The hidden welfare budget we don’t debate

Reposted from The Guardian on line

On the eve of the “emergency” budget, it’s interesting to note that  vast sums are handed out in corporate welfare and official silence is skewing the debate, so the public don’t know where billions of their own taxes are going. You can be sure as eggs is eggs that Boy George will make no mention of this at all.

George Osborne will chop into the social security budget, with measures that will raise about £900m – the same sum as the state gives every year to managers who buy shares in their startup under the Enterprise Management Incentive. Photograph: Peter Byrne/PA

Tuesday 7 July 2015 21.05 BSTLast modified on Wednesday 8 July 201500.11 BST

In 2013, just days before laying out his autumn statement, George Osborne told the BBC: “The cost of welfare is one of the things that makes the public finances unsustainable. We need an affordable state.” The government had to cut the bloated welfare state because it was sucking up too much money.

Yet in the financial year ending March 2013, the Guardian can reveal, Britons handed £93bn in welfare to corporations. That is enough to wipe out at a stroke this year’s budget deficit – and it was given to companies in direct aid, subsidies and tax breaks.

The £93bn handshake: businesses pocket huge subsidies and tax breaks

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The term “corporate welfare” may sound unfamiliar to some. In the Westminster thesaurus, welfare appears alongside benefits and social security as a term for public spending targeted at individuals and households. But corporations rely on public funds, too.

When Richard Branson’s Virgin Atlantic took £28m from the Welsh government in 2011 to set up a call centre in Swansea, that was a form of welfare. The German, French and Dutch companies that now run our train services are subsidised by the British public to the tune of hundreds of millions. The £45bn taken by firms in corporate tax benefits is a form of welfare. So is the ultra-low cost insurance scheme the government runs for exporters such as BAE Systems.

None of these are labelled corporate welfare, but that’s precisely what they are: direct public spending aimed at protecting and supporting businesses.

In many cases, the basic facts about this spending are almost impossible to find. Some of the information making up the calculations published by the Guardian – fundamental stuff such as which arm of the British state gave how much cash to which firm – is so hard to collate that even experts are forced to admit defeat.

Discussions about corporate welfare take place at the twilight checkpoint between economics and democracy. Researchers and civil servants know a lot about the individuals who claim hundreds in, say, employment support allowance: every last cough, spit and missed appointment at the jobcentre. Yet of the big companies that rake off millions in direct grants, taxpayers often hear very little. The result is that the public do not know where billions of their own taxes are going.

Yet were they to be widely known, the facts about corporate welfare would electrify our debates about public spending and the role of the state. On Wednesday, Osborne will set about chopping into our social security budget. Among the measures he is believed to be considering is taxing disability benefits. That will raise about £900m, according to the Institute for Fiscal Studies. That is about the same sum as the state gives every year to managers who buy shares in, say, their dotcom startup and see them soar in value, without having to pay much tax on the gain, thanks to a scheme called Enterprise Management Incentives.

Revealing how far taxpayers fund the private sector is not the same thing as saying the private sector should not receive any public subsidy at all. All rich countries do it, although there is evidence from the OECD thinktank and others that when it comes to corporate tax benefits or public-sector outsourcing, Britain is more indulgent to businesses than many other nations. But many might back public funding for green technology startups, say, or struggling social enterprises in deprived areas. The fundamental point, surely, is to allow public debate over where public funds go.

Full disclosure of the size of the corporate welfare state might also have improved economic debate over the past half-decade. When Cameron and Osborne launched their austerity programme in 2010, they argued that the public sector was “crowding out” the private sector. To enable the economy to grow, government needed to retreat and allow businesses to fill the void. That powerful argument was disproved over the next few years, as Britain stuttered and stumbled through the weakest economic recovery in its modern history. But it would have been undermined from the start had ministers been confronted with £93bn of proof that the relationship between public and private sector is far more complicated.

This research on corporate welfare takes you to the heart of one of the biggest arguments in British capitalism. For decades, the UK has operated on the basis that it is in an international dogfight to attract investment. It was summed up byMichael Heseltine in his 2013 report on industrial policy: “Unless we make it worthwhile for footloose capital to come here, it won’t.”

This orthodoxy has been swallowed by all the main political parties. It has led to the slashing of corporation tax rates, so that Britain has a lower corporation tax rate than the US, Japan or Germany. It has encouraged devolved administrations in Holyrood and Cardiff to disburse millions to big companies, without demanding much in return. The result has been fiscally disastrous. As this research shows, of the 44 companies that received more than £1m in government grants between 2005 and 2011, 13 paid no corporation tax at all; a further 17 did not pay any corporation tax either the year before or the year that they received public money.

Such a state of affairs reflects a severe imbalance of power between the public and private sectors. As Philip Baker QC, a European tax expert and Treasury adviser on the Google tax, remarked last month: “I don’t think in the last 20 years or so one can say that governments have driven corporation tax policy. It’s the large companies that have driven the direction of corporate tax policy.”

The result is a stratum of businesses that is not beholden to the same social settlement as previous generations. Modern big business has got so used to tax breaks, handouts and easy ways of making cash (such as squeezing staff pay and conditions) that it no longer researches or innovates.

Meanwhile, politicians and officials tout for investment, no matter how fly-by-night. But even the savviest operators get caught out. AstraZeneca was assisted by a local MP to get a £5m government grant to develop its research and development centre at Alderley Park, Cheshire. Five months later, in 2013, it announced it was closing the plant and shedding 2,100 jobs. Absent from the public record is what it told its local MP. He was, of course, the chancellor, George Osborne.