When Welfare Policy Is Economic Policy

The Wall Street Journal has a brutal report on how Britain’s welfare spending (on cash programs, not health care) is crushing the country’s budget and, increasingly, its economic vitality. The statistics on recent benefit growth are appalling:

Some seven million people — more than 10 percent of the population — now claim at least one or more sickness or disability benefits. The numbers are growing fastest among working-age people who should be powering the country’s economy, surging more than 60% in the past six years to 4.7 million from 2.9 million in 2019.

Not including healthcare, the country will spend more than £100 billion this year on all types of welfare benefits for the sick and disabled, about a third more than defense spending. The tab has surged by a quarter in just four years and is on course to hit £130 billion in the next four, according to the government’s fiscal forecasts.

How can so many more people be claiming disability if only so many people are actually disabled? The answer lies in the programs’ obvious potential for abuse:

Many of the newer disability claims are for mental-health issues like depression, anxiety and ADHD, which can be harder for the government to verify than a physical disability. Between 2017 and 2025, disability claims for cancer doubled. But benefits claims for all psychiatric issues surged fourfold.

One benefit, created to help those with disabilities be more mobile, allows people to give up part of their welfare cash handout in return for a new car lease every three years. It now accounts for around one in every seven new car sales in the U.K. Among those who got new cars last year: 40 people whose primary medical condition was tennis elbow, 50 with wheat intolerance and 320 with dyslexia, according to government figures.

In short, the U.K. has incentivized millions more people to fake or exaggerate disabilities to receive taxpayer money. Claims don’t even require a doctor’s diagnosis; just a government test of whether someone “can carry out a range of everyday activities.” Funds are handed out not only to replace the income of people who can’t work because of a disability, but also to those who can work but supposedly need help paying extra expenses from being disabled. Those latter payments are not means-tested, and they reduce Britain’s labor supply far below what it should be:

In deprived areas, particularly former industrial centers like Liverpool, a significant number of residents depend on welfare. In Walton, a Liverpool suburb that ranks as one of Britain’s most deprived neighborhoods, around 1 in 2 households claim welfare, and 1 in 5 working-age residents claim [Personal Independence Payment].

“People aren’t working around here because they can get on PIP, so they sit around and do drugs and drink,” says Stephen Walker, a 65-year-old drummer who helps manage a Beatles memorabilia store, as he strolls through Walton on a recent day. “It’s unfair. I work and pay my taxes.”

“Unfair” is one good descriptor. Economically harmful is another. Welfare spending is blowing up Britain’s budget and annual deficits, forcing higher costs to finance the national debt. Interest rates have risen across the world, but the U.K. now has the highest yield on 10-year government debt of any G-7 country.

Even worse in the immediate term, British welfare keeps vast amounts of human capital on the sidelines by paying people to stay home. It’s the same basic problem in France, where overly generous pensions lead workers to spend more years in retirement than in any other rich country. Extraordinarily high unemployment benefits across Europe help produce extraordinarily high unemployment.

The economic premise of social democracy was that a relatively free-market economy on the supply side — private ownership, firm property rights, light regulation — could sustain an almost limitless amount of redistribution and welfare spending. But human capital is as much a factor of production as is physical capital. By discouraging employment and education through excessive transfer payments, Europe has reduced its stock of any economy’s lifeblood: minds and hands at work.