Daily Mail Welfare Story - Untrue and Dangerously Misleading

If I blogged every time the Daily Mail printed an untruth about people on benefits I wouldn't get away from my laptop very often. But today’s untruth is designed to soften up public opinion for benefit cuts to be announced on Wednesday – and as such it deserves some examination.

The argument from Government which is supported by this erroneous article is that the UK cannot afford the current welfare system and that its costs have spiralled out of control. Affordability is a value judgement – is the benefit of our Welfare system worth the price. The price however is a matter of fact. A useful understanding of the price is can be informed by data and is all too easily misinformed by distortions and untruths.

The key line in the article is “In 1948 spending on benefits accounted for 10.4% of Britain’s total income, against 24.2% this year.” This is under no circumstances true.

National Income is a term that generally refers to the Gross National Product* (GNP). “Benefits” is a difficult term to define but to illustrate I have produced a graph showing both the Office of National Statistics and the Department of Work and Pensions figures at their very largest. They include, in size order, pensions (over half of total spending), sickness and disability, Tax credits (ONS only) income support, unemployment (under 5% of total spending) and various other money transfers. It is a graph of Welfare spending as a proportion of GDP over time from 1979 to 2012/13. These are the numbers I have to hand  – but the point is clear – Welfare spending is a lot less than 24.2%

Graph of Welfare spending as a proportion of GDP data available Data

You may notice something else – that using the very sensible measure of Welfare spending as proportion of GDP welfare spending is still lower than the mid-1990s. Not something you will hear Government spokespeople saying. Indeed the article quotes an increase in 60% of benefits under Labour – I am sure there is a way of defining the terms such that this is true – I am equally certain it is at best a small fraction of the truth.

Other points made in the article are that the state pension has trebled since 1948 and unemployment benefit has doubled. I wouldn’t take the numbers at face value as the make up of the benefits has changed markedly eg. Pension credit, contributory pension, housing benefit, winter fuel allowance and other transfers may or may not be included in the comparison. It is important to realise that neither the state pension nor unemployment benefits have kept pace with the average wage for over 30 years. Recipients of only these basic benefits are in reality a great deal poorer than the 1980s.

Can we afford the current Welfare Budget?

In cash terms and real terms (where the numbers are adjusted for inflation) Welfare expenditure has increased – a great deal. Our personal incomes and national income has also increased a great deal – in recent years faster than the welfare budget.

The question is do we think the old, the sick and the vulnerable (who make up the vast majority of welfare recipients) should share in our increased national wealth? The alternative is that these groups become increasingly disadvantaged relative to the rest of the population. If, as I do, you think these people should not be gradually disadvantaged the comparison of national income to welfare spending is the most important measure to use. In which case we have afforded greater than the current welfare levels in the past and should not accept the argument that we are unable to afford it now.

Link to the data – workbook include graphs of the groups receiving benefits over time, essentially working age families decreasing as a proportion of spending and retired age families increasing.

 

*The term “total income” might mean the UK Govt’s tax take but that doesn't get to 24.2%. My best guess is that the number is derived from the ONS welfare expenditure, which is the largest measure available, and projected to be 24.17% of the Total Govt's managed expenditure in 2013/14 - nothing like "Britians Total Income".

Welfare Spending Cuts – IMF data undermines the case

Welfare Spending Cuts – IMF data undermines the case

Christine Lagarde Director of IMF

This month the IMF has published its latest report into the world economy -  the  IMF World Economic Outlook . News stories talked of the report’s lowering of UK growth predictions, but much more importantly the IMF report contains a finding that undermines one of the central assumptions of UK’s economic policy. It provides substantial evidence that Government spending cuts do much more damage to the economy than had previously been thought

.

When the Government cuts its spending everyone agrees that the UK’s economic output (GDP) will be reduced – the question is by how much. The Government has underlying its policy and predictions the assumption that for every £10 of spending cuts only £5 will be lost to GDP. What the IMF report says is that for every £10 of spending cuts somewhere between £9 and £17 of economic output is be lost. In the jargon the fiscal multiplier is not 0.5 as previously thought but varies between 0.9 and 1.7.

The implications for economic policy are huge. Many counties, the UK included, are reducing their levels of borrowing by rapidly cutting government expenditure. Slow economic growth reduces government income and reduces the government’s ability to service its debts. So borrowing less can make a nation worse off if it hurts economic growth too much. If the effect of spending cuts is 2 to 3 times more than anticipated then policy needs revised - and quickly.

As can be expected a number of people have challenged the data, and it will take time to reach a new broadly accepted position on the effects of cuts. What is fascinating is the extraordinarily poor evidence base for the previous consensus and the numbers that underlie the Government’s current forecasting. Moreover the Government numbers for economic multipliers are based on the data of the past 30 years unaltered since the economic crisis. It is not surprising that the current climate has changed the effects of government spending dramatically. What is surprising is that many economists and politicians are unwilling to even contemplate the possibility that the facts are changing – even in the face of the new IMF data.

The driving force behind huge swathes of the austerity policies which are causing pain to the poorest all round the world  appears not to be strong evidence but worryingly inflexible ideology. As someone who in my previous career designed new vaccines it shocks me that the level of evidence necessary to test a new medicine on ten volunteers appears to be several orders of magnitude greater than the level of evidence required to impose a potentially catastrophic economic policy on billions.

Welfare spending makes economic sense.

Economic case for further £10Bn of Welfare Cuts undermined

The economic multiplier story has a further twist as everyone acknowledges that different types of government spending have different economic effects. If the money government spends goes to a person or company that in turn spends the cash quickly, then this will have a good economic effect (or high fiscal multiplier). If the money is put into savings or spent abroad, this is economically inefficient government spending (with a low fiscal multiplier).

Poor people have no choice but to spend their money quickly. Poor people have no choice but to spend their money in the UK. For this and a number of other reasons welfare is an economically efficient way to spend government money. Moody’s, a stalwart of the US financial establishment as well as the world’s largest credit ratings agency, in a US study estimated that for each $1 spend on welfare the economy $1.73 of economic growth was generated. The study was performed in 2008, pre-crisis, and all indications are that performed today, the benefit of increasing welfare spend would be considerably more. They also noted that the methods of stimulating the economy preferred by the UK Government – tax breaks to business and people higher up the income spectrum - were much less effective at generating growth, with $1 of government money adding only $0.34 to $0.50 to the economy, largely because the money is not spent by the recipients quickly.

The Effects of Further Welfare Cuts.

You can forget the maths and the jargon if you want but the implications of the data should be remembered. The Churches have argued that hurting the poorest most in public spending changes is morally wrong as well as being socially divisive. The IMF and others have now produced strong evidence that hurting the poorest is also economically damaging.

It is now difficult to find any evidence for the view that the £10Bn of further welfare cuts as announced last week would be either morally, socially or economically wise. Let us hope the evidence reaches the policymakers before further harm is done to the most vulnerable communities in this country.

Welfare Reform Bill - You Can Act!

Tomorrow the Welfare Reform Bill will be debated and voted on in the House of Commons. The Government are seeking to overturn the amendments passed in the Lords. As I write another amendment protecting disabled children has just been passed in the Lords against the Government's will.

The principle that all who play by the rules should receive enough to meet their basic needs has been at the heart of the welfare system for 65 years; if the benefit cap becomes law that principle will be destroyed. Only families whose basic needs are less than £26,000 will be safe. The rare and extremely vulnerable families who have greater needs will be left behind

The principle is wrong and the best predictions are that the effects will be equally wrong.The government’s proposed benefit cap will hit many of the most vulnerable people in society. It will affect 220,000 children (75% of those affected) and 14,740 families where Employment and Support Allowance (a disability benefit) is the main household income. It threatens to make over 80,000 children homeless and will push 133,000 children into poverty or further into poverty.

 

The Bishops amendment, carried in the House of Lords removes Child Benefit from the calculation. The effect would be to remove most of the families with children from the cap. The amendment was supported by children's charities, churches, faith groups , no-faith groups and many others because injustice of impoverishing children because of an arbitrary limit is obvious and painful.

The Methodist, Baptist, Quaker, and United Reformed Churches jointly wrote to every MP, explaining their objection to the principle of the Benefit Cap and urging them not to overturn the Bishop's amendment in tomorrows debate.

If you wish to contact your MP to express your concerns about the Welfare Reform Bill press the Church Action on Poverty button below. The emailer link will ask for your email address (for replies) and  your street address (to find your MP). It will then offer you a draft email which you can edit or accept as is before sending it to your MP with one more click.

Click to Email Your MP

Useful Links:

• The idea of a benefit cap is initially appealing to some. Many within churches - even former Archbishops - have supported it. 
• Go here for a simple explanation of why the Churches have said that the principle of a Cap is flawed:
• Today's Press statement of the Baptist, Methodist, Quaker and United Reformed Churches is here:
• You can read the letter that was sent to MPs here.