energy projects received just a third of that.  And with the exception of the first two years of the financial crisis, this figure has risen consistently over time.  Yesterday’s budget announced more of the same, with shale gas exploration receiving massive tax breaks.

And finally, taxation.  Only one in four of the UK’s top companies pay their taxes, meanwhile they were receiving tax credits to the tune of hundreds of millions of pounds by people who did pay their taxes.

Company taxes now constitute only 12.5% (Corporation Tax is just 7%) of the tax revenues of the UK.  In comparison, the people’s taxes, (income tax and VAT) make up more than 60% of the tax income.

Corporation Tax is lower today than at any time in its history.  UK Corporation Tax in 1984 was 52%.  By 1986 it was 36%.  In 1999 it dropped to 30% and in the most recent budget it was cut to 20%.

Meanwhile, tax avoidance is costing us almost £70bn each year.

Subsidising Low Wages

The three most expensive benefit payments in the UK are Tax Credits, Housing Benefit and Child Benefit, totalling £56.4bn a year.  These are not ‘out of work’ benefits.  Therefore 65% of the total spent on working age benefits, is going to people in work.

These payments have been set up and used mostly by people in work, but whose wages are below subsistence levels.  In the last five years, wages have increased by just 10%.  Inflation according to the Consumer Price Index (CPI) was 17% during the same period.  This means a real terms wage drop of 7%.

However, CPI figures represent a wide range of purchases which many average or below average earners do not buy.  The UK Essentials Index which focuses on the kinds of everyday items which the UK’s working and non working poor buy showed an inflation rate of 33%.

And no one in power is calling for an end to the corporate welfare state which is crippling UK finances and has seen the national debt rise to a record 138% of GDP.

Time to Put an End to Corporate Welfare

George Osborne claims to be representing the frustrations of the public in his assault on the human welfare state.  The reality is where this perception exists it has been cynically cultivated in direct disagreement with the facts.  There is no significant issue of benefit fraud in the UK.  There is no need to have any conversation about a ‘something for nothing culture’ amongst our young, disabled, sick and involuntarily unemployed.  There is however, a dire and urgent need to turn off the tap draining the public purse into private profits.

Today’s article is dedicated to the memory of Britain’s first neoliberal Prime Minister Margaret Thatcher who died while I was writing it.  She may be dead in body, but her legacy lives on.  No doubt her timely death will allow the media to focus on mourning the loss of the architect of manifest failures discussed, whilst the victims are quietly ignored.