The Hidden Welfare State
Posted on May 14, 2013 by syzygysue
The UK has two welfare states. There is one that is reported and endlessly discussed, and another, which is rarely mentioned. Whilst the first is suffering enormous cuts under the Tory/LD coalition, the other just keeps expanding.
Comedian, author and activist Rob Newman explains to the New Internationalist magazine (May 2013):
Governments on the left and the right can always justify welfare cuts by pitting, for example, mobility scooters against needle exchanges, or the soft-play area in children’s playgrounds against an old people’s home. Who deserves it most, they say, students or cleaners? Old or young? But when we’re running not one, but two welfare states, that’s a totally fake scenario. The real choice is between playgrounds or gas rigs; between Meals on Wheels or The City of London Currency Speculators’ Maintenance Allowance.
There’s a connection – never mentioned – between, let’s say, Britain’s eight new deep-water gas rigs and its 200 new food banks. The connection is that the $4.5 billion subsidy package being doled out to transnational gas corporations is a very big slice of the welfare pie. And to keep the gas transnationals on the benefits to which they are addicted, hungry humans have to queue for tinned food that is too close to its sell-by date to be kept on the shelves of supermarkets, many of which are themselves massive recipients of corporate welfare.
Not only does the UK pay out unemployment benefits less generous than Romania, Albania and the US, but the wages of the employed have simply not kept pace with productivity over the last 30yrs.
Tory Ideology is all about Handouts to the Wealthy paid for by the Poor
Meanwhile, the corporate sector sits on a colossal cash surplus of £800bn but without investing because the real problem continues to be the lack of aggregate demand… and the richest 100 UK citizens, only 0.0003% of the electorate, now have wealth estimated at £257bn.
Nevertheless, George Osborne has been prepared to cut £18bn from benefits plus a further £81bn from public services in the name of unavoidable austerity, whilst at the same time providing huge subsidies, tax cuts and removing regulation for the hidden ‘welfare’ system that benefits the private sector.
No goods or services are directly returned to the government in exchange for these expenditures, although of course, politicians will argue that they’re stimulating the economy, helping struggling industries, creating jobs or funding important research but actually this is just a corporate welfare system.
The Cato Institute estimated that in the US, $93 billion were devoted to corporate welfare in 2002. This was about 5% of the federal budget… and nearly twice the amount spent on social welfare ie. feeding people, housing the homeless, raising children out of poverty.
There is no reason to think the situation is different in the UK. However, overall statistics for the UK corporate welfare budget are hard to discover .. and the variety of different subsidies are staggering. Needless to say, our MSM focuses its attention on fraud and waste in the social welfare budget.
Welfare fraud and waste is never far from the top of the UK’s news agenda – but the real figures often bear almost no resemblance to popular belief. The British public, for example, think around 27% of the welfare budget is lost of fraud, according to TUC research.
The Department for Work and Pensions’ latest data on fraud and error in the benefit system shows a very different reality: fraud exists, but at a far lower level than the public believes – and is outweighed by errors from claimants and officials alike.
The overall figures show fraud and error are largely unchanged from last year. The DWP estimates £3.5bn has been overpaid due to errors and fraud in the system; 2.1 per cent of the overall benefit expenditure.
The corporate welfare budget arises from four main sources:
Paying little or no tax – Tax havens
Enjoying huge subsidies
Removal of employment and environmental protection regulations
The task of covering all these areas adequately is beyond the scope of this post so I offer these quotes which illustrate some of the ways in which the corporates are benefiting from political sponsorship of their welfare:
The UK’s 100 biggest public companies are running more than 8,000 subsidiaries or joint ventures in onshore and offshore tax havens, according to research published on Monday, raising fresh concerns about the full extent of corporate tax avoidance.
The figures, published by the charity ActionAid, show that only two of the companies listed on the UK’s FTSE 100 have no subsidiaries in tax havens – while companies such as Barclays and Tesco own hundreds.
Could this be the same Chancellor who in his 2012 budget offered multi-nationals which opened a finance subsidiary in a tax haven a reduction in corporation tax from the then rate of 23% to an eye-wateringly low level of just 5.5%? It could be, and it was. Is this the same Chancellor who, whilst ultimately controlling the UK Crown Dependencies and Overseas Territories which constitute up to half the world’s most frequently used tax havens, declined to take any action to close them down? Yes, it was again.
Four tax inspectors pursuing 124 of HMRC’s most wanted tax fugitives ~ By Nicholas Watt, chief political correspondent, The Guardian, Friday 27 December 2013
RICHARD MURPHY says:
I say tax gap is £95bn
It was revealed recently that only one in four of the UK’s top companies pay their taxes, meanwhile they receive tax credits to the tune of hundreds of millions of pounds funded by people who did pay their taxes.
… vastly profitable large chains of supermarkets … get an enormous subsidy to help with one of their major overheads, staffing costs. This is because many employees in these large and successful companies are paid only the minimum wage. And because the current minimum wage is not a living wage, nearly everyone on it has to claim tax credits to be able to make ends meet. Those tax credits are funded by the taxpayer…. Let’s stop calling them “wealth creators” and start calling them state subsidised industries.
Currently, it is estimated that the government has already provided £43.5bn in various subsidies including the National Infrastructure Plan, the Equity Loan and Help to Buy schemes, the Enterprise Finance Guarantee and the Regional Growth Fund, with nothing to show for it. Far greater sums are in the pipeline, up to £310bn.
It is more important to [the Tory/LD coalition] to privatise everything they can in pursuit of their real objective of a fully marketised State rather than to compel these banks, of which the taxpayers own 82% of RBS and 39% of Lloyds, to prioritise lending to industry to kickstart the economy and get growth going at last.
Even more significantly, an enforced sale before the election will at their current share value lose taxpayers £24 billions!
That is truly staggering when Osborne has been prepared to cut £18bn from benefits plus a further £81bn from public services in the name of unavoidable austerity. Yet at the same time he is now disposing of assets which will gratuitously lose the public coffers £24bn.
It is arguable that without the state’s support the banking sector would have collapsed entirely. But even on the most favourable comparison from the low-point of the recession the subsidy has been hugely inefficient. A £1,020bn hand-out to the banks has yielded an increase in output over that time of approximately £40bn. It would have been far more efficient if the state had directed its own capital into the production of banking services, via fully nationalised and controlled banks.
114 year Workers Rights Scrapped by Coalition Government.
For the Benefit of the Conservative Party – “FOR SALE – Local Hospital and Schools “
.. if you spend £100 on healthcare in the NHS you get one hundred quid’s worth of healthcare less about 5% management costs. In the private sector you’ll get a hundred quid’s worth less 3% management costs, 5% profit, 12% to pay bank loans and charges, plus a chunk for bonuses, dividends and return for investors. And, no provision for what happens if they go broke or get fed up.
- The ‘Too Big to Fail’ subsidy: The government now provides a public guarantee, effectively insurance against banks going bust. This gives banks a huge commercial advantage over other firms in a market system. It means banks are able to borrow money much more cheaply than if they were not ultimately underwritten by the public. Exchanges with leading auditors in front of the House of Lords Select Committee on Economic Affairs in January 2011 confirm this. A conservative analysis reveals that this hidden subsidy could be worth £30 billion annually. It means that bonuses to senior staff for ‘performance’ and dividends to institutional investors are at least in part a straight transfer from the taxpayer.
- The quantitative easing windfall subsidy: When it was decided that the economy needed more liquidity, the Bank of England pumped money in using the technique called ‘quantitative easing’. To meet various, and sometimes self-imposed, requirements, it did by purchasing government bonds through investment banks. Merely for being passive conduits for this ‘risk free’ arrangement the banks took a cut of every trade. Here nef analysts found that banks enjoyed a significant windfall, but that lack of transparency keeps the likely amount hidden.
- The ‘make the customer pay’ subsidy: Looked at sympathetically, the banks have been put in a difficult position. At the same time as being required to rebuild their capital, they are also under pressure to lend. In response, the banks have tried to manage this by increasing the gap between what they have to pay to borrow money, and what they charge people to borrow from them. This is the so-called interest rate ‘spread’. But the banks have a choice. They could recapitalise by reducing or eliminating bonus and dividend payments until their capital base is rebuilt. As it is, the taxpayer is subsidising the banks twice over: once through taxpayer funded public support to the banks, and secondly through paying much higher interest to borrow than the banks do. This hidden subsidy to retail banking and one part of the investment banking world amounts to at least another £2.5 billion each year.
As James Galbraith wrote:
The Predator State…. The state as monopoly collector of taxes and corrupt distributor of the spoils to the private sector…
There is no common good, no public purpose, no shareholder’s interest; we are the prey and governments as well as corporations are run by and for predators.
Furthermore, none of this is likely to get any better under the rules of the US-EU FTA (Free Trade Agreement) which the Tory/LDs are wanting to get signed by 2014. Part of the secret negotiations are the transfer of sovereignty from nations to private corporate tribunals who will be empowered to compel governments to change their laws or pay unlimited fines.
How The Banking Debt Crisis Can Be Overcome ~ Our Proposals
Because almost all of our money is ‘on loan’ from banks, someone has to pay interest on nearly every pound in the UK. This interest redistributes money from the bottom 90% of the population to the very top 10%. Meanwhile, inflated house prices and financial instability all lead to a growing gap between the poor and the rich.
32 thoughts on “The hidden welfare state that the U.K. government dares not speak of”
It’s time ‘the predated’ educated themselves, and learned to sift through the propaganda fed to them every day.
Shocking ….. Yet at the same time they just divide and rule the masses and you know what ….it’s working.
I have friends who are starting to blame all the immigrants and the EU for our problems …. They need to read this and then give an honest opinion.
Facts like these should be on the national news … But the BBC is run by the same bunch so no hope of that.
No, none of that, Ted. The Beeb now reminds me of East German TV News when I was a lad living in West Berlin with the army.
What a truly brilliant article! Explains it all for me. Thanks, tweeted… and will keep on tweeting!
I quite agree about the “living wage” which will reduce the need for people to receive tax credits, which after all is paid from the public purse.
Whenever the living wage is mentioned, the CBI and employers in general bump their gums about how it will push up the cost of wages which employers have to bear the brunt of.
Now this is rather disingenuous of employers, because what people may not be aware of is that employers can claim the tax and NI suffered on wages as an allowable expense in their profit and loss account thereby reducing the taxable profit liable for corporation tax.
nice point on the end there about reducing taxable profit but if said company avoids paying their taxes anyway…..
exactly Andrew….look at what’s happening with Google, Amazon etc etc.
Well of course they can. That’s how profit and loss works. Profit is the money you’re left over with. NI is not money you’re left over with. Ipso facto. The point is to make corporations pay their legitimate taxes, not to subject them to double taxation because we don’t understand what the term P&L means.
Sorry???? bit confused. The employer pays wages and collects and pays the tax and NI to HMRC, they then deduct the tax and NI (by NI I mean Class 1 employers NI)
So if the employer pays more wages then there is a corresponding reduction in their profit as a result of the tax/NI deducted
The chunk of money that is paid to the employee is already taxed so of course it is exempt from corporation tax.
Yep, totally agree with this brilliant article. The greedy-guts corporate bosses and government chowsers don’t realise that the predated can turn on their tormentors and become the predators. Bring it on. Wake up Britain!
Amazon received more in government grants than it paid in UK tax.
Excellent article. I have put a link to it at the end of my article ‘Austerity: Another name for war’ at my blog critical-mass.net also a link to this site on my links categories.
Superb insight into how we’re all being shafted. Will share this via facebook, twitter and g+ now. Thank you.
A superb article. In addition to the corporate welfare budget there is another: the agricultural welfare budget. Many farmers only survive because of the welfare payments they receive in agricultural subsidies. I have no objection at all to state-subsidised farming and landscape, but I have massive objection to the dual standards in most English farming areas which are massively Tory in vote and belief and yet rely on farmers welfare benefits a.k.a. agricultural subsidies for their very existence. e.g. http://www.bbc.co.uk/news/uk-17225652 quotes £3.5bn
Sortition is the only solution to true fairness
This is the biggest pile of unsubstantiated rubbish i’ve ever read, even with blatant lies such as “Not only does the UK pay out unemployment benefits less generous than Romania, Albania and the US, but the wages of the employed have simply not kept pace with productivity over the last 30yrs.” Whoever wrote this is an absolute baffoon, and those that believe it are even worse. The coalition took over a country already ravaged by years of neglect and miss understanding by an apathetic labour government who operated an open door policy in europe and unrestricted benefit spending. when does this stop? how much can one country give? not only immigrants but to those on benefits, those who expect and never give back, this government and tory leader all you idiots keep downing is the only person in the entire country who is attempting to bring us back from a double dip recession and promote economic prosperity so that we can have the opportunity to increase the minimum wage and create a more affluent working class.
Seig Heil! You buffoon! You really do live in Never-Never Land!
Where to begin. The economy of the UK was bouncing back after a world wide crash at the time of the last general election. The financial melt-down was brought on by capitalist gambling. Before the crash there were jobs, by some odd coincidence there are a lot fewer people living on benefits when there are jobs to be had. There was record investment in the NHS, which was at its all time peak of satisfaction levels among the public. The aim of taking a million children out of poverty was close to achievement. Money wasn’t being wasted on endless harassment of disabled people etc etc.
In India, too, the Government is pro- rich and the media controlled by corporate sector support the Government.
Once the American capitalist began off-shoring middle class jobs from America to India and other countries there were going to be billionaires made in the targeted countries. They were going to immediately begin skimming money from the top, before allowing access to it by the rest of you. They now use your feeling of wealth, privilege, and superiority over the rest of the people to vote with them and against your own best interests.
Of course, it is. These men cover for each other to keep the money they have and the money they are about to steal.
Check out the website link to learn how many Indians are rich and newly rich. You don’t get that kind of rich unless you are doing something dirty or underhanded.
That is astounding and sickening. We all see behind the headlines ..a benefits scrounger makes an easy target in the papers but the big money is all going to the same old boys club. Will this country ever wake up ?