Tag Archives: Cuts

Scroungers and immigrants, a British obsession


In recent times the UK has begun suffering with a what seems to be a social benefits and immigration neurosis. It seems that since 2009 any group seen to be taking from the state undeservedly is now a target. What started as a media fueled obsession has now been set ablaze by the government. Wide ranging reforms have been made to the welfare state and immigration, all due to the fear that someone might be getting something for nothing. However as always the situation is blown up to proportions which scarcely resemble the reality. To show this lets start with the issue of benefits.

Britain’s ‘scroungers’ and the Dependency Culture

Recently the word ‘scrounger’ has been creeping evermore into the media. The Sun for example launched its campaign to ‘Stop the £1.5 billion benefits scroungers‘ whilst the daily mail is never hesitant to remind us that there is a family with 10 kids living nearby claiming your hard earned tax money. Dealing with the general public I hear the complaints day in day out; anyone who diverges from this attitude is also generally targeted as I found out in a recent debate with a customer in my store.  In a joint report by Elizabeth Finncare and the University of Kent, the paper found that attitudes have charged in the last 20 years with more people viewing claimants as undeserving – this is backed up by the British Social Attitudes survey which find that 62% of people believe that unemployment benefits are too high and discourage work. In addition the paper found that the usage of negative vocabulary in media articles, such as the word ‘scrounger’, has increased since the recession.

So what is the reality. Well firstly, as the Prime Minister is all too happy to remind us, we are spending more than ever on welfare. As the graph below, from the guardian, shows the welfare bill has increased in nearly all areas in period 2011-12 compared to 2001-02.

Graph 1. Total Welfare Spending by type


Source: The Guardian

This is a fact a lot of the media would like to cling to. The Sun for instance has taken pleasure in proclaiming ‘benefits have increased 20% in the last 5 years’ whilst the daily mail has cried out that benefit spending has rose by 60% since 1997/98. With such exclamations one could not be forgiven for believing that the increase in spending on welfare is the result of a long term upward trend.

Graph 2


However as the graph above shows, when welfare spending is viewed as a proportion of GDP, the story changes. For instance in the late 1980s and early 1990s the proportion of GDP spent on welfare was over 10%. Since then it has come down to a more manageable level, with a recent increase from 2008 on wards. Why? Well recessions are a underlying cause of unemployment and unemployment means more claimants! So much for the usual George Osborne mantra of a ‘welfare state we cannot afford’.

In addition, when we measure the share of welfare paid out as unemployment benefit (% GDP) we find that the UK ranks the third lowest in Europe at 1.13% – only Italy and Slovakia rank lower.

Even more so, when we look at the rising cost of welfare in nominal terms (see graph 1) we see that it is the rising number of pensioners which has added the most to the welfare bill not the unemployed. But hang on what about all those families who feed off the state with up to 5 or more dependent children? What about Mick Philpott and his 17 children, doesn’t this bring into question the welfare state? Isn’t the welfare state encouraging those receiving benefits to have more children and become ever dependent? The data says otherwise.

In truth this is a very small problem, as the Economist explains in 2011 there were only 130 families with over ten children claiming at least one form of out-of-work benefit. Similarly only 8% of claimants had 3 children or more. The Economist then goes on to declare that current evidence shows that on average unemployed people have similar numbers of children compared to those who are employed – dispelling the myth that benefits encourage large families! In addition to this the Joseph Rowntree foundation has found that benefits do not encourage inter generational claimants.

If more evidence is needed that Britain’s ‘dependency culture’ is overstated, then take a look at a recent study by the government department for work and pensions. In a sample of 32-33 year olds who had claimed job seekers allowance (JSA) in 2010-11, over 40% had not made a claim in the previous four years. Furthermore 63% of the sample had not claimed JSA for a period of more than 6 months in those previous 4 years. This again challenges the common perception that many claimants are ultimately dependent on JSA and are part of a ‘dependency culture’.

Britain and the soft touch myth on immigration

This brings me onto the next issue of immigration and the common perception that most immigrants flock to the UK for its generous welfare system whilst giving nothing in return. In a number of key speeches David Cameron has vowed to crack down on the problem and shed the UK’s image as being a soft touch. But how serious is the problem and what would happen is we cut net immigration to zero (A recent YouGov poll found 64% of UK participants in the study wanted net immigration reduced to 0%).

Firstly it should be noted that economically, a majority of studies agree that immigrants are a benefit to the UK. For instance a recent OECD report found that immigrants make a net contribution equivalent to 1.02% of GDP or £16.3 billion. This is because the majority tend to be of working age and are therefore more economically active.  Moreover the Office of Budget Responsibility (OBR) predicts that if net immigration was reduced to zero, public sector debt would rise by £18 billion in the next five years. Increase this time span to 50 years and by 2062-63 the OBR predicts that net debt to GDP ratio could increase to 174%. To put this in perspective Greece’s current level of national debt is 161% .*

Okay, but what about the benefits these immigrants claim I hear you ask. Isn’t Britain turning into a prime location for welfare tourism? A commonly cited report by the government Department for Work and Pensions (DWP) claims that there are 371,000 immigrants claiming benefits from the state. Chris Grayling, the employment minister, has also used this statistic to highlight the issue of benefit tourism, arguing that the past Labour government opened the doors to such problems. Naturally before the study was properly analysed, the media pounced on the story with papers such as the daily telegraph proclaiming that there are, ‘370,000 migrants on the dole’.

In fact due to the statistical method used, the actual number is closer to half the cited figure*. As the DWP explicitly points out, the study shows;

These statistics do not provide a measure of non-UK nationals currently claiming benefits based on their current nationality. The statistics do provide an estimate of the number of  people currently claiming benefit who, when they first registered for a NINo (that is, first entered the labour market), were non-UK nationals. (pg. 4)

This means that the number includes migrants who may have emigrated to the UK decades ago, worked, subsequently claimed UK citizenship and unfortunately now find themselves claiming benefits. In fact the DWP estimates that 54% of the ‘370,000 migrants on the dole’ are actually UK citizens! Furthermore the report shows that the number of migrants claiming benefits unlawfully or fiddling the system is as low as 2%.  Not quite the wide scale problem that some would like us to believe.

A more useful overview of the situation is provided by economist Jonathan Portes of the National Institute of Economic and Social Research. In his post, Portes uses the data compiled by the DWP and the ONS Labour Force Survey to summarize the extent of migrant claimants in the UK. He shows that:

  • migrants represent about 13% of all workers, but only 7% percent of out-of-work claimants;
  • migrants from outside the European Economic Area (EEA) represent about 9-10% of all workers, but about 5% of out-of-work claimants
  • foreign nationals from outside the EEA represent about 4.5% of all workers, but a little over 2% of out-of-work benefit claimants.

When these claimant figures are compared to those from the native population the story changes. It turns out that migrants are much less likely to claim benefits than us Brits. This again is explicitly highlighted in DWP study which explains;

As at February 2011, 16.6% of working age UK nationals were claiming a DWP working  age benefit compared to 6.6% of working age non-UK nationals.

Yet again this challenges the misconceptions held about immigrants who come to the UK. More importantly, it should be questioned why some of our most read newspapers and senior ministers failed to highlight this.

Two closely linked issues

So what does it all mean then. To me it seems like these two issues are closely interlinked. Morally many individuals never like to see others getting something for nothing. Such feelings may also be at their strongest when nominal wages are stagnant and the cost of living is increasing – the recent YouGov polls are a testament to this. Naturally it is those at the margins who are targeted; in this case those who have lost their jobs or have recently migrated to the UK.

It seems the government has done its utmost to capitalize on this national sense of insecurity. After all reducing the size of the state is a principle goal of the conservative right. Despite this the other main political parties have also pandered to public opinion with Ed Miliband declaring his intention to tackle low skilled immigration. Overall this brings into question the idea of an informed electorate, if people were aware of the true extent of these issues would the opinion be so in favor of targeting those on the margins. Just one example of this can be seen from a revised YouGov poll (Yes I know YouGov again!) which shows when individuals are informed of the benefits of immigration their opposition to it drops. It would be interesting to see if same was true for those claiming unemployment benefits.

*It should be noted however that the OBR research makes some key assumptions. For instance it assumes immigrants tend to arrive at working age and therefore don’t require state funded education in early life. As a result they tend to make a net tax contribution until old age where they may be more inclined to return home. There is also some disagreement on whether the children of such migrants should be classified as natives – read the study for further details.

*The statistics used in the study were compiled by matching data from those who had applied for a National Insurance number with data from individuals currently claiming working age benefits. The study, as the DWP declares, therefore shows;

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Visualizing Income Inequality in the UK


I thought I would share this image as it was the first to really draw my attention to income inequality and the massive wealth disparities in the UK. The image above taken from an article by The Atlantic represents a famous picture of income inequality construed by the Dutch economist Jan Pen. Using data from the UK in 1971, he asked us to visualize a parade of people which would take one hour to pass, however this parade would have two intriguing features. Firstly the people involved would be arranged by their levels of income – the poorest at the front leading to the richest at the back. Secondly the heights of the people in this parade would be directly proportional to what they earn. Pen asserted that the following parade would look rather peculiar. Instead of a steady progression of people with increasing heights during parade, we would observe mostly a continuous line of dwarfs and then unimaginably tall giants at the very end.

The unfortunate part about this story is that since Pen came up with this image the number of dwarfs has increased, whilst the giants have become even larger. Since the data he compiled in 1971, the UK’s level of income inequality has risen considerably. The UK’s gini coefficient, which takes a value between 0 (perfect equality) and 1 (perfect inequality), sat at 0.26 in 1979 whilst the last estimate in 2005 put the score at 0.34 (Data from UNWIDER). When the next inequality figures come out the gini coefficient is surely set to rise whilst the some early reports have suggested that income inequality is now at its highest since the 1930s. Substantial cuts to welfare, rising inflation and tax breaks for the top earners will all further add to this problem and ultimately lead to negative effects both socially and economically.


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Austerity – Time to admit defeat?


So this is my first blog and I thought it would be best to start with a current topic close to home, mainly the issue of austerity in the UK. This policy has mainly be guided by one leading principle of the conservative party – to maintain the UK’s AAA credit rating. Originally stemming from a letter sent to the government in February 2010 by 20 ‘leading’ economists, it was thought that reducing government spending would reassure investors into the UK. In turn this would keep government borrowing rates low and maintain currency stability. Austerity measures generally take two approaches. Firstly they aim to cut spending in areas such as social welfare which may hinder economic growth as it reduces the poor’s incentive to work. Secondly in a more top down approach policies such as cutting corporation tax (http://www.guardian.co.uk/uk/2012/dec/05/george-osborne-welfare-autumn-statement) and removing red tape aim to provide incentives to so called ‘wealth creators’ to invest and create jobs.

The reality of these such measures however have been far from intended. Most notably, the economy has contracted in three of the last four quarters, with the UK facing the prospect of a triple dip recession. Furthermore the UK’s level of national debt as a ratio of GDP has increased from 55.3% in the second quarter of 2010 to 70.7% in December 2012. These indicators alone would seem to suggest that the policy is clearly flawed. Such views are held by prominent economists such as Paul Krugman who points out that the lessons of the past 30 years have clearly not been learnt. Such a policy of austerity to a Keynesian is seen as self deflating, as cutting government spending causes output to fall which in turn reduces tax receipts, whilst spending on benefits increase. Consequently the policy makers are left with rising national debt and a sluggish economy, precisely the situation they were trying to avoid.

The empirical evidence on the effectiveness of austerity measures is also far from compelling. As pointed out by Ha-Joon Chang (http://www.guardian.co.uk/commentisfree/2012/jun/04/austerity-policy-eurozone-crisis) previous adoptions of the policy during the 1994 Mexican Crisis; 1997 Asian Crisis and the Argentine 2002 crisis all led to a further deepening of recession. The policy can further be contrasted to the differing response of the Obama administration who adopted a four year steadily declining fiscal stimulus plan. Over the last last two years the American economy has averaged a growth rate of around 2.1% in comparison to a sluggish 0.9% in the UK. Furthermore America has managed to bring down the size of its budget deficit almost as rapidly as the UK has.

Another point to consider is what would happen if the UK lost its AAA rating. The answer as pointed out in Robert Peston’s article (http://www.bbc.co.uk/news/business-20623626) is probably not much. Peston argues Investors are more concerned with the underlying economic performance of a country rather than a notch up or down on the credit rating. In this sense I have to agree with Peston’s summation of the present problem. It can be argued that the policy of austerity is now guided by political will rather than economic rationality. The evidence is clear and on the verge of a triple dip recession 9 of 20 economists who originally forwarded the policy have now admitted they were wrong in a recent New Statesman Article (http://www.newstatesman.com/blogs/politics/2012/08/exclusive-osbornes-supporters-turn-him).

What I believe we are witnessing is what psychologists like to call escalation of commitment. The prime minister and chancellor have invested so much in this policy that they now find themselves beyond the point of no return. A change of policy would not only risk their reputations but would fuel a torrent of attacks from the opposition which could tip the balance of the next election. This leads me to my final point, if the governments fiscal policy has become entrenched by political rather than economic concerns, and as the conservatives say ‘labour got us into the mess in the first place’ isn’t it time to look at the possibility of a independent fiscal policy? Such a policy however raises many more questions than it answers.

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