What should the state do?

Do you pay income tax in the UK? That makes you one of 24 million people set to receive a letter with a pie chart showing you where your tax goes. From this you will learn, for example, that some 25% of what you pay is spent on what the government calls ‘welfare’.

All this has caused some upset. The welfare numbers, says the TUC, are “party-political propaganda masquerading as neutral information”. They take issue with the definition.

The TUC doesn’t like public-sector pensions classified as ‘welfare’, and they aren’t sure that payments for long-term care for the elderly should be either, or even benefit payments to those in work. For them, welfare means just benefits paid to those of working age who are not in work.

Other organisations have a different take: they think welfare should be split on the pie chart to show how much is paid to older people (17% of your income tax); to the unemployed and those on low incomes (6%); to the sick and disabled (5%); and to families with children (5%).

This is interesting – the kind of definitional row I could happily spend hours on. But fretting over classifications in this way rather misses the really critical points.

The first is just how much tax we all pay. Make £50,000 and your income tax/national insurance bill will come to around £13,800. But that’s just the start. Add in VAT, stamp duty, capital gains tax, inheritance tax, passenger duty and the like and the take from the working population is shockingly high.

The second is that the state does an awful lot of things. The pie chart you will get has 15 categories. Each can be broken down into many hundreds more. That begs the question we just don’t ask often enough: what is government for?

For the answer, says an editorial in The Times this week, we must look to Canada. Back in 1994, Canada’s government put in place a “programme review”. The idea was to look at every single programme and ask if it served the public interest. If the answer was ‘no’, it was to be cut.

If it was ‘yes’, the question changed to whether it was necessary for the state itself to provide the service, or if it should be transferred to the private or voluntary sector. This worked. Within three years, the deficit had fallen from 9% of GDP to zero. By 1999, public debt was down by a third. Spending had fallen 20%. This is the kind of thinking we need in the UK.

We (like the US) still haven’t faced up to the fact that we can’t afford to keep state spending at this level. We need a plan for change. Yet none of our politicians have told us what they really think government is for or, crucially, what it is not for.

With that in mind I am reading a book by US libertarian Matt Kibbe. He focuses on the latter. His book title? “Don’t hurt people and don’t take their stuff.” It is as good a place to start as any. Over to you, Dave.

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