How we’re all being seduced by the state
...The trouble is, the government hasn’t really been doing very much of anything either to tackle the immediate crisis or to create the basis for long-term economic success. For all the talk of years of austerity ahead, the fact is that day-to-day public spending has been going up, not down. It is capital spending that has been slashed (by over £9 billion in the government’s second year in office - a policy inherited from the last Labour government). Public services and benefits have not been heavily affected yet. Osborne has now announced that welfare benefits will only rise by one per cent per year for the next three years - significantly below the rate of inflation - after being index-linked at a time of relatively high inflation. Even then, other measures will help people in work, particularly an above-inflation rise in income-tax allowances. Overall, Osborne’s latest plans are roughly revenue-neutral, satisfying neither those who would slash spending nor those demanding a Keynesian-style fiscal stimulus.

The use of the word ‘austerity’ needs to be questioned. In 2001, the year Tony Blair’s New Labour government was re-elected, public spending was £7,340 per person. By 2007, before the financial crisis really hit, it had risen to £9,167 per person. By 2011, it was over £10,000 per person. (All these figures are adjusted for inflation.) State spending is now equivalent to 45 per cent of UK GDP. It is only now that spending is starting to fall and it is not expected to drop back to 2007 levels in the foreseeable future. This is hardly comparable with the austerity being experienced in the weaker Eurozone countries like Ireland and Greece. The Irish government announced a further austerity budget only last week.

Yet this hasn’t stopped a hyperbolic overreaction from many liberal commentators. In yesterday’s Observer, columnist Will Hutton declared that Osborne’s plans represented the end of any sense of shared social responsibility: ‘The last vestiges of an approach to organising society based on a social contract have been shredded. In its place there is an emergent system of discretionary poor relief imposed from on high in which every claimant is defined not as a citizen exercising an entitlement because they have hit one of life’s many hazards, but as a dependent shirker or scrounger.’

In reality, all roads seem to lead to the state. As the Office for National Statistics pointed out earlier this year: ‘On average, households in the top two income quintiles paid more in taxes than they received in benefits, while households in the bottom three quintiles received more in benefits than they paid in taxes.’ In other words, most people receive more money from the state than they pay in taxes. The welfare state, originally envisaged as a safety net with a substantial contributory element, has been transformed into a dependent relationship with the state that extends far beyond the unemployed....

...If those figures are correct - they were prepared by Migration Watch from OECD figures as an argument against immigration, so they may well be a worst-case example - it hardly represents the tearing-up of the social contract, as Hutton believes. Nor does it mean we live in a scroungers’ society - the beneficiaries in the example above are as much businesses that can pay low wage rates knowing that the state will top them up into something approaching a ‘family wage’. What they do illustrate is a relationship, between the individual and businesses on one side and the state on the other, which distorts incentives and undermines autonomy. The culture of entitlement and dependency affects capitalists just as much as it affects individuals....