The Dishonourable Sword: Workers’ Welfare as Covert Industrial Subvention.

The Dishonourable Sword: Workers’ Welfare as Covert Industrial Subvention.

The United Kingdom probably has the largest and most complex welfare system ever known. Much of its workings are the standard stuff of modern economics – the pretence that everyone should be in education, paid employment or retirement, i.e. full employment, continues as usual. This in defiance of the plain fact that for more than half a century standard economic theory has held that a certain level of unemployment is both desirable and necessary as a hedge against inflation. The clear and present threat of loss of employment is the sole available brake on wage demands in those economies such as the UK still locked into the adversarial employment relations model.
The German mitbestimmung, spectacularly successful as it has proved, is of course an effective alternative. Germany’s experience has shown that wages can effectively be limited by mutual agreement based on open books. Workers under mitbestimmung have shown themselves well able to recognise wage thresholds beyond which the success of the enterprise and therefore their jobs cease to be viable. This holds little political appeal in the left-right obsessed minds of British politicians and workers’ advocates, with each side holding the other to be unrestrainedly greedy. This is a pity and a waste, but it is business as usual, neither likely to change nor even particularly interesting, the quotidian folly of a society mired in 19th Century industrial relations philosophy.
I am more interested in the other, possibly larger slice of the welfare bill: payments to the poor in employment. In the mid 1980s New Zealand introduced a purer form of monetarism than that of either Britain or the United States; Thatcher was a fervent admirer of Minister of Finance Roger Douglas under the unfortunate Lange government, who swept away every single vestige of state support to the employed. Not that there were many to start with. The child benefit of around £7.50 per week per child had been around since Michael Savage’s far-reaching welfare reforms in the thirties. I part-funded the purchase of our first house by the common practice of child benefit capitalisation, which gave us 18 years’ worth of child benefit for both of our children – a substantial sum. The only other benefit was the ability for the employed to claim work expenses – study and training, work-related travel beyond the daily commute, clothing allowances, etc, which also went in the late 80s.
So arriving in the UK to see vast sums disbursed in welfare payments to the lower-waged was something of a shock. In my world it is now an absolute given – to go into work is to leave direct welfare behind. Free or subsidised health care is not viewed as welfare, but as a right, derived from the shared value that access to healthcare being dependent on wealth is immoral, an anathema.
So why is it seen as necessary in the UK? On the face of it, you could call it the good old British sense of fair play, simple compassion for the strugglers. But scratch the surface and we see a deeply unpleasant underbelly: a hidden subvention for British industry and agriculture, direct support being under the firm and ungenerous thumb of Brussels.
Suppose the housing benefit, the winter fuel payments, the child tax breaks and all the rest of it were swept away in one fell swoop. What would happen? Housing costs would white ant the rest of the family budget. Then what – imaginable, if unlikely, rent and mortgage default on a huge scale, hundreds of thousands of simultaneous evictions? If that were the only consequence, well, rents would simply have to drop. So what? The consequences of that are not hard to calculate – thousands of highly geared landlords going bankrupt, for a start. A squeeze on the income of thousands of retirees living off investment properties.
But that would not happen, because experience shows that most people will freeze and starve before they give up their home to go – where? If there were any slack in the system, the lowly paid might stand some chance of enduring the shock. But there isn’t any, at least not nearly enough. My son-in-law and his family simply could not survive on their meagre earnings alone. Most people would simply choose unemployment and continuing welfare support. And it would be a valid choice. You can’t hold your job if you can’t afford to get there. You can’t put in a day’s work if you’re constantly hungry. You can’t show up to a retail or office job in shabby old clothes. Of course the first to go would be the Smiths, the Perkins, the Jameses. The Wronskis, the Odungas and Wachikes would hang on longer, the ones who will live six to a room and subsist on rice and beans, a dynamic already observable under the current system. Cue deepening hatreds, the oppressed turning on the oppressed. So often ‘taking our jobs’ really means doing our jobs under conditions we refuse to accept and should not have to accept.
Shutting down workers’ welfare could not be made without declaring the whole plan, being an intention to divert those billions into supporting capacity and advancement in agriculture and industry, into research and development and where necessary direct price support. The British public has become so used to ubiquitous welfare it is likely that, even if the scheme were openly described as a reallocation of resources, the reaction from the street, the pulpit and the leader page would still be to flay the heartlessness of the politicians driving them. The British sense of entitlement to welfare has become endemic. I suspect very few see workers’ welfare for what it really is. From the other side of the fence, the beneficiaries of these hidden subsidies would howl about the unavoidable wage increases which would follow, ignoring or not trusting the intention to replace them in a more open and targeted manner.
It is a fact that, failing that strategy forbidden by treaty, many British products and services would become more expensive than those of their competitors. So we see what this really is all about – international competitiveness. A deeply dishonourable covert subvention that reduces its recipients to the role of part-time beggars on their knees before the armies of bureaucrats employed to administer their welfare. Their day-to-day existence haunted by the spectre of The Cuts. Perfectly honest hard-working workers who deserve decent wages and the respect due to those who thrive by their efforts are often driven to become cheats, sharing with their mates every new wrinkle to work the system, escape deductions, drive up entitlements through falsehood and secrecy. Absolute loss of belief in the political process and the law.
It is a terrible price to pay for staying in Europe and exalting the Holy Grail of free trade. This is the hidden cost of Europe: the humiliation of the British worker.
It is too high.

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It’s the Tax Laws, Stupid!

Yesterday Google admitted that in ten years they had paid £10m in taxes in the UK and collected £12bn. Then they said they had obeyed all the UK tax regulations. The chilling truth is that they probably did. I wonder how many people like myself are shouting at their radios “It’s the tax laws, stupid!” It is not greedy evil capitalists. They have been encouraged by the ethos of modern crony capitalism to do exactly what they have done. By the standards of the market they have not ‘been evil.’

So why are successive governments taking so agonisingly long to change, if indeed there is even a serious intention to do so. I suspect that Europe is the lesser obstacle. Indeed the anti-Europe lobby, growing stronger every day and with good reason, could seize on exactly this fiscal necessity to lever us out of Europe.

The greater reason, one of which we are fearful in so many economic spheres, is the spectre of international competitiveness. The argument goes that if we step too hard on the multinantional’s toes they will simply lose interest, up stakes and quit the market, leaving all those suppliers high and dry.

OK, maybe that wouldn’t cost so much in taxes. But the jobs. And the insult. Cue collective shudder.

So here is a lesson from little New Zealand. In the reform of the health system the labour government of Helen Clark instituted Pharmac, a body whose sole function was to manage the supply of medicines. In order to get the best deal for the New Zealand consumer they started to play hardball with the pharmaceutical companies. Unfortunately they had to show their cojones to be taken seriously, which they did in a couple of instances by refusing to pay the demanded price and refused to fund the cost of the drugs in contention, forcing some patients to settle for a less effective alternative. In effect, they used patients as hostages whom they were clearly prepared to shoot. Ouch!

It worked. The drug companies sat down, furious, squirming, at the table and started to talk. Impressive deals started to flow, to the benefit of sick kiwis. Over the next couple of years one company after another declared in the media that this had gone too far, they couldn’t recover their costs, they would pull out of the country. No big deal, surely – four million customers? Ha! The loss of the NZ account would scarcely register on their global spreadsheet.

To date, how many companies have actually quit the market? One, their product easily replaced by generics (another reason they hate leaving any market). Lesson – never, ever, underestimate the greed of the multinational corporation. Who would have dreamed a tiny handful of customers on the edge of the world could produce so much muscle? I promise you, no corporation will forgo a single penny they can get their lunch-hooks on.

Look at the fines Microsoft paid in Europe. Even when European Court fined Microsoft €561m for ‘accidentally’ leaving the browser choice pop-up out of 15m copies of Windows 7, finely calculated to equal their total share of income from those sales, Microsoft did not consider for a second quitting the European market.

Because it is also not just about the money, but global strategy. The world-dominant brands cannot afford to leave any significant market open to give a competitor the space to grow and become strong. The UK may be smaller, but in the English-speaking world – the rich part – the UK is still hugely influential.

Conclusion: no matter what they threaten, no significant multi-national will quit the UK over tax rates. The implicit threat to quit the UK if the taxes become too fair is a paper tiger. Do it, Jimmy. Do it George.