The real benefit cheats

Welfare can be a controversial issue these days, invoking heated debate.

It is often said that the hard-working majority are forced to pay taxes for the idle few benefit-scroungers who don’t pull their weight. In these economic times, many have wondered whether these payments should be cut.

Trouble is: that’s not the situation we’re actually in. Far from your taxes being spent mostly on the nation’s poorest, more cash is actually handed out to the richest 1% through corporate welfare and tax dodging.

Last winter, the country was rocked by protests against tax avoidance. In particular the UK Uncut group were arguing against the alleged £6 billion unpaid tax bill of Vodafone, in what the investigative magazine Private Eye described as “an unbelievable cave-in” by Britain’s top tax inspectors. To put this figure into perspective, the total cost of Jobseekers Allowance in 2010-2011 was £4.9 billion.

An excellent graphic representing the total government expenditure for 2010-2011 can be found on The Guardian newspaper’s website. Using that, and other sources, we can look at the numbers and decide whether it’s right to blame the poor for runaway taxes on the majority, or whether it’s really someone else leeching off our nation’s collective wealth.

Apart from the already mentioned Jobseekers Allowance (£4.9 billion), other benefits perceived as unfair are incapacity benefit (£7.7 billion) which helps people too ill or disabled to work, council tax benefit (£4.9 billion), housing benefit (£21.6 billion) and income support (£7.8 billion). These figures are all benefit expenditure, honest or otherwise. Illegal benefit fraud accounts for a mere £1.1 billion.

Tax dodging comes in two flavours. Illegal tax evasion is where companies simply hide their profits from the authorities. Legal tax avoidance is the art of finding loopholes, using tax havens, or otherwise “getting around” obligations. Like MPs cheating the expenses system, tax avoiders follow the letter but not the spirit of the law. As the former Chancellor Denis Healey wrote: “The difference between tax avoidance and tax evasion is the thickness of a prison wall”.

Offshore tax havens are complicated and expensive to set up, often requiring entire teams of accountants, so they are usually used only by multinational corporations and the extremely wealthy. A prominent example of this was the retail giant Philip Green getting around his £285 million tax bill by paying all the profits to his wife who was registered as living in the Monaco tax haven.

HM Revenue & Customs own estimates say that £60 billion is lost every year through a combination of illegal tax evasion and legal tax avoidance. The TaxJustice pressure group estimates £120 billion. The new breed of too-rich-to-pay-tax freeloaders is hollowing out our tax base. They take the benefits of a working society, (police and fire protection, national security, public roads, utilities, the internet, publicly funded research and development, educated workers, etc.) but don’t want to pay for them. The burden thus falls ever harder on the middle-class and the poor.

It should be pretty clear by now that the money lost to corporate tax dodging by the rich is even greater than the money spent on the working and un-working poor. Yet you’d never guess that reading most of the mainstream newspapers (see my other article “The media’s inevitable right-wing slant” in Felix 14.10.11 for why this happens).

Rather than demonising the jobless, we should be focusing on closing the tax gap – the difference between the amount of tax which the law suggests should be paid in the UK and the amount actually paid. For the richest 1% to lead the criticism of welfare programmes for the poor is therefore hypocritical at best, and cynical propaganda at worst.