There are varying estimates of how much total benefit payments to people who have some form of disability, or who are paid benefits relating to their health, actually cost per annum. Figures I have seen vary between £66 billion a year and £75 billion a year. As a matter of compromise, let's put that figure at around £70 billion a year.
Now let me, for a moment, draw attention to the fact that the UK effectively spends £70 billion a year subsidising the total cost of pension tax relief for those who are saving for their old age. That figure is made up of reliefs available in income tax, for national insurance purposes, in the corporation tax system and on the tax-free accumulation of money with pension funds.
And, this cost of pension tax reliefs is a real cost, because when pensions are paid out, they are usually subject to tax at a much lower rate than the tax relief was given at, and no national insurance is paid, whilst, of course, corporation tax has no involvement at that time. What is more, one quarter of the pension paid is tax-free. So, before any pedants jump in and say that is no real cost to this tax relief, that claim is completely false.
In that case, the cost of benefits paid to those who cannot work because of conditions relating to their health or disabilities is, in real terms, near enough, the same each year as the cost to the government of subsidising pension tax reliefs.
That is, however, one very big difference. Based on data from the Office for National Statistics, I estimate that the wealthiest 10% of households in the UK own 39.8% of total UK pension wealth. Another 21.9% is owned by households in the ninth decile ranked by wealth. In contrast, the bottom half of households, as ranked by wealth in the UK, own just 9.5% of total pension wealth, and the bottom 70% of households own 24.6% of pension wealth.
The result should be very obvious. Pension tax relief is a benefit going to the wealthiest households. In fact, using this data, the average household in the top 10% of all households ranked by wealth probably gets a subsidy to increase their pension wealth, costing more than £9,900 a year. That provided them with a direct subsidy from the UK state to enhance their wealth, each and every year.
They do not have to make an appeal for this money. In truth, they don't even have to submit documentation to prove their entitlement to claim. All they have to do is put a figure on a tax return. Then, the relief that they get costs on average a little more than the £9,747 a year that is the maximum Personal Independence Payment (PIP) allowance available in England and Wales at present.
What that means is that the average cost of the tax relief for pensions for the average household in the top percent 10% of households ranked by wealth in the UK is bigger than the maximum Personal Independence Payment, which people often have to struggle for up to 2 years to claim, and which then very often leaves them little above the poverty line, because the payment does not increase their income, it simply covers their costs.
My point is very simple and very straightforward at this moment. This is not just unfair, it's obscenely unfair.
What is more, if there were to be any element of justice in what Labour is doing, it should be questioning why tax relief for the wealthiest is being maintained, but essential payments to support those in need are being cut. But that is not happening. Those questions are not being raised.
If you want evidence that we live in a society that is biased to the wealthy, who assume that they have an entitlement to the support from the state that they receive, and who are deeply prejudiced in far too many cases against those who are making benefit claims to simply survive, then this is it. And, it's deeply upsetting that Labour is going along with this when the option to change the tax relief available to the wealthy exists.
There is, of course, more detail on this in the Taxing Wealth Report.
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My wife has attempted suicide several times since being forced onto UC.
I don’t think the government counts costs like that when balancing their books.
That she is being emotionally tortured by the financial abstractions of neoliberal policies is a human rights atrocity in my opinion. By any humane measure a reason to be politically enraged. However, those who envision and implement such casual social cruelties really don’t care. They are committing Democide in plain sight.
Agreed
And apologies for not commenting earlier.
My understanding of how UC works is deeply depressing and must come as a horrible shock for people who are forced onto it.
A friend I know was sent a text at 7.30 in the morning to check his journal – he failed to check his journal at this time and was sanctioned.
That’s the reality. This is as far from skiving as it gets.
@Anon C. I’m so very sorry. The fear of being accused of being a cheat; the stress of being ordered to report to a PIP assessor or a job centre to be continually challenged about your health; knowing that if you get it “wrong” you will be denied the fairly paltry sum which just about holds the shredded bits of you together. Some little shit of a “health professional” has this ultimate power over your whole life.
There is no dignity in being disabled. It makes you feel ashamed. Those who claim a “moral imperative” to give sick people the “dignity of work” ignore the fact that it is also vital to give sick people the dignity of being left alone.
The quality of a society can only be appraised by how it treats those in need.
So true @Hannah! They don’t have the care, compassion or consideration to leave us alone. Such is their hatred and contempt for mere mortals. From the time you get up to the time you go to bed you are under their control.
Once again, evidence suggesting that the rich have indeed repurposed the state capacity to create and tax money its money for themselves.
I often wonder if private pensions’ function is to create a dependency on the neoliberal extractive system. So it can’t be easily removed.
If there was a good state pension system and low housing costs would that dependency change?
Obscene social iniquity underpinned by an ideology that justifies cruelty to those who can not or will not run with a class built by and for predators. Today’s Guardian OpEd calling for ethical Elder leaders not old chaotic rulers is timely:
https://www.theguardian.com/commentisfree/2025/jun/28/world-age-old-ruthless-patriarchs-global-order
While I wholeheartedly agree that pension tax reliefs are obscene (and don’t forget salary sacrifice which is primarily a way for the better off to avoid tax and NI) you could also include ISAs and the obscene amount that the wealthy can receive in ISA interest without paying any income tax on it. I accept that the less well off can also do this, but the wealthy have very much more money available to put into state subsidised savings schemes, so benefit much more.
I kept it simple – but they also cost £9 billion a year now
I have no doubt that if Starmer or Reeves were to announce a policy of reducing the tax relief on pensions for the wealthiest in the clear and cogent way you have just demonstrated, they would be extremely well received in the country. They could even get away with saying they were helping to balance the books, if they are still too frightened of telling the whole truth.
Unfortunately, not only are they economically incompetent, they are politically cloth eared, so would not see this for the vote winner they are desperately seeking.
I have shared the link to this excellent insightful article to all the Labour MPs quoted in the media as remaining concerned about the welfare cuts, plus Meg HillierMP, chair of the Treasury Select Committee, who has also been outspoken but is reported to be satisfied with the forced changes in the draft legislation. I have also shared it with several political and economics reporters.Thanks Richard, for crunching the numbers to produce such a strong political argument
Thanks
It seems to me that most tax allowances should be abolished and replaced with a universal basic income.
These allowances include: basic tax allowance, pension tax relief, national insurance reduction for higher earners, capital gains tax, inheritance tax allowance (it should be charged as income to recipients), ISAs tax free status, and probably others.
This would allow a substantial universal basic income. It should be paid for children too, to try to offset the very low fertility rate.
This would alleviate the need for many benefits. Most people would be better, or at least no worse off. And the wealthy would have to pay their fair share of tax.
Too radical? What we have clearly doesn’t work.
I researched this.
There is almost no way in which that could work, especially in one country in isolation.
Sometime, in one of your copious free moments, it would be great to hear you thinking on this.
Thanks for the post. 🙂
https://openaccess.city.ac.uk/id/eprint/16544/1/2013_Policy_Paper_Financing%20the%20Social%20State-_Richard_Murphy__Howard_Reed_%28Social_State_-_Idleness.pdf
Many thanks
You mean it couldn’t work even in rich countries which don’t have to depend much on others, like – for example – Norway and Switzerland?
Yes, I mean that
Because no state is that independent
I followed the link you provided, and found my self reading your report for the 2nd time.
From p.32:
”Our proposed system is based around two simple components:
1. Basic income payment – Minimum Income Standard
All families would receive an unconditional, tax-free basic income payment
that would be set at levels sufficient to alleviate poverty……”
This reads like an argument for a form of UBI, which I find it hard to square with your statement above that appears to be dismissive of the idea.
But what we showed was that the tax requirements were just not plausible.
Both Howard and I share this view now.
Entrepreneur Scott Galloway breaks down how the Billionaire class have destroyed America (and I assume much of the rest of the world). He claims that America’s best innovation is the Middle Class, but there is a small number of people who weaponise government, aggregating their wealth, until it is corrected by war famine or revolution. He says that the wealthy pay their taxes, but the problem are the super owners (billionaires). He also points out that corporate tax rates are at their lowest since 1939. He says that the fastest growing demographic is not seniors, but billionaires. He says that most people don’t object because they believe that they can join them. He says that US tax policy “has gone full oligarch”.
Recommended viewing, only 5 minutes: https://x.com/JeanJacquesDes7/status/1938632067778318522
Alternative link: https://substack.com/home/post/p-165409178
Thanks.
It is not just this crude pursuit of material wealth, at the fatal expense of our environment and lives, class war, that is so destructive, but also the culture that informs and underpins it. Or, as it is more popularly known, The Cult of Celebrity. Our species desperately needs, as a collective, to revolt against this fanatical nil sum Game of Winners v Losers for our future survival.
The “benefit” system is MEANT to be punitive and unpleasant. It is designed and run that way.
If someone has never been a claimant or has never walked with someone who is a claimant, they won’t have a clue, nor will they believe what they claim are “whingeing sob stories” from “lazy benefit scroungers”.
Then one day, it hits them personally, because of some catastrophic event, and they go into deep shock. They begin, for the first time in their lives, to understand the word “injustice”. They can’t believe it, they want us all to be shocked, and they are horrified when we AREN’T shocked, but say, “Didn’t you realise? I told you often enough but you just called me a Corbyn cultist, a leftie idealist, you said I didn’t live in the real world.” Now they are learning about part of the real world they didnt believe existed.
On the “Small Ugly Bill” that gets voted on next Tuesday, I found this article both moving and revealing – Starmer/Reeves/Kendall cant even listen to half a dozen disabled MPs.
https://www.theguardian.com/politics/2025/jun/28/disabled-labour-mp-olivia-blake-welfare-bill-u-turn-starmer
These government ministers aren’t fit to scrape dog muck off her shoes, let alone run the country. I confess – I despise them. May the backbench outrage grow, may the bill be defeated, may those who caved in be disgraced as callous performative frauds including every select committee chair who gave up at the first hint of preferment.
Then there is Liz Kendall….
“It’s a SMALL UGLY BILL.
Vote AGAINST it on Tuesday!”
Another Open Source Slogan.
I will look at it
And you are right
I have walked in other’s shoes on muchy of this, even if I have avoided much of it myself
And the care system
And the nghtmare of the NHS whyen it is not working
It is ugly
And that is why I am angry
Wait till you hit the callousness of Direct Earnings Attachments. If you hit a catastrophe and you owe money to a credit card company (for example) they can take you to court. You get the chance to tell the court what your income and outgoings are and the judge should order you to pay the debt at a rate you can afford.
If you owe Council tax, the DWP or fines, the creditor can get an order to take money from you directly without any account being taken of your income and outgoings. It used ro be much higher.
Imagine living on social security which isn’t enough to meet the basic cost of living, and then losing a high % of that insufficient amount without any consideration of your needs or right of appeal or anything. And then, if you manage to get additional income the % they can take can be increased.
There is a Bill currently going through Parliament which will give the DWP the legal power to instruct banks to check the accounts of Universal Credit claimants the DWP suspects of fraud. The banks will be required to pass information to the DWP of any “suspicious” capital in the claimants’ accounts exceeding limits set by the DWP. Neither the DWP nor the banks will be required to tell a claimant that this has been done. If the DWP then decides a claimant might be doing something fraudulent, it can stop the benefits and interview the claimant, possibly under caution.
Some Lords are objectong.
Prem Sikka is, I know.
I wonder what would be the consequences of your proposal on pension funds, & future pension payments? Would they not be reduced commensurately? I wonder if you have any numbers on this?
Higher rate tax reliefs simply cut the tax bills of the wealthy. The money does not necessarily arrive in the pension fund at all. So the answer may well be, very litle at all.
But surely tax relief on pension contributions is only received if the contributions are actually made to pensions? Remove tax relief, & to receive the same pension benefit the contributor will have to up their contributions commensurately. Conversely, if they don’t up their contributions, the amount paid in to pension funds will be commensurately less, as will be the amount paid out by them in the form of pensions. The money you’re proposing to re-direct towards PIPs can only come from pension funds, because that’s the only place pension contributions can go. Either pension payments must go down, or pension funds decline. There can be no other outcome, surely?
You did not read what I said about higher rate tax releifs, did you?
Come back when you have.
Hiugher rate tax releif does not go to the pension.
And then explain why the savings of the wealthy need to be subsidised more than the savings of everyone else, might you?
And as for the suggestion payments for PIP can only come from pension funds? I think you are wasting my time…
Answer the real quetsions, and stop worrying about whether we might make the wealthy just a little worse off, will you?
And remember, I am not saying anything more than give everyone the same rate of relief. What is wrong with that?
I’ve tried the ChatGPT app and crafted the letter. However, it got my MP wrong – it get the MP for the next door constituency and the previous incumbent to boot! Not impressed with that as you can imagine, if it gets that information so wrong.
Sorry….
I’m fully aware of your arguments. They’re not new, nor are mine. You simply want to collect tax now that would, theoretically, be collected later. But your proposal collects tax & thereby reduces the disposable of income of those being taxed, disposable income some of which at least it seems plausible will no longer be paid into pension funds. Because it seems absurd to claim, as you seem to do, that all those so taxed will continue to pay into pensions at the same rate when they have less money so to do, & may well have better investment vehicles to hand (I suppose a test of that would be how much currently is invested in pensions outside of government subsidies). Hence any money not invested means a reduction in pension fund contributions, & therefore future pensions. Instead, by your model, it will go to PIPs payments. This seems so obvious, that I wanted to know what your response was. Your school-boy irascibility tells me that you have none of value, or at least none that anyone is likely to want to hear, whatever the merits. For the record, I’ve no interest in defending ‘the wealthy’, which you so arrogantly assume. Chop their heads off, for all I care. And eliminating higher-rate tax relief on pension contributions, which successive governments have been doing for a while, seems like a good idea. It’s a pity you appear to lack the advocacy skills required to advance it effectively.
I make abundantly clear that your argument about tax simply being deferred is totally crass in the piece, Mark. Again, you did not read it, did you?
And who cares whether people pay more into pensions, or not? That’s their choice.The question is, why should the state heavily subsidise the wealthy to save when many are going without? You have not addressed that. It seems you did not notice me asking you to do so.
And what you also do not appreciate at all is that PIPs are not funded by pensions: they are funded by increased government money creation. Reducing the subsidy to pensions diminishes the inflationary impact of that.
Very politely Mark, you reveal three things. Either a) you’re stupid or b) you’re intent on abuse or c) both. Call me arrogant if you like, but my argument’s have been made here time and again and I answered all your questions, and more – mostly in advance of you raising them because I know people like you exist.
And if you can find another blogger who would answer questions as stupid as yours, let me know. Except, you’re banned now. I can only put up with idiots for so long.
You are right, of course. Without you having offered any explanation for your expertise, or your qualification to comment, you have told me that I am terrible at what I do. I am, of course, necessarily obliged as a result to agree that is the case.
After all, that is why I am a Fellow of the Academy of Social Sciences, one of only 10 accountants to have ever been elected to that body.
It is also why I was ranked as high as seventh in the world in taxation by the International Tax Review over a period of more than 12 years, over which period they included me in their world top 50.
That is also why I was described as social media accountant of the year for five years in a row by the Institute of Chartered Accountants in England and Wales.
In addition, precisely because I am so bad, two universities have appointed me to full professorships, and a third has done so to a visiting professorship, whilst three others have appointed me as a visiting fellow.
It’s also why I have a Google Scholar research ranking that lists more than 3,400 people referencing my research work.
But let’s ignore all of that. You, without any apparent qualifications at all, say that I am completely rubbish at what I do and ask that everyone accept that you are right. So, why on earth wouldn’t we? All those others must be wrong in that case.