Welfare woes
Plus: wealth taxes and advertising bans
In today’s newsletter:
The government splits on welfare reform – is it time for more fundamental change?
Why wealth taxes will backfire
Another advertising ban
Keir Starmer’s partial backdown on the proposed benefit cuts greatly amused those who love to see politicians slip on banana skins. It has stimulated another round of excited speculation about the Prime Minister’s future by Whitehall watchers with nothing better to do.
But I find it all rather depressing. The planned cuts, involving changes to eligibility for personal independence payments and to the rate paid for incapacity top-up to universal credit, had two purposes. One, to plug gaps in Rachel Reeves’s ever-changing spending and borrowing plans. Two, to make a stab at reining in the ever-expanding benefit bill. On the latter point, recall that we currently spend about £65 billion a year on health and disability benefits, but the OBR predicts this will rise to around £100 billion in 2029. When the cuts were announced in March, they were planned to save about £5 billion. At the time I said that this amounted to a ‘flea-bite’, but now it appears that the flea will go hungry. The concessions Sir Keir is making will mean that the savings are projected to amount to less than £3 billion.
I doubt they’ll even be that. In the short run I expect a further increase in claimants as people rush to claim before the changes take place next year. And of course, once people get on to benefits they don’t easily come off them.
120 Labour MPs signed a motion which led to the Prime Minister’s capitulation. This is hardly surprising: as far back as the 1930s the Labour Left has never failed to oppose a reduction in benefits. Greens, Lib Dems and others provided a sympathetic chorus. The Conservatives couldn’t make up their mind whether to support the government’s plans (as they should have done), apparently only concerned with the immediate political buzz of humiliating Sir Keir. As for Reform, their attitude to benefits - as shown by Nigel Farage’s call for lifting the two-child benefit cap - is ambiguous. As a consciously populist outfit, they will be aware that 49% of those questioned in a recent poll – including many of their target voters - wanted higher, rather than lower, spending on disability benefits.
Will we get still higher taxes as a consequence? Possibly, though I suspect there’ll be yet another accounting fudge as the Chancellor finds a few banknotes in the back pocket of her jeans. We’ll try to stagger on in the same manner for a while longer.
One way out of this mess of course would be to boost productivity and grow the economy much faster, which would make higher wages sustainable, attract more people back into work, and raise tax revenue relatively painlessly. But the Employment Rights Bill just finishing its odyssey through Parliament will do the opposite, slowing growth, reducing employment, and raising costs. And our continued Net Zero obsession does much the same. At the moment reversal of these policies seems no more likely than significantly cutting benefits. The economy seems determined on politician-assisted suicide.
Professor Len Shackleton
Editorial and Research Fellow
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IEA Podcast: Executive Director Tom Clougherty, Editorial Director Kristian Niemietz, and Communications Manager Reem Ibrahim discuss welfare traps, NHS waste, and industrial strategy, IEA YouTube
Is it time for an entirely new approach to welfare?
This week, Dr Steve Davies has taken a timely and broader look at the welfare problem for Insider:
“The welfare state is the object of intense dissatisfaction and criticism, which has become louder and more intense over the last two decades. This criticism comes from all points of the political spectrum so we can truly say that nobody is satisfied. On examination the surprising finding is that there is a great deal of shared diagnosis between conventional left and right. Both attack the dominant approach of the right and left of the managerial centre. What the complaints and research reveals is that firstly the system of state support and income transfers for the poor simply does not work. It traps its recipients in a condition of dependency and a state of barely getting by – if that – while also being experienced as intrusive and humiliating. All this while also being very expensive. The second finding is that repeated efforts at managerial reform have done nothing to alleviate these problems or have even exacerbated them, while making the lives of welfare recipients worse and doing nothing to reduce costs. They have failed on their own terms. The ultimate conclusion is that this reflects not so much a failure of policy or of public administration as a systemic crisis, reflecting structural features of the way the system works”
Read the full piece here:
Is it time for a radical new approach to welfare?
By Dr Stephen Davies, Senior Education Fellow at the Institute of Economic Affairs
Watch the IEA Briefing on the YouTube:
Read Callum Price’s take on Conservative Home
News and Views
Why Wealth Taxes Will Backfire Spectacularly | IEA Interview Tom Clougherty interviews fellow tax expert Dan Neidle
Banning Alcohol Ads in Latest Nanny State Nonsense Head of Lifestyle Economics Dr Christopher Snowdon quoted in Guido Fawkes and writes in The Critic
“Less than a year after taking office, the government has already given up on serious reform and is resorting to banning things as a substitute for governing. It’s as if Rishi Sunak never left. The rise in alcohol-specific deaths happened because of prolonged lockdowns. It had nothing whatsoever to do with advertising. This is pure displacement.”
Class action lawsuits are corrupting our legal system Strategic Partnerships Manager Matthew Bowles writes in CapX
Pure nonsense? New Government Alcohol Advertising Ban | IEA Briefing Reem Ibrahim interviews Dr Christopher Snowdon
NHS Struggles to turn cash into care, Dr Kristian Niemietz quoted in The Times
“In state-run health systems like the British NHS, there is often a temptation to prioritise day-to-day spending over long-term investment. Politicians know that by the time the detrimental effects become apparent, somebody else will be in charge and it will be somebody else’s problem. [...] [W]hile the NHS cannot be described as ‘underfunded’, it is in a very real sense under-resourced. These are not the same thing — a pile of cash does not magically transform itself into a doctor, a nurse or an MRI scanner. The NHS is remarkably bad at converting its financial resources into medical inputs.”
A Path to Peace and Prosperity in Pakistan
The Whetstone Freedom Fund (WFF) is an international initiative founded by the Institute of Economic Affairs in honour of the late Linda Whetstone, to support classical liberal ideas around the world. Each month on Insider we take a deep dive into the countries and partnerships which are being supported by the WFF.
Events
[INVITATION] Smoke & Mirrors
![[INVITATION] Smoke & Mirrors](https://substackcdn.com/image/fetch/$s_!Y6JT!,w_1300,h_650,c_fill,f_webp,q_auto:good,fl_progressive:steep,g_auto/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F286950b1-0660-4820-bebc-7c60380779ac_1920x1080.png)
The Tobacco and Vapes Bill introduces a globally unprecedented measure: a generational ban on tobacco sales, preventing anyone born on or after 1st January 2009 from ever legally purchasing tobacco products.
[INVITATION] IEA Panel on Government and Economic Growth in the 21st Century
![[INVITATION] IEA Panel on Government and Economic Growth in the 21st Century](https://substackcdn.com/image/fetch/$s_!D8ac!,w_1300,h_650,c_fill,f_webp,q_auto:good,fl_progressive:steep,g_auto/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F3318cf33-71fd-44ba-8b12-12debc19f9aa_1600x900.jpeg)
The IEA is hosting a panel event on Juan E. Castañeda’s edited book ‘Government and Economic Growth in the 21st Century: A Classical Liberal Response’. This event will take place on Wednesday, 9th July, from 18:00 to 20:00 at the IEA (2 Lord North Street, Westminster, London, SW1P 3LB).
2025 Vinson Centre Conference in the Classical Liberal Tradition
Welcome to the 2025 Vinson Centre Annual Conference! Join us at the Vinson Centre for the Public Understanding of Economics and Entrepreneurship for a day filled with insightful discussions, networking opportunities, and engaging sessions.
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Hello Len! I completely agree with everything you have said! The fact that politicians do a u turn and don’t confess they made a mistake is not just frustrating it’s down right undemocratic. We base our whole life on truth, the whole truth and nothing but the truth, fairness and care for all! But politicians think they can con us into believing untruths! How can anyone learn if they can’t recognise where they have gone wrong! Then get it right and move on. But they seem to believe we can’t all see it for what it is a complete disaster of a decision. They have no plan and cut anything to make up the canyon between tax revenue and the need to spend! How many times have I written to tell those in charge to STOP cutting and start making the system work to produce the tax revenue we all need! The cost is always the cost! You can’t make it cheaper or pay less for what we need. But they think they can! Just look at the NHS. It’s been underfunded for donkeys years but, so has everything else! Why? Because the tax take has never been enough! That’s why we have now a national debt of £2,800,000,000,000.00 trillion pounds and counting! Yes a lot of naughts! That has filled the gaps and now we are struggling to pay the interest back,let alone the capital. And who do we owe it too? Everyone! But in the main it’s owed to the rich who, had it spare to lend it to us! Yes the rich have it but as any loan they want it back plus interest. Now Len how do you ever think we can get enough cuts or growth to start paying our way to pay back £2.8 trillion pounds? It’s never going to be enough on our economy that still can’t pay for our needs. And we are told to get growth we need “investment”. Well again, those who have money to invest (still the rich) want their investment back and profit! So the rich want to get richer. It’s not rocket science, yet all gone before refuse to accept that fact. They seem to freeze at the thought of allowing very few people hold most of our money for great lengths of time in the main, because probably they all want to be one of those few but, in reality it is totally undemocratic. The system is skewed to allow the rich to hang onto money that as a result triggers NO tax! NONE!!! The rich avoid income tax by doing it abroad (loopholes) and clever accounting and while they hang onto it pay no tax whilst it is unspent and unused. Except it’s used to loan our own money back to us (bonds) and as I have already said they want a profit for allowing the government to use its own bloody money! Now that’s a shortened version but it’s all true. Now that’s look at what the government are doing, they tax everything and still it’s insufficient tax take….but do they? They don’t tax the rich. There is no tax triggered by holding on to money. And they can hold it for centuries. They don’t pay tax on lending it either and they only pay tax on any profit made and let’s face it that’s tiny (clever accountants). So it’s a gravy train for the rich. As when we/they allow our Government who are meant to rule for the benefit of the majority not the minority, after all it’s a democracy, maintain rules and regulations to allow this type of enrichment when they can actually change those rules regulations and laws to make it, the system,do different. But do they? No! They are clueless and ignorant to what they can do and they have no accusing to see how. All they can do is scratch their heads, think it’s like a household budget, and see not enough tax income is being collected, so all they can think of is cut the benefits of the disabled (who don’t get enough anyway) or the pensioners (who don’t get enough anyway) or the unemployed or the unemployable! (Who also don’t get enough either). And borrow the rest we need or leave us undefended or left more unwell because we have more pen pushers than nurses doctors or surgeons needed to keep those off the employment list! Honestly Len it’s laughable that we allow it but I’m incandescent with rage that the best minds in this world can’t see the problem or the answer! The problem begins and starts either way money! And the answer begins and starts with money. And the government must start understanding their own tax system as Starmer and Reeves as well as all gone before still don’t get it either! So here comes the lesson!…. Income tax and NI is NOT paid by employees! It’s paid by employers! It’s a trick of smoke and mirrors by the snake oil salesman we have had. It is calculated on workers wages but, it is paid by employers. So workers only pay Bat and Duty like all non workers! This wedge we have between the holy than thou deluded who finger point and shout ‘we the taxpayer’ are in fact not any different to those non workers in benefits. They all pay the same taxes and all probably spend all their money each month so contribute as much tax as they can with the income they get. We hope workers get paid more than those non working, for that reason, but that’s not a given either! Some workers get less than benefits recipients despite a living or minimum wage. That is unfair and undemocratic so that needs putting right. Workers must get a good wage as benefits must be sufficient. Doctors should be the arbiters of ill health not politicians. Getting involved spends more money than agreeing to pay for their care. So now we have established that workers and non workers pay the same taxes, let’s see how tax is triggered. Well tax is triggered by spending as I said earlier. Spending by an employer on employees or spending by living and paying for our needs. Most tax is collected by vat and Duty. It outperforms income tax. So if tax is triggered by spending, then spending money is good for everyone but specifically tax. By spending, tax is triggered and collected. Without spending no tax is triggered or collected. So Tyne the answer we need to spend more? YES!!!! We all need to spend more. But I suggest every penny must be spent each month by everyone. As that makes the optimum tax take. At present the poor, the disabled, and OAPs etc all spend all their money anyway or at least the most. So no change here. No it’s the rich or all those who don’t spend all their money each month, they are the ones who need to spend. By making all money move and rotate the money triggers tax time and time again as it moves through our economy. Tax taken directly by government without making it spent through our economy means only one single tax amount is taken. But when it is spent vat and duty is passed on time and time again triggering many more tax bills along its way! So there we have the problem too much money is held unspent, idle, and unused by the masses for
Triggering tax take. So, we have an enormous dam holding back tax income from the exchequer. That’s the problem! Di what’s the answer. Well obviously the government need a spending policy! Enforcing the money to be passed on and on and on, perpetually and autonomously. We can now, as we have digital money!…Who needs cash! We all do is just answer! But not in reddies! In digital form only, make spending a joy snd happiness ensues.