The hidden welfare state

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 30y.

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.

http://www.guardian.co.uk/news/datablog/2013/may/13/welfare-fraud-error-universal-credit

The corporate welfare budget arises from four main sources:

Paying little or no tax – Tax havens

Tax breaks

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. 

http://www.guardian.co.uk/uk/2013/may/12/uk-companies-condemned-tax-havens

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.

http://www.michaelmeacher.info/weblog/2013/05/corporate-tax-scams-in-developing-countries-the-next-target/#more-5201

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.

http://scriptonitedaily.wordpress.com/2013/05/12/corporate-giants-arent-wealth-creators-theyre-parasites/

 … 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.

http://www.searchingfinance.com/news-and-views/teresa-pearce-mp-a-living-wage.html?goback=.gde_1211737_member_236208402

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.  

https://think-left.org/2013/05/11/despite-britains-new-thatcherites-only-the-state-sector-has-recovered/

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.

http://www.michaelmeacher.info/weblog/2013/05/osbornes-smack-in-the-face-for-all-benefit-spending-cuts-victims/

 

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. 

https://think-left.org/2013/05/11/despite-britains-new-thatcherites-only-the-state-sector-has-recovered/

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.

http://www.hsj.co.uk/comment/opinion/andrew-lansley-competition-is-critical-for-nhs-reform/5041288.article

I will conclude with the 2011 nef briefing,  ‘Feather-bedding financial services’, which asked, in addition to the unprecedented public support for the financial sector over the past three years, how much are the big banks benefitting from hidden subsidies?  They identified at least three significant hidden subsidies:
  • 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.

http://www.neweconomics.org/press/entry/are-british-banks-getting-billions-in-hidden-subsidies-asks-nef

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.

Are we already in the post-democratic era?

 

Is Ed Davey’s energy bill really turning Blue, Green?

Quote

Open letter to Ed Davey on Draft Energy Bill

Open letter from SGR to Ed Davey, Secretary of State for Energy and Climate Change, on the Draft Energy Bill and wider UK energy policy. The letter makes four main criticisms: insufficient curbs on greenhouse gas emissions of fossil fuel plants; favouritism towards the nuclear industry; inadequate support for the renewable energy industry; and failure to prioritise energy conservation.

First posted on 19 July 2012

Rt. Hon. Edward Davey, Secretary of State
Department for Energy and Climate Change
London

Dear Sir

Open letter on Draft Energy Bill and wider energy policy

We write on behalf of Scientists for Global Responsibility (SGR), a UK organisation with 1000 members drawn from across the science, design and technology professions, and with a concern for peace, social justice and environmental sustainability.

We wish to add our voice to the widespread criticism of the Draft Energy Bill, published in May, and also highlight our broader concerns about current UK energy policy. In summary, our concerns are the following.

• Insufficient curbs on greenhouse gas emissions of fossil fuel plants. We note with considerable disappointment that the Bill has set an Emissions Performance Standard for new electricity generating plant at the unambitious level of 450 g/kWh, and that such power stations would be subject to the level until 2045 (Section 36). We are also very concerned by loose wording regarding exemptions for projects intending to use Carbon Capture and Storage technology (Section 37), which we firmly believe could be used to side-step restrictions for new unabated coal-fired plant. Both these factors are highly likely to undermine attempts to meet carbon reduction targets under the Climate Change Act. As the Committee on Climate Change (CCC) has recently noted,1 such shortcomings could be remedied by including an explicit target for a reduction in carbon intensity in the electricity sector – of no more than 50 g/kWh by 2030. We strongly urge you to insert such a target in the Bill.

• Favouritism towards the nuclear industry. The system of proposed incentives for building new low carbon plant is, in our view, strongly geared towards supporting new nuclear power over renewable energy technologies, and creating ways to side-step the commitment not to subsidise nuclear power. We have numerous concerns about nuclear power, but perhaps the most pertinent to the current situation is the poor progress being made with current new nuclear plant construction in Western countries – specifically, Olkiluoto in Finland and Flamanville in France (both many years behind schedule and massively over-budget) – coupled with spiralling estimates of build costs, more generally.2 Government cost estimates – and indeed those quoted by the CCC – do not seem to reflect such real world experience and we strongly urge the government to reconsider such support mechanisms. The key problem in our view is the current proposal for Feed-in Tariff with Contracts for Difference (FiT-CfDs). While a strong case may be made for support mechanisms for new technologies as they move towards commercialisation, to use such a mechanism for established technologies such as nuclear power seems deeply illogical – as well as being a clear breach of the coalition government’s commitment not to subsidise nuclear power. And for these mechanisms to lock the consumer into supporting such technologies for as much as 25 years (compared with only 15 years for renewable energy projects) is high risk. Coupled with numerous other measures which benefit only the nuclear industry – not least favourable insurance conditions and fixed unit pricing for radioactive waste disposal – this mechanism as currently planned has, in our view, little to justify it. We therefore call on the government to exclude nuclear power from the FiT-CfD system.

 Inadequate support for the renewable energy industry. There is a distinct lack of ambition shown by the government for the expansion of renewable energy in the UK. We have an enormous indigenous resource base – especially wind and marine – and costs are falling rapidly – especially in technologies such as onshore wind and solar photovoltaics. Employment opportunities in these areas are large and growing. The government is aware of all of these factors and yet has responded recently with over-zealous and poorly organised cuts to solar energy tariffs and with such lukewarm support for wind power that Vestas has cancelled its plans for a wind turbine factory in Kent which would have employed nearly 2,000 people. In general, the control framework set up for DECC spending on renewables is too restrictive3 – especially when compared with the generosity shown to the nuclear industry. Given the transitional nature of the financial support needed as these technologies move towards a more competitive position – unlike that for nuclear power – we strongly urge the government to shift its position and provide significantly more financial support to key renewable energy industries.

• Failure to prioritise energy conservation. We have been very disappointed by the government’s proposed Green Deal, which in our view is also unambitious. While improvements have been made recently, it still seems very unlikely to exploit the enormous potential for reducing domestic energy demand in the UK. Indeed, compared with existing energy efficiency schemes, analysis suggests that it will be markedly less effective.4 Two key flaws in our view are a low level for the ECO subsidies, and a lack of timeliness in issuing documentation to allow the businesses expected to deliver the scheme to forward plan. However, we believe that the problems with policy on energy conservation run much deeper. Here we wish to endorse the call from a recent WWF-co-ordinated study5 that argued that energy conservation be put at the heart of UK energy policy, rather than added as an afterthought. Only a fundamental shift of this nature will, in our view, deliver the combined goals of providing energy security, reducing greenhouse gas emissions and tackling fuel poverty.

In summary, we do not understand the government’s position. The development of a low carbon economy offers the UK a real opportunity to create long term jobs through sustainable improvements of households and businesses across the UK. Government support and stronger regulation would drive a strong regeneration of the economy. In our view, there is a powerful argument to use what would amount to a small proportion of the sums for quantitative easing (which currently stand at £375bn) for direct support of a large-scale UK-wide insulation and business premises upgrade programme. Recent studies show that such a programme would pay for itself at commercial interest rates, provided funding of the order of £5-10bn can be secured for major city regions such as Leeds, and that this activity could be scaled up across the UK.6 We are aware that such proposals have been put directly to government by both CCC expert advisors in the economic sphere, and by other senior advisors to government, and we think that this is an opportunity that should be grasped for the benefit of the UK economy, our world standing as a climate change leader and would have support of the public.

Sincerely

Dr Stuart Parkinson, Executive Director
Dr Philip Webber, Chair

Cc:
Rt. Hon. Charles Hendry, Minister of State, Department for Energy and Climate Change
Rt. Hon. Gregory Barker, Minister of State, Department for Energy and Climate Change
References

1. CCC (2012). Meeting the Carbon Budgets: 2012 progress report to parliament. http://theccc.org.uk/reports/2012-progress-report
2. For example:
The Times (2012). May 7. http://www.thetimes.co.uk/tto/business/industries/utilities/article3406852.ece
Toke D (2012). May 5 (updated June 21). http://realfeed-intariffs.blogspot.co.uk/2012/05/edfs-nuclear-plans-are-more-expensive.html 
Toke D (2012). July 16. http://realfeed-intariffs.blogspot.co.uk/2012_07_01_archive.html
3. DECC (2012). Control Framework for DECC levy-funded spending. http://www.decc.gov.uk/assets/decc/11/funding-support/fuel-poverty/3290-control-fwork-decc-levyfunded-spending.pdf
4. For example:
Goodall C (2011). http://www.carboncommentary.com/2012/01/03/2230
5. WWF et al (2012). Securing the UK’s power supplies.http://www.wwf.org.uk/research_centre/research_centre_results.cfm?uNewsID=6074
6. Gouldson et al (2012). The Economics of Low Carbon Cities. University of Leeds.http://www.cccep.ac.uk/Events/Past/2012/April/EconomicsLowCarbonCities-mini-stern-review.pdf

About Scientists for Global Responsibility: 

Unlike the ‘technological optimists’ SGR recognises that science, design and technology are indeed part of the problem; but, unlike those who are indifferent or even hostile to science, SGR also recognises the enormous contributions that science, design and technology make to our civilisation and wellbeing. The new problems, as well as those that have always been with us, such as starvation, drought and illness, require a combination of new scientific, economic and political solutions.

If social justice, care for the other species of this planet, and a concern for future generations have their rightful place as fundamental values, then science, design and technology can be much more part of the solution than part of the problem. Here are just a few programmes that deserve much more science, design and technology funding …

  • the clean, sustainable production of energy, and its efficient use
  • the development and application of biological and medical knowledge to the benefit of all
  • the study of social and economic affairs with the aim of improving the lot of all
  • the development of clean, efficient transport systems, in a social setting which provides needed transport for all but inhibits unnecessary travel and freight-miles
  • the use of information technology to increase energy efficiency, reduce the need for transportation, eliminate unnecessary labour, and promote access for all to humanity’s pool of knowledge
  • the design and construction of energy efficient and zero energy building.