The Garrulous Jay – Age Of Entitlement

In a recent article written for Independent Economics, John Nugee argues forcefully that the British welfare state finds itself in an unsustainable position driven by a fundamental shift in expectations.

Over the last forty years there has been a move away from a post-war welfare state that was established to “shield the citizen from the worst vicissitudes of fate”, to one that is seen “increasingly as an entitlement”.

This has led to the emergence of two ‘traps’. First, welfare expenditure that was at one time discretionary is now “locked in by statute and social expectation” and, secondly, political “consent is now structurally aligned against prudence”.

This can be seen in many areas, and perhaps most obviously in the triple-locked State Pension and the universal healthcare principle that underpins the NHS. It is also evident in the recent government climbdowns on the Winter Fuel Payment and benefits cuts.

This leaves politicians fearing for their futures with two options. Either they can max out the credit card and borrow more to fund the ever-rising costs of the welfare bill. Or they can tax more to cover those costs.

Nugee suggests that there will ultimately be one of two outcomes to this unsustainable situation. Either a political leader and party will emerge, and gain popular support, that “does not pretend the UK can afford everything”, or “someone – somewhere – will choose for them”.

The first option – higher borrowing – is more likely to lead to the second outcome, as the bond market rejects an ever-increasing level of public debt. It is for this reason Rachel Reeves has made her commitments on public borrowing, although these have failed to quell frankly ludicrous speculation about an IMF bailout.

The second option – higher taxes – is more likely to lead to the first outcome, as rising taxes lead to lower economic growth and falling political popularity that ultimately results in a hunger for change.

The logic of Nugee’s argument is compelling, but it is also cast in black and white, where I think there may be shades of grey.

The failing here is ultimately one of communication, driven by an absence of political courage, and it is this that has led to misplaced expectations.

The UK finds itself in the ‘worst of both worlds’, with a struggling welfare system and a perception of high taxation, because the choices have not been clearly spelt out.

Tax as a percentage of GDP is higher in some countries because their populations accept this as being a cost worth paying for their welfare system. It is lower in others, again because this is seen as being the ‘right balance’, between state support and individual self-sufficiency.

Politicians of all persuasions would do well not to underestimate the electorate when it comes to spelling out hard truths and if need be taking difficult decisions.

I fear, however, that the November Budget will continue the trend for recent UK governments of both left and right to muddle on, raising taxes and thereby perpetuating the unsustainable sense of entitlement.