It appears to me that the current Government has created a nanny state like no other in living history. I estimate that at least 90 per cent of the population receives some form of benefit or income from the Government. Let me list some of the ways in which people benefit.
– State pensions.
– Public sector pensions.
– Public sector employment. l Tax credits.
– Child benefit.
It seems to me that much social security expenditure is poorly targeted and wasted. Take child benefit, for example. According to the Office For National Statistics, the number of children aged 20 and under in 2001 was 14.8 million. Just how many parents really need child benefit? How many actually spend it on their children?
Even fabulously rich people like Prince Charles are entitled to claim it although I doubt he ever did.
The tax credit system is a shambles, with thousands of parents being paid too much but being allowed to keep the overpayment because they cannot afford to pay it back. Again, how many of these parents really and truly need the benefit?
As for state and public sectors pensions, this truly is a disaster waiting to happen. With the dependency ratio in the UK forecast to grow from three people employed to every one retired person now, to one person employed for for every one retired person in 2050, these pensions will be unaffordable in the next 30 years or so unless something changes very dramatically. The problem is they are totally unfunded. It is current taxpayers who pay current retired people their pensions. There is no actual money in the pot. It is purely a Government promise.
As for public sector employment, that has risen under New Labour from 21 per cent of the workforce to 25 per cent. This is arguably a good thing for the unemployment statistics but it is another disaster waiting to happen for the economy. Let me explain why.
We are now competing in a global economy with emerging economies, especially the Bric ones, which do not have the burden of a bloated and expensive welfare state system and horrendous red tape. These economies have many advantages over the UK and I do not just mean cheaper labour. Unemployment is rising in the real economy of the UK – the private sector – but falling in the dream world of the public sector.
It is my contention that it is unhealthy for an economy to shift resources from the competitive private sector into the uncompetitive public sector because it stifles growth and ultimately makes the economy uncompetitive.
Such uncompetitiveness is exacerbated by membership of the EU which creates further red tape, onerous legislation and will lead to more protectionist policies.
You have only to look at the examples of the Soviet Union and China in the 20th Century to see that socialist policies do not work. The Soviet empire broke up and former communist states have welcomed democracy and free enterprise. OK, China is officially still communist but free enterprise has been largely welcomed in recent years and the old communist ways of doing things are disappearing fast. There are a number of elements of Chinese society today which are becoming more Western than the UK, such as private education, private healthcare and free enterprise.
Countries and continents which have suffered extreme hardship, poverty, economic malaise and corruption are beginning to emerge and their wealth is increasing due to expansion of free trade with the rest of the world.
I look forward to the day when poverty and famine in continents such as Africa become largely a thing of the past. This will only happen once free trade opens up with the rest of the world, as in the Bric economies.
I believe the Government wants a dependency culture because it is the best way it can get itself re-elected for the moment. In the longer term, I think it will be a disaster for the UK unless something very radical is done to prevent it.
Tony Byrne is financial planning director at Wealth And Tax Management.