That\’s where a quarter of all the money goes

In a report released tonight, the Organisation for Economic Cooperation and Development said that the proportion of GDP spent on jobseekers’ allowance, pensions and other “public social spending” stood at 23.8 per cent — the same as it was in 2010. The Paris-based think tank warned that unless action was taken to cut the cost to the state of Britain’s rapidly rising elderly population, the health and pensions systems could collapse.

Jobseekers\’ is of course a small part of that. And with rising lifespans and an ageing of the population pensions are obviously going to loom ever larger.

But it\’s an interesting thought, isn\’t it? How far can this redistribution go?

Very roughly speaking, government currently takes 50% of GDP. Of that, half is spent as above, half is spent on government government things: defence and diversity advisers.

According to the OECD, Britain spends a greater share of its resources on welfare, health and pensions, at 23.8 per cent of GDP, than the average across the 34 world economies in the OECD, which stands at 21.9 per cent.

However, the UK is still outspent by the rest of Europe, which uses an averge of just over a quarter of GDP for welfare, at 25.2 per cent.

We end up with two questions. How much of the total economy should the government appropriate to be distributed as they see fit? Is 50%, for example, too high or not enough? And then, how is that actually spent? The health n\’welfare stuff? Or all the rest of the nonsense that government does? And, if we decide there should be more welfare but no rise in the burden of government, which of the diversity advisers are we going to fire to pay for the pensions?

27 thoughts on “That\’s where a quarter of all the money goes”

  1. So faras I can tell from a ludicrously rapid websearch, the UK spends about half the poportion of GDP on healthcare as the USA does.

    See, I think the problem here isn’t really government (despite my libertarian bias). It’s old people. They cost a fortune. They’re old bangers that are breaking down and cost a fortune to keep on the road, and are less and less useful for practical purposes. So, they consume large amounts of production and produce very little themselves. Hence, healthcare and pensions. If we did the Logan’s Run thing, there would be no pensions and healthcare costs would be minimal- mostly babies and injury and a bit of infectious disease.

    So as we shit to an ever more k-type reproductive strategy (one or two offspring late in life) and find ever more ingenious ways to keep senescent old folk alive, it’s just going to consume an ever larger proportion of production, regardless of whether the public or private sector does the transfer from producers to useless eaters.

    My dad’s in his 80s, and has been retired for 20 years. My great aunt (born, 1906) was in retirement for well over 30 years. A retired person (a) isn’t producing and (b) uses most of the healthcare services. It doesn’t on an aggregate level matter how that transfer of production occurs- savings, private insurance, or public sector. It is still a transfer, and that is the fundamental problem, which libertarian vs. socialist arguments about public vs. private sector don’t address.

  2. In recent times, we managed to run consistently at around the 40% (of GDP) mark, or less, until Brown’s disastrous tenure deliberately and structurally inflated it towards 50%.

    The debate – big versus small government – is obviously crucial. However, when increasing numbers of people are given skin in the game, it’s a harder one to win at the ballot box. The left love this idea that as many people as possible both give and receive from the state, even those that are well off, hence they are less inclined to vote against losing their “treats”. Simple bribery, and it works. It’s the reverse process of Thatcher trying to achieve precisely the opposite, ie more people having a personal stake in their own homes etc.

    btw, your remaining 50% (not welfare) that is spent on “government things, defence and diversity advisers” must also include education. Ie, the big 3 government spenders are welfare (including pensions), health and education.

  3. FWIW, here is a link to a site with a nice pie chart of where the welfare money goes (click on the chart to enlarge).

    For those who can’t be bothered to look, the big three are pensions 52%, child benefit 19%, and housing benefit 11%. That’s 82%. Jobseekers’s is 3% of welfare.

    We can’t do that much about the pensions. Child benefits presumably encourage the production of babies to look after us when we’re old, if only slightly.

    So housing benefit is the one to go for. Build More Houses!!!
    Is there any economic problem in the UK which would not be lessened (I don’t say solved) by building more houses?

  4. ” Jobseekers’s is 3% of welfare.”
    Although of course job seekers get housing benefits so the unemployed get a lot more than 3% of welfare (despite what liars says)

  5. Council tax benefit should be got rid of an all but the cheapest homes – if people can afford it move to a band a home

  6. There is a question of fairness. Many old people through no particular skill of their own have made a lot of unrealised money through their ownership of property. They also benefit from a pension which was certainly not fully funded. Personally I think that there should be a capital gains hit on personal property which would go some way towards addressing this and also make property bubbles less likely.

  7. @Frederick, great idea. So the government should continue to appropriate your money for your pension telling you that it’s for your own good that they do so and then has the temerity to say that you get less pension if you’ve had the good sense, or fortune, or combination of the two to have accumulated some assets during your life, despite the government’s best attempts to ensure you keep as little of your hard-earned as possible?

    Fuck that.

  8. @ Frederick
    You’ve just made it impossible for any homeowner to move unless they’re downsizing or moving to an area of lower housing costs. .As you’ve reduced the supply side of housing without reducing the demand, you’ve just leveraged yourself into a property bubble.

  9. David,

    Unemployed get more than 3% because of housing benefit, (and also child benefit). Agreed. But when they get the kind of job they’re likely to get, most will continue to get housing benefit (hint, people who lose their City jobs don’t qualify for housing benefit). And they’ll also continue to get child benefit. Most housing and child benefit is for working people.

    Is your point that if you become unemployed, you should lose any benefit your are currently receiving? Or that you just don’t like unemployed people? Or what?

    My point, if not clear, is that saving on JSA won’t make much difference to the welfare bill. Might have other benefits, but not that. Of the big three costs, HB looks the one (a) we can do something about without letting granny starve or [insert tear jerking alternative] and (b) that “something” (more houses) has beneficial side effects.

  10. You lower pensions. Make the age higher. It needs to be high enough so that only those unlucky few who live too long get a pension. Everyone else works. And if they cannot, they get disability payments.

  11. ISTM Luke is right about housing benefit, maybe because I independently concluded the same.

    In 2004, economist Kate Barker concluded her review into the UK’s housing. She said we needed to build 250,000 homes every year for 25 years to satisfy demand and avert a housing crisis. In 2007 the government set a target of 240,000 homes to be built per year. This target was not met.

    On average 164k dwellings have been completed each year since 2004, but there has been a steep decline since a 2007 peak of 211k (compare to 2012?s 101k). Private enterprise built the vast majority, with housing associations and local authorities respectively coming second and a very distant third.

  12. @ PF

    “btw, your remaining 50% (not welfare) that is spent on “government things, defence and diversity advisers” must also include education.”

    The education system mainly teaches people how to be diversity advisers, so I think TW had that covered.

  13. Another consideration with all of this – “how much should be spent and how should it be spent” – is that, re “how much”, it might also help to focus away from the areas of delivery. eg “health”, etc, and focus more towards what it is spent on, eg front line delivery, support & back office, cash distributed (re welfare), etc.

    Ie, approach it from a different angle, as we know that the delivery systems themselves are not always the most effective.

    Hence, one shouldn’t necessarily fall into the trap of ring fencing areas of spend simply because that particular function is considered worthwhile.

  14. @ PF

    “Hence, one shouldn’t necessarily fall into the trap of ring fencing areas of spend simply because that particular function is considered worthwhile.”

    Absolutely… but that would require a level of political debate slightly above ‘pathetic’. Good luck with that.

    Let’s suspend rational thought and suppose that the current tory NHS reforms are a genuine attempt to deal with the organisational failings as oppose to another short sighted ministerial ego-driven car crash with a side order of syphoning off a bunch of cash to the various rent-seeking private healthcare providers fortunate enough to have MP’s and their relatives/associates on the board… even so, they’re having to shout about how they’ve rinfenced the budget, and the other lot are shouting about how the budget isn’t ring-fenced in real terms and, so, the poor impoverished NHS is still expected to find a hillariously small amount of ‘savings’.

  15. I think Tim’s OP is troublesome. When government spending as a proportion of GDP is measured it’s normal to eliminate transfers from it. So, when someone says that government is “45% of the economy” or whatever they mean government spending on education, defence, infrastructure, etc, not things like pensions and benefits which aren’t counted.

    Ian B is wrong to doubt that the private sector can help with pensions. A private sector pension is delivered by selling capital that was bought on *international* markets. So, it has little effect on the economy in any particular country. The problem with the state pension system is mostly that it takes from the current tax pot.

  16. Us aged get the stick all the time.
    If females did what they were made for -that is have lots of babies there would be no problem.
    As for knocking us off -just try it you self centred obese slobs.

  17. Current-

    What I was trying to get at is that pensions aren’t a money problem. In this context, money is just a medium of exchange. It’s a problem of producers supporting non-producers, and where the non-producers get the money to purchase the producers’ production- whether by saving, borrowing, printing it, etc- doesn’t actually matter.

    This is partly the problem of us living in a society that tries to model the economy in monetary terms all the time. We think solutions to problems are monetary, and if we can just modify the monetary flow, the problem will be solved. In this sort of case, it might be worth imagining entirely the absence of money, and a barter economy. The old people need an income of goods and services, but provide no goods and services. The more your demographics tip towards these non-producing consumers, the larger the problem is. So in a money economy, it doesn’t actually matter how the pensioner came by the money in their pension; maybe they filled their cellar with gold when they are young and are now trading that for bread. They still aren’t producing any bread themselves.

  18. @bloke in spain

    The CGT would have to be introduced at a lowish rate. If CGT tax was introduced on all property sales at say 10%, it would only reduce the money received by 10% of the capital increase. Even at it’s higher, this will be less than 10% of the house price. For most people it will be 5% or less.

    There is also an issue of fairness. I do not see why I have to pay CGT on stocks and shares when people who buy property use it as a tax free investment.

  19. @Ian B

    But one would expect that the rest of the economy would have benefited from upto 50 years of compounded growth founded upon whatever the pensioners did to earn all that gold piled up in their cellar.

    Providing intervening governments didn’t piss it away on pointless wars, vanity projects, white elephants, weapons systems and so on.

  20. I assume that 23.8% includes the wages & expenses of social workers, job club organisers & I suspect even smoking cessation officers.

    How much of it actually reaches the hands of the poor? 15%? 10%?

    Of course they do actually have to hand over something to the recipients otherwise we might notice.

  21. @ Neil Craig


    At a simple level, one can believe in straightforward redistribution (genuinely needed) without the armies of additional staff thinking that they add value to that process whilst in reality often unproductively doing nothing more than extracting a cut.

    To me this is a key argument in the debate about large versus small government.

  22. Lots of comments forgetting that from 2015 when Richard Murphy gets control of the UK economy, everything that you possess will be the property of the courageous State as you owe what you have to that state – Discussions about the level will be moot as it starts at 100% then the state will give you back what it decides you deserve….

  23. @Ian B

    I agree with you, but only for the *global* case. Throughout the whole world income is controlled by “dependency ratios” as you describe. But, with a private pension system where capital is footloose and free to go where-ever it can earn a return, this certainly isn’t true of any one particular nation.

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