Friday, June 25, 2010

The vast wealth of the poor

For some time now, Timmy has been pointing out that wealth in this country is not measured properly.
That report on wealth inequality. It’s wrong. For everyone has a large asset: it’s called the welfare state.

In April, he posted a long and detailed article at the Adam Smith Institute blog, laying out the issues and attempting to calculate just how much the Welfare State is worth.
The Hills Report states that the wealth gap between the 10th and 90th percentile is of the order of 1:100. It says that the average 10th percentile household has assets of £8,800 and the 90th £853,000. But it is only possible to reach this conclusion by ignoring all of the things that we already do to redistribute wealth.

Just as we do with income inequality, we should measure wealth inequality after the influence of the tax and benefit systems. The benefit system provides a number of income streams to the poor and we can calculate their net present value by treating them as an annuity.

Combining the value of just the NHS and the state old age pension every individual has wealth of over £100,000. This must of course be added to the wealth of both poor and rich but it brings the 90:10 wealth ratio down to 10:1.

Looking purely at the income support available to an average 10th percentile household the value of their annual receipts from the welfare state is some quarter of a million pounds when capitalized. This lowers that 90:10 wealth gap to somewhere under 5:1.

In order to illustrate this point, Jenny Jones (some utter muppet at the Grauniad) has decided to excoriate George Osborne for not being a Socialist shitbag like the author capping the amount of money that will be paid out in Housing Benefit to a still-massively-generous £280 per week for a flat and £400 per week for a house. Yes, that's per week, not per month.
The caps on the amount a household can claim in housing benefit will be set at between £280 and £400 a week, or up to £20,800 a year. The chancellor claims this is only fair, and that the current benefits are excessive.

In central London, the Local Housing Allowance gives families in four bedroom homes up to £1,000 per week to pay their rent. So families in Westminster and parts of boroughs such as Camden could be worse off by up to £600 per week, or £31,200 per year. Families in Camden in the inner north London sub-region can currently get up to £575pw, and in cheaper inner east areas, such as Southwark and Lambeth, families can get up to £430pw.

So, just to clarify, the state is paying out up to £52,000 per year for some people to live in areas that those paying tax couldn't even dream of living in. And, after the cap, these families could be worse off by rather more than I get paid.

My heart bleeds.

I think that CiF Commenter Mr Joe summarises the situation very succinctly indeed.
To sum up, some people are effectively being given a pre-tax income of £77,000 for doing nothing, and people far poorer than that are paying for it through taxation. The chancellor claims this is unfair and you disagree. Right.

The situation is made even clearer by a Times article (behind the paywall):
Finally the figures are being exposed. Spending on welfare has risen by 40 per cent in real terms over 10 years of unprecedented economic growth. In that time the number of people claiming disability benefit has trebled and housing benefit doubled. This week, the loudest voices are warning that Mr Osborne’s cap on housing benefit could be devastating, especially in London, where rents are high. But do not underestimate the effect on the silent majority of the news that we spend £21 billion on housing benefit — more than on the police.

The Times reported yesterday that parents may face “eviction” from council houses when their children leave home under new “draconian” laws. But local authorities have queues of families waiting for houses because retired couples refuse to move. People who are scraping together their own rent wonder why anyone feels that they have a lifetime “right” to a council house. Ordinary people regularly make distinctions, not always correctly, between the “deserving” and the “undeserving” poor. Politicians cannot continue to treat these views with contempt.


As Timmy points out today, the fact that these vast iniquities are being pointed out can only be a good thing.
Limiting housing benefit to only £400 a week, to only £20,800 a year, might mean that some poor families cannot live in central London. Oh Woes!

Then look at what the people who have to pay for this are saying: You What? They get more in rent than I earn in a year? And yet I have to pay tax for them?

Why can’t they just move 5 miles east? Why can’t they live in the suburbs, like I have to? What God given right do the unemployed or low paid have to live in Belgravia?

Bugger that for a game of soldiers.

Yes, you have to pay tax so that we can subsidise this numpty to the tune of £20,800 a year to live in Westminster…..yes, you have to pay tax so that the kids of this unemployed single mother can eat.

My own guess about my fellow Britons is that the latter will get people quite happy to have the State in their wallets: the former not so much. And the more that the former is held up to the light, the more there will be a general agreement that the system needs to be changed.

And then, of course, we can point to Lee Jasper, Baroness Uddin and the rest who, despite high incomes and professional careers, still have their housing costs subsidised by the rest of us.

Depending upon how the same information is laid out, how the PR is done, these cuts could well actually be very popular indeed.

And not just amongst those of us who object to being forced to pay for all aspects of other people's lifestyles—finally. And it might very well spread: couples who are saving up to have children, for instance, might also wonder why on earth they have to pay tax so that those who have never worked can continue to increase the size of their family.

And then people will get angry.

And, pace Blue Eyes, that is the only way that radical change is going to happen in this country.

Anyway, to bring the conversation back to where we started, £52,000 per year in income is worth a lot of cash; I have made a cursory attempt to calculate the Net Present Value (NPV) and I reckon that—at a 4% discount rate—£52,000 a year for ten years would be worth just short of £1 million pounds as a lump sum.

So, it seems that some of the poor have, in fact, wealth far in excess of that of those of us who work for a living.

UPDATE: in reply to Mark Wadsworth's comment, I'd like to clarify just who I am bashing here. In order.
  1. The idiot politicians who have been pissing our money away. Remember, it takes two parties to agree a price in a trade: in this case, the price that our Lords and Masters were willing to pay was "oh, fuck it, as much as you like—I'm not paying for it." If it were the politicos' personal cash, you can bet your last tuppence that even £280 a week would be way more than they'd be willing to pay.

    There are two reasons why they have not put a cap on Housing Benefit prior to this: first, it's not their cash and they knew that they can magic up some more moolah simply by taking ten minutes to pass a law and, second, because their voters now get to live in Islington.

    Further, these economic illiterates have probably never considered that their profligacy would ramp up the price of housing quite so much, because they are idiots. But, then again, since they don't have to worry about rent—they just claim it off the taxpayer—why the hell should they give a crap?

  2. Idiot Grauniad columnists, their colleagues and acolytes. These people don't mind how much money is pissed away on their pet projects because they are all so stinking rich that they'd barely notice £280 a week disappearing from their pay packets.

    These morons are the kind of people who criticise politicians for being rich, privately-educated, out of touch, elite wankers without realising that—really—it does take one to know one.

  3. The private landlords who quite soon realised that the government was not only stupid enough to pay thousands of pounds a week in order to keep their client voters happy, but also venal enough to pay thousands of pounds a week to keep their donors happy.

    But why should they care? After all, there's plenty more magic money where that last lot came from, eh?

  4. The benefit recipients who are even now bitching and whining about how they and their multitudinous progeny will have to move out of their Belgravia mansion and—like the poor bastards who have to pay for this profligacy—live somewhere within their means, even if that means that they will have to commute a couple of hours to work and back each day.

    To this last lot, I say this: we are sick and fucking tired of paying for you to be able to make life-style choices that are denied us. Get used to it.

Have I left anyone out...?

Anyway, you might have spotted a theme running through the above points. Just in case you are a politician, let me just spell it out for you: when one bunch of people spend other people's money—money extorted at gun-point but at a far enough remove that the first group don't feel sullied—on presents for yet another group of people, not only do they get abysmal value for money but they also massively distort the entire market thus ensuring that everyone suffers.

Unless, of course, by using a combination of legislation and yet more financial extortion, the first group manage to totally insulate themselves from any negative effects. In which case, it is only the plebs that suffer.


truths33k3r said...


The landlord may get the money but the recipient get the benefit of living in an area that millions of taxpayers could not afford.

The issue is the sense of entitlement that the recipient shows when it is suggested that they move somewhere cheaper. I would suggest that those in receipt of charity should not be so choosey.

Selling off council houses - more power to her elbow. (Anti)Social housing was the state's greatest invention in institutionalising poverty and creating ghettos.

manc_ill_kid said...


I understand that a key problem is the 'Local Connection' section of the 1996 Housing Act, which essentially penalises housing benefit claimants who look further afield for a better deal, forcing the local council's hand in keeping families in expensive accommodation.

Otherwise Camden could send it's claiments to Hull where they could buy mansions on their JSA.

Anonymous said...

'But local authorities have queues of families waiting for houses because retired couples refuse to move.'

In London at least, this would mean forcing British pensioners to move away and replacing them with Ethnic Minorities.

This would be the third and final stage of the ethnic cleansing of indigenous Brits seeing as their children and grand children have had to move out of London anyway because they could not get near Council Housing.

And young Brits coming into the city do not get it either.

Anonymous said...

'their multitudinous progeny'