Labour Research March 2015


The real welfare beneficiaries

The government makes much of cutting welfare spending. What it is less vocal about is the corporate welfare that goes to businesses and individuals in the form of subsidies and tax breaks. Labour Research reports.

At the end of 2014, the government sent out personalised tax summaries to around 24 million taxpayers at a cost of £5 million.

The statements provide a breakdown of the amount of tax each person has paid, together with details of how the government spends this tax. And, according to examples released by the Treasury, the biggest chunk — around a quarter — is spent on “welfare”.

The government claims the statements “improve the transparency of the personal tax system, so that you know how much tax you pay, how it is calculated, and how the government spends it”.

But the statements are hugely misleading — the New Economics Foundation think tank says that over half of the so-called spending included in “welfare” goes on pensions (54%), while 27% goes on in-work benefits, 9% on support for sick and disabled people, 6% to parents and carers and a mere 3% on unemployment benefits.

£85 billion hidden spend on corporate welfare

Not only this, but the statements also provide little information about “corporate welfare” — the money the government gives to already wealthy businesses and individuals in the form of various subsidies, grants and tax breaks (not to mention information about the government’s failure to address the estimated £120 billion a year “tax gap” that results from tax avoidance, tax evasion and tax arrears).

The amount of taxes that go on “business and industry” is shown as a much thinner slice of the government spending pie. But senior lecturer in social policy at the University of York, Dr Kevin Farnsworth, estimates in a new report that corporate welfare costs Britain almost £85 billion a year — not far off the highly scrutinised £94 billion annual spend on working-age tax credits and social security.

And he told Labour Research that, in contrast with the huge amounts of research and data available on social welfare and its recipients: “Corporate welfare is under-researched and the data is largely hidden. Where it is not hidden, navigating the data is a complex and time-consuming task.

“As far as provision for individual companies is concerned, there are a huge number of barriers, from confidentiality to institutional complexity that gets in the way of disclosure.” he said.

Even if the government was transparent, he added, it would still underestimate the value of corporate welfare since it does not record such assistance in this way. “The government may, for instance, assist business through tax breaks, lower regulations, advice services, direct marketing, and insurance services etc.

“And government also provides or subsidises a range of services that are essential for businesses from transport and wage subsidies to education and training. If we added up the costs of subsidies, grants and the various tax concessions provided to businesses alone, this would equate to around £85 billion in corporate welfare each year.”

On top of this figure come various other types of support, as well as the costs of bailing out the banks and other industries in recent years, which runs into hundreds of billions of pounds.

And while the coalition has announced billions of pounds of cuts to social welfare spending with billions more to come, Farnsworth’s 2014 paper, Public policies for private corporations: the British corporate welfare state, points to the government’s Public Expenditure Statistical Analysis (PESA) accounts which suggest that expenditure on subsidies and capital grants to private sector companies were set to grow from £13 billion in 2012-13 to £17 billion in 2014-15.

Who benefits?

The paper also gives examples of some of the beneficiaries of corporate welfare, including the online retail giant Amazon. It received a grant of £7.7 million in 2011 to support the building of a distribution centre in Fife.

It had already received an £8.8 billion Regional Selective Assistance grant from the Welsh Assembly for a distribution centre in Crymlyn Burrows in 2007. And the Welsh Assembly also built the Ffordd Amazon Road (completed in 2012) to link the distribution centre with other road networks at a cost of £3 million.

Amazon founder and chief executive, Jeff Bezos, reportedly received $1.68 million in total pay in 2012 and was last year reported to be the world’s 20th-richest person with a net worth of $30.3 billion, according to the Bloomberg Billionaires’ Index.

In a 2014 article on the Huffington Post website, We can’t afford corporate welfare, professor of accounting and director of the Centre for Global Accountability at the University of Essex, Prem Sikka, provided more examples of corporate welfare beneficiaries.

Sikka reported that these include BT, which has an annual turnover of £18 billion and profits of £2.5 billion, but received a government subsidy of £1.2 billion to install broadband for rural areas. It will keep the assets and the revenues generated by the subsidy.

And energy company EDF and its partners received a £17.6 billion subsidy for building a nuclear power plant, even though the investment is projected to provide a return of up to 21%.

Thanks to the Private Finance Initiative (PFI), the UK government is committed to repaying £301 billion over the next 25 years. This makes for a guaranteed profit of £247 billion for the companies that have borrowed money to build schools, hospitals, roads and other infrastructure under the PFI and then lease these back to the government.

Meanwhile, the banks have received some £976 billion of loans, guarantees and other forms of support and a further £375 billion under the Bank of England’s quantitative easing programme.

The railway industry has benefited to the tune of over £60 billion in subsidies since it was privatised in 1996 — with more on the way through the Crossrail and HS2 projects. In 2012-13 alone, according to the TUC and rail union-led Action for Rail campaign, train operating companies collectively received £1.3 billion in direct subsidies through franchise receipts and a further £3.9 billion in indirect subsidies through investment in Network Rail services.

In return, train operating companies paid back just £1.2 billion in franchise payments to the government, but they took £172 million in profits and paid out £204 million in dividends to shareholders.

State-subsidised low pay

The GMB general union highlights two particular areas of corporate welfare: the “hidden wage subsidy” paid to low-paying employers, and the huge and escalating sums of housing benefit being paid out to private landlords.

In its 2014 report, How unions can make work pay, produced in association with the think tank Centre for Labour and Social Studies, the union estimates that low-paying employers are being subsidised to the tune of £4 an hour for every worker being paid the National Minimum Wage (NMW).

According to another think tank, the Resolution Foundation, this will cost the taxpayer some £20 billion over the next decade. “To add insult to injury, many of the employers who have become addicted to taxpayer subsidies of their low pay are also those that engage the most in complex tax avoidance schemes,” says the GMB report.

The union points out that “a new business model is emerging” — one which combines “tax dodging and wage dodging while holding taxpayers to ransom with threats to cut jobs and relocate abroad”. It adds: “This is corporate welfare: the state subsidising the activities of big companies so they can make as much money as possible.” GMB national officer Martin Smith told Labour Research: “Companies in retail, hospitality and catering, like Starbucks, McDonalds, Amazon and Next, are building a business model around state-subsidised low pay.” And, he said, they have moved the NMW “from being a floor to being a ceiling”.

The Unite general union also points the finger at supermarket giant Sainsburys and has called for it to pay a Living Wage. A Unite survey found that Sainsbury’s workers were finding it more and more difficult to “Live Well for Less”, with almost a quarter relying on tax credits or other benefits to supplement their income, and more than 60% relying on working tax credits.

Landlords getting rich

The GMB has also undertaken research that reveals how many private landlords are getting rich thanks to receiving housing benefit for their tenants, particularly in buy-to-let ex-council homes.

Published as part of its How unions can make work pay report, this shows that over the past 30 years, a “huge slice of the £411 billions of taxpayers’ money has been funnelled to private landlords as corporate welfare” (see box above).

It also reveals that the numbers in work and claiming housing benefit have rocketed by 59% since the coalition came to power and will cost taxpayers an extra £5 billion by the general election in May. In addition, the number of private landlords receiving rents paid by the taxpayer grew by 56% between 2008 and 2014. And Martin Smith pointed out that 95% of new housing benefit claims are now from working families.

Big subsidies for some of the country’s richest

The Labour Land Campaign’s 2014 report, Welfare for the rich — who really receives the biggest subsidies in the UK?, points out that many companies identified by the GMB union in February 2014 as receiving large amounts of housing benefit have also collected large amounts of cash through EU farm subsidies since 1999.

According to the report, the GMB named the top 20 landlords in each of 318 local authorities out of 380 that replied to the union.

The list has some of the same recipients that also collect Common Agricultural Policy subsidies.

It includes the Grosvenor Estates (Duke of Westminster); Cadogan Estates (Earl Cadogan); Buckminster Trust Estate (Tollemache family, descendents of the 9th Earl of Dysart); Yattendon Estates (Baron Iliffe and family); and Blackshaw Holdings Ltd.

Details of how much in EU farm subsidies these companies have received since 1999 can be found on the website (

The GMB reported that:

• Grosvenor Estate Belgravia is part of Grosvenor Group with fixed assets of £4,272,300,000 and headed by the Duke of Westminster, named in the Sunday Times Rich List as 8th richest person in Britain with wealth estimated at £7.8 billion. It received £243,000 in housing benefit;

• Cadogan Estates Ltd — Charles G Cadogan, 8th Earl Cadogan, 18th on the Sunday Times Rich List (£3,675 million) and Tory donor. It received £116,000 in housing benefit;

• Buckminster Trust Estate — Sir Lyonel Tollemache, donor to the Tory party. Buckminster is a country estate in Leicestershire. It received £37,000 in housing benefit;

• Yattendon Estates — received £195,000 in housing benefit from West Berkshire. Lord Robert Iliffe was 333rd on the Sunday Times Rich List with wealth of £245 million. Yattendon is a 9,000 acre estate in West Berkshire; and

• Blackshaw Holdings — received £442,000 in housing benefit. Owner, John Brooksbank, was on the Sunday Times Rich List with wealth estimated at £100 million.

Unions campaigns

As Kevin Farnsworth notes, where the protection of jobs is involved, unions are often vigorous campaigners for business support. But, says Smith, companies “receiving corporate welfare should be means-tested, just like those receiving Jobseekers’ allowance for example”.

The GMB has set out six demands to make work pay. These include the introduction of a £10 an hour Living Wage to get working people off benefits and fight corporate welfare; rent controls and a huge programme of social house building to end the trap of high rents and scandal of subsidised private landlords; and the closure of corporate tax loopholes.

It is also calling for employers who rely on a majority of their workers claiming benefits as a means of topping up their pay to be open to inspection and assessment by HM Revenue and Customs with a view to recovering the costs to the public through taxes on future profits.

Its key demand is for the union to be able to “access all areas”. This would give workers the right to call union organisers into their workplace without fear of reprisal from employers, in order to end low pay through collective bargaining.

Meanwhile, the RMT rail union is calling for the rail industry to be brought back into public ownership. Last year RMT general secretary Mick Cash accused the private train companies of “fleecing the British people for mind-blowing sums of money”. He said: “The case for bringing the whole rail network under public ownership, and ending the scandals of subsidy and revenue support, is absolutely overwhelming and it’s about time that the politicians of all parties took note.”

Big companies get tax breaks as welfare spending cut

Earlier this year, chancellor George Osborne made clear that if the Tories win the election, they will inflict further swingeing cuts in public spending of some £25 billion, with around half of this taken from the welfare budget.

Labour has said that if it is elected, it will match the government’s overall spending plans for 2015-16.

But Prem Sikka told Labour Research: “We are constantly being bombarded with austerity messages about the public services and welfare we can no longer afford.

“Where is the focus on welfare for the rich and giant corporations? There is little attention on how taxpayers’ money is being used to keep the ‘1%’ happy.”

According to tax expert Richard Murphy: “If someone wants to know where some real contributions to the cost of cutting the deficit can be found, they could start with large company corporation tax.

“A rate cut of 7%, the introduction of territorial taxation, the effective ending of the controlled foreign companies rule, the introduction of the patent box and the offshore treasury arrangements have all been designed to give business a tax bonanza and it is going to pay out handsomely at cost to the rest to us.”

And, said Murphy: “When that cost could be an average of more than £10 billion a year over the next six years no one can ignore this issue.”