How to control welfare spending: build houses and raise the minimum wage

There are more progressive ways to control spending than bashing the poor.

From the multiple generations that ‘languish on the dole‘ to the ‘something for nothing culture‘, the Tories have relentlessly pushed the image of a bloated benefits system overwhelmed by droves of lazy or downright fraudulent claimants who refuse to work.

Yet a simple breakdown of welfare spending highlights the problem of distinguishing between people in work and people ‘on benefits’. The working poor, pensioners, landlords and big business all benefit from the welfare state alongside the unemployed.

A breakdown also reveals progressive ways to control spending, such as house-building and raising the minimum wage, that are not based on an ideological, right-wing crusade against the state.

Welfare, including ‘social security benefits’ and tax credits, cost an estimated £209billion in the current financial year, according to the Office of Budget Responsibility. However the amount of attention various benefits receive bears little relation to their real cost:

1)      Jobseekers Allowance: £4.5billion

The amount spent on jobseekers allowance is dwarfed by other benefits. Just 2.2 per cent of overall welfare spending goes on JSA, the only major benefit devoted exclusively to the unemployed.

Rather than encouraging long-term dependency, JSA is far more commonly used briefly but repeatedly, especially now work is more insecure. The spread of zero hour contracts, agencies and temporary work encourages a ‘low pay/no pay cycle‘ in many sectors, forcing the taxpayer to pick up the costs of volatility through the benefits system.

The same people who support a more ‘flexible labour market’ usually criticise welfare spending too, but as jobs become even less stable this relatively inexpensive benefit will become even more important.

2)      Disability Living Allowance: £13.7billion

A welfare system that protects disabled people and insures everyone against future disability is an essential feature of a decent society.

Nevertheless, attitudes to disability benefits are hardening. Most disabled people have experienced aggression or name-calling, or an assumption that they do not work, and an overwhelming 84 per cent attribute this to media reporting of benefit cheats.

Disability fraud is a negligible burden on welfare spending. Roughly £60million is lost through DLA fraud according to DWP estimates, much less than the £300million of underpayments.

Though hard to measure accurately, benefit fraud is not a new issue and has probably fallen since Thatcher’s government parked substantial numbers of people on incapacity benefit to manipulate unemployment figures in the 1980s.

3)      Housing Benefit: £24billion

Instead of doing anything to make rents more affordable, housing benefit subsidises landlords and props up a broken system in one of the most costly and inefficient ways imaginable. Most people receiving housing benefit are out of work, but there is an increasing minority of people claiming who are in work yet still cannot afford to rent at private levels.

Britain faces a housing crisis: only families earning over £52,000 can now afford a two-bedroom house in London, according to Shelter. Besides a range of other benefits, a mass house-building program on the scale of the 1930s would substantially reduce the Housing Benefit bill in the long-term.

4)      Tax Credits: £28.9billion

Tax Credits were one of the most redistributive New Labour policies but implicitly subsidise firms that pay inadequate wages. Large and profitable businesses that refuse to pay fairly represent the real ‘culture of dependency’.

Raising the compulsory minimum wage to the living wage (£7.65 outside of London) could produce a net benefit to the Treasury of £2billion by reducing the cost of working tax credits and generating higher income tax receipts.

Firms should pay a living wage out of basic respect to the people on which their profits rely, but the contribution of a living wage to bringing down welfare spending makes the case for legislation even stronger.

5)      State Pensions: £83billion

State pensions dominate the welfare state even before other benefits such as Pension Credit and free TV licenses are factored in. There are no easy ways to bring down spending in an aging population that lives longer; it is unclear, for example, whether young immigrants can defuse our demographic time bomb.

Yet as a long-term issue without any newsworthy cases of abuse or groups to easily demonise, the cost of the pension bill receives far less attention than other less costly or even negligible features of the welfare state.

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