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Yves here. This question of the viability of the welfare state hit the headlines in the UK via a former Tory MP asserting that the UK will not be able to afford it in 20 years time. Richard Murphy below explains how that is false, even assuming a no-economic-groaf scenario. However, the weee problem is rentiers expect their capital to grow, which translates into an increasing level of skim. So what could transpire and what is likely to happen are in two different universes.
By Richard Murphy, part-time Professor of Accounting Practice at Sheffield University Management School, director of the Corporate Accountability Network, member of Finance for the Future LLP, and director of Tax Research LLP. Originally published at Fund the Future
Summary
In today’s video, I critique Steve Baker’s claim that the UK will be unable to afford the welfare state in twenty years time. I argue that this assumption disregards economic growth, migration, and demographic changes that may actually support the welfare system. I also refute Baker’s suggestion that the claims of the wealthy will dominate demands on the state’s resources. Instead I suggest that a balanced society can be maintained. Baker’s claim about the welfare state’s sustainability are unfounded, but what is importance is that misleading narratives be tackled, head on.
In this morning’s video I note that Steve Baker – until recently a Tory MP – has claimed that in twenty years’ time – when we will be celebrating the centenary of the welfare state – we will no longer be able to afford it. Is he right, or talking a load of nonsense, as usual?
The audio version is here:
This is the transcript:
Can we afford the welfare state?
I ask the question because I watched a television interview recently where Steve Baker, who was until recently a Tory MP, asked that very question. And he claimed that in about 20 years time, or on about the centenary of the creation of the welfare state, we would no longer be able to afford it.
I thought about what he had said, and it didn’t make sense to me. So, I just want to discuss this question of do we think we will be unable to afford the welfare state in future when we apparently will have been able to do so for a century by the time he predicts that we’ll have to give it up?
What are his assumptions? Well, the first one is, and it must be, about the rate of growth between now and 20 years’ time. He didn’t specify that assumption, but there are three options that he could choose.
One would be that the economy will grow. In other words, we will be richer as a country than we are now. And we are already, let’s be clear about this, a rich country.
Or, we might be at the same level of income as we have now. Which would still leave us as a rich country.
Or we might see our income decline, but there’s no evidence-based upon past precedent that that is likely at present. And I don’t think it very likely, whatever challenges we face, because although we need to go through a green transition I actually believe that could generate more economic activity, not less.
So, let me take the neutral version of those assumptions and presume that we are no richer in 20 years’ time than we are now, but we’re also no poorer.
What will change, then, between now and 20 years’ time, which then gives him the right to claim that we couldn’t afford a welfare state?
Well, the obvious fact is that I will look a lot older than I do now. And I won’t be alone. So will you. But actually, as a proportion of the population, more people will look old than they do at present. Because we do have, presuming no change, as a result of migration, an ageing UK population. And the ratio of people at work to those who are dependent will change and therefore, each person at work will be required to supposedly support more dependent people.
Will that be possible, is therefore one of the assumptions that Steve Baker must have asked himself to come to this claim that we can’t afford a welfare state. He’s obviously concluded that presuming that we have the same amount of income we will not be able to allocate as much to those who are dependent than we will to those who are at work and therefore those people at work will either not be able to, or will not be willing to, support those who are dependent.
But, note that I’ve assumed that the overall income of the country is stable. If there are fewer people working to create that stable income, they will all be better off if they don’t reallocate any of the excess income that they now earn because there are fewer of them to those who are dependent on them. So, he’s basically saying we won’t be able to afford a welfare state because people will not be willing to support the elderly.
It’s an interesting idea. Maybe Steve thinks that’s the way in which charity will work. Or rather, it’ll all be down to us looking after our own elderly relatives. And tough, if you have nobody who wants to do so. I don’t know what his assumption was, but I don’t see why he thinks this stable state with fewer working people should reward those in work more but leave those who are dependents in poverty.
There’s another assumption that Steve made I think and again, he didn’t specify any of these things, so I’m trying to work out the basis of his claim that the state will not be able to act as the intermediary in this transaction of taking more money off people who are at work and paying it to those who are dependents because it will have other claims on its income.
What is that other claim? I am quite sure, on the basis of what he said that he thinks that other claim will be the payment of interest on government borrowing, which he thinks is out of control. So in other words, what he’s saying is, bad luck those who need to be supported by the state, the wealthy need the money. That is the assumption he’s making. The state will have to pay so much out to the owners of government debt, which he thinks will rise disproportionately, with a consequent increase in the interest rate payable and therefore the cost payable to them, that there will be nothing left over to provide for people who need support from society.
In other words, he’s saying that in 20 years’ time, our society will be so unequal that the wealthy will claim everything and there will be nothing over to support those who are living in poverty.
Is that a reasonable assumption?
Is that the way it’s going?
Would we be able to do anything to stop that happening?
Look, of course we could. Steve Baker’s assumption is quite absurd.
First of all, there are likely to be significant changes to the structure of our society over the next few years. We are seeing significant inward migration to the UK at present. And actually, we should be celebrating that fact.
Why? Because the people who are coming in tend to be young, tend to be well educated, tend to be highly motivated, tend to be innovative, and even entrepreneurial. They want to join our workforce. That’s why they want to come here, by and large, to provide a better way of life for themselves and, in particular, for their families.
And they are going to become the people who will supplement the workforce to ensure that there will be sufficient people to look after the people who are in old age. I have little doubt that this trend will continue. Firstly because, unfortunately, we’re unable to stop wars around the world, it seems, right now. And secondly, because climate change is going to force more people into refugee status, because there will be large parts of the world, some even in southern Europe, where it will become very difficult for people to live. They will therefore be looking for somewhere else to go and we are one of the potential destinations.
Our advantage, their cost, their requirement to relocate, but our gain because we will have the people we need to rebalance the effective economy we have, which requires there to be sufficient people at work to support those who are dependent.
Then, let’s look at the other assumptions. Will we allow debt to rise so heavily? No, of course we won’t. Why won’t we? Because there’s no need to, in the sense that if that becomes a part of life, we will simply do what Japan has done and have the government repurchase large parts of the debt that is in existence through a quantitative easing process to ensure that the government is keeping the amount of debt that is in private hands under control to the amount that can be afforded as a safe deposit facility, which is what the national debt is in any case.
As a consequence, it will be able to control the interest rate, and if only it took control of the Bank of England, it would have absolute control of that interest rate at the same time.
As to the payments due on quantitative easing, it can cancel those in net terms. It’s paying itself, therefore this idea that debt will run out of control is another, let’s be blunt about this, stupid idea put forward by Steve Baker.
Is it therefore possible that his claim that as a rich society we won’t be able to support our elderly and other dependents is correct?
No, he’s talking absolute nonsense.
What he’s saying is that his assumptions of a stable society with no population growth and an increasing income for those at work plus an increasing reward for those with wealth will produce this outcome.
All of those assumptions that he’s making are wrong. And therefore, his conclusions are wrong.
And therefore, do we need to worry that we’re not going to be able to afford our welfare state? No.
We can afford it.
We will afford it.
There will be an old age pension.
There will be support for those who need it.
There will be a state, and it will provide services, including education and the NHS and everything else, but only if we stop people like Steve Baker from talking nonsense and being in government.
24 comments
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Baker has no background in Economics or Welfare to opine as he does. The fact is the welfare state is the foundation of economic stability by managing the life-cycle to balance Consumption in the economy.
As James Goldsmith noted in his 1986 book The Trap it is not compatible with open borders or free access to exports from low-cost countries and needs a vibrant industrial sector.
The current regime in London is softening up the public for privatisation of NHS to Wes Streeting‘s funders. Insurers have spent a fortune to push for private health insurance which simply raises costs but does not create great health outcomes or equity.
Irish Republic does not have an NHS but N Ireland does. South Korea has no welfare state but a very high suicide rate. No one advocating absence of a welfare state imagines themselves as a loser through chance circumstances dependent on charity – all imagine themselves as healthy and winners. The expression „temporarily able-bodied“ is one most people need to take to heart since it describes their lives
A great problem is that the establishment’s duty officer (sir kier), his shiny sidekick (wesley) and his very middling manager martinet (reeves), are in perfect agreement with baker.
This is the triumph of ultra processed politics, the public health crisis sweeping the collective west.
Richard Murphy: In other words, he’s saying that in 20 years’ time, our society will be so unequal that the wealthy will claim everything and there will be nothing over to support those who are living in poverty.
We really haven’t advanced much from feudalism.
When the fact that, forex, the UK’s national debt is now 2.7 trillion gbp is discussed, it can’t be stressed enough that, as Murphy says, (a) it’s the rich on the other side of that debt and (b) the rich are that rich because a corrupt neoliberal system has funneled wealth to them — and away from the rest of the population — for the last 40 years generally and, specifically, from 2008 through to today that funneling accelerated under the guise of QE and COVID payments.
From 2008, central banks worldwide implemented QE by purchasing large quantities of financial assets, which drove up asset prices, disproportionately benefiting those owning significant amounts of stocks, bonds, and real estate. During the COVID-19 pandemic, additional relief measures included direct payments and business support, so the wealth of billionaires increased by over $5 trillion globally from March 2020 to March 2021 alone.
Ridiculous system.
“…but only if we stop people like Steve Baker from talking nonsense and being in government.”
There is the nub of the problem. Control over the levers of power in the society. I’ll posit that the Rentier class is working on the theory that “Money Equals Power.” Here, we can apply the old-fashioned definition of “power;” the ability to accomplish work. This brings up the problem of just what the Rentier Class is “accomplishing” with all of their “power.” From what I see, ‘they’ are accomplishing financial goals, but very little in the way of Social Good, as in socially productive ‘goods and services.’
I have generally worked on the assumption that taxes are tools for social engineering. To this end, relinquishing control of tax receipts, which is what lowering tax rates and government directed subsidies works out to, is a form of anti-social engineering.
All the above said, what the West desperately needs to do is to revive true Left political movements. It sounds easy, but as the Kentucky politician Mr. Linderman remarked in a comment the other day, the development of feasible methods of political ‘participation’ for “ordinary” people is key to the functioning of a viable democracy. Since any ‘true’ democracy is antithetical to the wealth and status of the Rentier class, it is suppressed.
As Prof. Hudson has shown, the theory of the Jubilee has been applied to pre-capitalist societies for millennia as a sort of “reset” function. When such functions fail, the other “reset” function comes into play, Revolution.
Stay safe.
I think it’s quite simple. Society as a whole produces some amount of goods and services, and the question then is how to divide these. Interestingly while people like Baker predict shortages of people and everything, they don’t seem to think it will affect their preferred policies. Like war, for example. If there is enough young people to send them to fight (proxy or direct) wars with Russia and China in decades to come, then there will be enough people to maintain welfare state. Just employ these people to make crutches instead of tanks. So wake me up when Mr. Baker says we can’t afford to maintain the rules based international order, or whatever they call the West Imperium these days.
Also their preferred remedies, i.e. just cutting the welfare state, don’t make much sense. It’s like predicting widespread crop failures and starvation in twenty years and then proposing to confiscate all food now, so the common people can adjust to the reality of not having any food in advance.
The ‘cost’ of a welfare system is the administrative cost of running a welfare system and (arguably) indirect costs involved in shifting resources from the most to the least productive.
Otherwise, its simply a redistributive mechanism, like taxation or other forms of government expenditure, or indirect methods of redistribution such as land/intellectual property rights, regulation, capital investment. Even leaving MMT arguments to one side, any society, no matter how poor, can ‘afford’ to redistribute its existing resources in whatever way it chooses.
True, even economically-blockaded Cuba has better average health outcomes than many other wealthy countries, including the US.
But Cubans choose to do that. My ‘choice’ is to pay for a Medigap plan to cover catastrophic medical bills that Medicare doesn’t. And wait six months for unanticipated primary care appointents.
Yeah, in the US, we get to pay twice: FICA payments during our working life, then pay for extra “insurance”. It’s a great extortion racket, I must say. The UK has that to look forward to. As noted, the UK is leading up to the full privatisation of the NHS. I can only guess what the real-estate assets alone are worth. There is a killing to be made, and I’m sure there are some drooling in anticipation.
The UK needs another Cromwell moment against the rentier classes.
Yes, but perhaps not the Irish.
Baker is welcome to his “mind forg’d manacles” and the erroneous conclusions they yield. I’m with Keynes who recognized almost a century ago that “anything that we can actually do we can afford.”
So, of course we can “afford” the welfare state — it’s just that “our betters” don’t want it, so they’re determined to ensure that we won’t have it, by any means necessary, including whatever lies they think they can get away with in order to justify their vandalism.
Well, with the increasing climate crisis, which we are already in and which we do not appear likely to mount a sufficient correction for, many of these arguments are going to be overtaken by a very harsh reality. The first we I’ve just employed is everyone, the second is the powerful. The harsh realities will be unevenly distributed but they will become more uniform. The powerful just imagine they can buy their way out of them.
Will the UK in twenty years time be like China was a century ago? How each morning they would send carts around to pick up the dead bodies of poor people who had died on the streets each night? And each city and town will have beggars once more in them? Maybe crime going through the roof as people steal in order not to die of starvation. All that won’t look good on the tourist brochures and unfortunately for Starmer, transportation of the poor is no longer possible-
https://en.wikipedia.org/wiki/Penal_transportation
Good question, or maybe https://www.youtube.com/watch?v=zEmfsmasjVA
I would like to see the issue re-framed from not being able to afford the welfare state to what happened to capitalism that it no longer provides for people like it used to? If we go back to the post-WWII period, economies were averaging real growth of over 4%, national debts were declining, and standards of living were rising. Then the Neoliberals blamed the big government for holding back economies and started winning elections of freeing free enterprise. To get the economy moving they cut taxes for the wealthy, reduced services, erased regulations, weakened unions and the result has been slower economic growth by half, national debts that have been growing at a rate of two to four times faster than economic growth, greater inequality and more people finding harder to make ends meet. Hello! Neoliberalism has been a failure and more of it is a mistake. Of course, none of the established political parties would go there and that is the main reason people are either dropping out of the political system or moving to fringe parties,
Unfortunately, much (most?) of the post-war growth attributed to capitalism has its roots in colonialism: the economies — principally, I think, the US — that were growing did so because of favorable-to-them arrangements with what were called third-world countries. Who sold their resources and labor on unfavorable terms.
See numerous NC posts, not to mention the sources they cite.
Assume there’s abundant energy. If that’s the case then yes, the welfare state is affordable, heck a lot of other things will be possible as well. This guy though bases all his analyses on the premise that the UK will soon meet an energy wall that is insurmountable. From now on, any economic article that does not take the limits of the natural world into account will be treated as junk economics by yours truly. A good analysis should take multiple scenarios into consideration or at least the energy assumption should be stated.
Yes, we need to recognize that tomorrow may not look like today. In fact, it is imperative that tomorrow does not look like today.
Thank you very much SocalJimObjects.
I have spent all my spare minutes today reading this guys articles and subscribing to his newsletter.
A fantastic and persuasive new resource for me.
One of many I have found here at NC.
Thanks again.
“What crawling villain preaches abstinence & wraps himself
In fat of lambs? No more I follow, no more obedience pay.”
– William Blake, America, A Prophecy
Perfidious Albion, indeed…
The welfare state has been steadily weakened since Thatcher. Under neoliberal ideology, the welfare state is being dismantled not because it cannot be sustained, but because it does not want to be sustained.
If so much money weren’t wasted on non-essentials, and given away to other countries – not to mention the vast sums of money spent on so-called ‘defence’, then the UK would be able to afford the welfare state.
The real question is whether to prioritise the health and wellbeing of the population, or just leave them to struggle on their own!
Sadly, this question has been answered, in the negative, by almost every government since Margaret Thatcher’s.
An article very much related to this topic: https://alexkrainer.substack.com/p/our-values-killing-pensioners-to
European values at work again, kinda like Chinese style socialism …………….