The Chancellor likes to state in advance of his welfare budget cuts that the country accounts for 7% of the world’s welfare spending, has 1% of its population and 4% of its GDP and is therefore unsustainable.
This analysis is not original thinking. In April 2013 Angela Merkel said that Europe had 7% of the world’s population, 25% of its GDP and 50% of its social spending. Her argument was that if the region was to prosper in competition with emerging countries, it cannot continue to be so generous. Mrs Merkel produced charts showing various measures of competitiveness, including graphs of unit labour costs, where Germany’s had barely risen compared to other countries, including the UK. The effect of our productivity deficit - again.
Jonathon Portes is the director of the National Institute of Economic and Social Research who formerly worked for the Treasury (from1987) and was Chief Economist at the Cabinet Office until 2011 – if anybody knows he should. Recently he produced a graph detailing historical welfare spending as a percentage of national income. Since 1983/4 spending on pensions increased from 6 to 7% of GDP, child welfare rose from just under 2% to just over, whilst working age welfare remained at just under 4%. The spikes in working age welfare are caused, not unnaturally, by recessions – like the early1990’s (Black Wednesday) and more recently after the financial crash. No titanic shift of trend here then.
Labour welcomes an increase in the number of people employed (thus reducing the welfare budget) and truly hopes that any cut in working age benefits leads to employers paying higher wages to compensate – as is the Chancellors stated aim. Time will tell.
We agree with Mrs Merkel that it will only be through improving our productivity and competitiveness in a changing world that true sustainability will be achieved – for everything.