Social Welfare Misfeasance
Income tax, National Insurance contributions and VAT are easily the largest sources of revenue for the government, together accounting for almost two-thirds of total tax revenue. The following two charts show government expenditure distribution as a percentage and the corresponding expenditure amount in £billion for 2013, with any budget deficit being met by increased borrowing .
National Insurance Contributions (NIC) paid and benefits received bear little relation to each other for any individual contributor, and the link has weakened over time. Some contributions are allocated to the National Health Service (NHS); the remainder are paid into the National Insurance Fund. The NI Fund is notionally used to finance contributory benefits, but in years when the Fund was not sufficient to finance benefits, it was topped up from general taxation revenues, and in years when contributions substantially exceed outlays (as they have every year since the mid-1990s), the Fund builds up a surplus, largely invested in gilts: the government is simply lending itself money. [A Survey of the UK Tax System – IFS 2012 (pdf)]
Government budgeted expenditure is more complex than is shown in the above charts, which do not show the budget deficit of £108bn. The following chart provides more detail, in which it can be seen that National Insurance Contributions (NICs) for 2013 do not cover the cost of those services you may think NI provides for. The budgeted £107bn NIC is £30bn short of the £137bn needed to fund Health alone, but more than the £104bn allocated to the NHS 2013 budget. The following chart also omits to mention government funded pensions of £138.1bn. Government funded pension funding is complicated, involving NICs and the National Insurance Fund. State pensions and pension benefits are supported by payments made from the £220bn allocated to Social Protection.
Social Protection encompasses the financial assistance and services provided to those in need or at risk of hardship. It is provided by central government, local authorities, private bodies such as voluntary organisations (the ‘third sector’) and individuals. It provides a safety net to protect the vulnerable in society: those who are unable to make provision for a minimum decent standard of living. Social protection policies aim to reduce poverty and wealth gaps through the national minimum wage, means-tested benefits, payments such as working tax credits to low earners and assistance with child care. Assistance is provided through direct measures such as benefits payments, tax credits or pensions, payments in kind such as free prescriptions, and the provision of services such as local authority (LA) home-care help. Unpaid care, often provided by family and neighbours, also plays an important part. [Social Protection – ONS (pdf)]
Government funded social welfare that includes the expenditure of £31bn on Personal Social Services, £137bn on Health, £220bn on Social Protection, amounts to £388bn, or 54% of the budgeted £720bn expenditure for 2013. Clearly the 2013 NI contributions of £107bn are not sufficient to fund the expenditure on Personal Social Services, Health, Social Protection, and any other government funded welfare initiative. Budget deficits in this government funded social welfare, must be be met by other fiscal income sources (including borrowing).
Describing the United States Social Security programme (government funded social welfare) as The Most Successful Ponzi Scheme in History, is apposite to any government that attempts to fund unfettered Social Security, Social Protection, Health, etc. Such funding, without corresponding economic growth, inevitably places a fiscal burden on future generations.
Today is already the tomorrow which the bad economist yesterday urged us to ignore. The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy. [Economics in One lesson (pdf) – Henry Hazlitt (1946)]
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