How the Government is misleading us with its definition of welfare, and why it matters

What goes through your head when you hear the word “welfare”?

Chances are you’re thinking of job centres, of unemployment benefit, of the housing allowances that fund the disadvantaged so they can live somewhere.

Well it turns out you’re only half right. The Government, it transpires, has a slightly different definition. Yes, its brand of welfare includes all those kinds of things, but also some patently other non-benefits stuff too.

It is something worth bearing in mind when you receive your copy of your personal tax summary, a document being sent out to taxpayers in the coming weeks. The letter itself is an excellent idea: knowing that you contributed £1,280 last year to the health budget– as a £30,000 earner did – underlines the fact that for most of us the NHS is hardly “free”. Understanding that financing the interest on the national debt cost you £475 last year is a salutary lesson in the importance of national fiscal rectitude. I mean, that’s the cost of a 64GB iPad, for God’s sake.

The problem, however, is that people are very likely to look at the pie chart of where their money is spent and think something else: oh my God – how come we spend so much on welfare?

The reality, though, is that the Government’s definition of welfare covers a multitude of sins.

There are two reasons for this. The first is that the Government’s starting point for a definition of welfare – what it calls “social protection” – is a little vague and all-encompassing.*

So-called “social protection” actually accounted for a total of £251bn last year – some 37% of the Government’s total spending. Surprising as this might sound, a mere £4.9bn of this was unemployment benefits – only 0.7% of the total governmental spending bill. In fact, the biggest chunk of all was the state pension, which was either 15.2% or 12.1% of total spending, depending on who you ask (we’ll get onto that in a moment). Some £37bn, or 5.5% of total spending, was disability and injury-related benefits. 2.4% was child benefits and 3.8% was housing benefits.

But this category also includes personal social services – in other words social work and social care. These may well fit the definition of “social protection” but don’t seem entirely synonymous with welfare. They are certainly not handouts.

The second problem is that there seem to be a whole multitude of different assessments of how much of this total “social protection” bill is accounted for by the state pension. Working off the DWP’s accounts, the Office for Budget Responsibility thinks 12.1% of total public spending last year was on state pensions. That’s where the Treasury came up with their calculation in the pie chart at the top.**

However, the Public Expenditure Statistical Analyses – the definitive ledger of government spending – says the pension spending component of “social protection” is significantly higher: 15.2%. The main explanation for this disparity is that it turns out the pensions element of “social protection” includes a major chunk of the annual bill for public sector pensions.

Even those who consider social care to be a kind of welfare might think it a little odd that the gold-plated pensions for retired Whitehall permanent secretaries are also officially “welfare”.

But that is nonetheless the logic of the tax statements. Were they more honest they would underline the fact that a £30,000 taxpayer is contributing £210 a year to retired public sector workers. But a grand total of just £48.89 a year to those on Jobseeker’s Allowance. Which, while we’re at it, is less than their annual net contribution to the EU (£52).

*It’s based on something called COFOG. (Classification of the Functions of Government), an internationally-accepted classification.

** In fairness to the Treasury, it has at least laid some of the working out — though the optics of this are clear: it will reinforce the notion that we fork out unreasonable amounts on benefits. But the numbers are far smaller than they initially appear.