3.2.3.3 Transfer Payments: Benefits

(This is a current page, from the Patterns of Power Edition 3 book contents.  An archived copy of this page is held at https://www.patternsofpower.org/edition03/3233.htm)

Benefit payments are transfers of money to people, to provide economic security; they can be seen as ‘socio-economic rights’, as defined in the next chapter (4.2.4.3).  If they are government-funded, they form part of a ‘Welfare State’.

The British government’s Office of National Statistics publishes an annual report – How is the welfare budget spent? – which provides a summary analysis of government-funded benefit payments, noting that these “made up 34% of all government spending” in 2015-16.

The American system and terminology are different: pensions are classified as ‘social security’, and the government’s contribution to healthcare is funded as benefit payments – Medicare and Medicaid – rather than a National Health Service.  A report on Current US Federal Government Spending in November 2018 noted that “Almost two-thirds of federal spending pay Social Security, Medicare, and Medicaid benefits”.

State pensions are the biggest item in both Britain and America, accounting for 42% of the UK ‘welfare budget’ in 2015-16.  People are living longer in Western economies, creating budget pressures which have been politically difficult to manage – as people don’t want to work longer before they retire (6.7.1.3).

Income support programmes, which include unemployment benefits, cost more when an economy is in recession and are therefore harder to forecast than other benefits.

There has recently been an upsurge of interest in Universal Basic Income, as advocated by the RSA for example: “It is a basic platform on which people can build their lives – whether they want to earn, learn, care or set up a business.”  This idea has numerous opponents; most of them, as for example, argue that giving ‘something for nothing’ is politically unsustainable – but there is an increasing case for enabling people to take time off to retrain, or look after relatives, as automation replaces traditional jobs and ageing populations have to be looked after.

There are different ways of making the payments to individuals:

  • Child benefits in Britain, for example, were paid in cash to mothers to make it more likely that it would help the child.
  • Some American income support is paid as ‘food stamps’– again, to ensure that it is used as intended.
  • The costs of administration can be reduced by using the infrastructure of the tax system to make payments, as advocated by Milton Friedman for example in his “Case for the Negative Income Tax“; Britain’s system of ‘tax credits’used this principle.
  • More recently, Britain attempted to unify all benefits into a single payment – although this proved difficult in practice, as reported by the BBC article What is universal credit- and what’s the problem?

The recipients of benefits can spend the money as consumers.  Transfer payments neither consume nor create wealth in terms of the economy as a whole: they redistribute it from taxpayers to the beneficiaries, so that the latter can consume.

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