How is the “welfare state” to be justified? The usual answer is that it is a way for the well-off to help the less well-off. But this is not its only role.It is also a “piggy bank”, as Nicholas Barr of the London School of Economics has argued. More precisely, it is a substitute for markets that the private sector does not offer.
Put aside spending on services, such as education or health; focus on benefits paid to individuals, such as housing benefits, tax credits paid to those in work and pensions. In the UK, such benefits amount to a huge sum: 33 per cent of current spending (and 12.5 per cent of gross domestic product) in 2014-15.
In the short run, spending on benefits is largely redistributive. This role of the state is undoubtedly important at all times. But it is particularly significant in the aftermath of a crisis that has left the economy as a whole far smaller than everybody had expected. The Institute for Fiscal Studies, a London-based think-tank, has concluded that changes in taxes and benefits between May 2015 and April 2019 will fall proportionately most heavily on the poorest parts the population. The relatively well-off could have borne more of this burden. The government chose otherwise. Everybody should decide for themselves whether they think this was right.