29 January 2024

Don’t be fooled – politicians aren’t helping you by spending your money


Sadiq Khan, the Mayor of London, last week announced that he was going to freeze Transport for London (TfL) fares until March 2025. To cover the loss to TfL, he will give them £123m

When I say that Khan will give TfL £123m, I don’t mean it literally, of course. Khan hasn’t got that kind of money. Rather, he will direct £123m of London taxpayers’ money to TfL. 

That’s why it was ludicrous of Khan to say that he was ‘supporting Londoners’ facing a rising cost of living. By taking £90 from you and then giving you something worth £90 – the alleged per-traveller value of the subsidy – he hasn’t helped you. He has harmed you. Before he took your £90, you could have spent it as you liked, including on TfL services if that was your preference. Now you are forced to spend it on TfL, even if you don’t want to. 

The true beneficiaries of the subsidy are not the people of London, since they bear the cost of it, but the suppliers and employees of TfL, including its senior management. If this is not immediately clear to you, imagine that Khan had instead announced that, to support Londoners facing a rising cost of living, he was going to tax them and use the money to subsidise subscriptions to Sky Television. You could only suspect that he was being bribed or blackmailed by Sky. 

Khan’s intellectual and fiscal doublethink is not peculiar to him. Politicians of left and right are at it incessantly. 

For example, our current Conservative government taxes the population and then uses the money to provide ‘free’ education. The beneficiaries are not parents of children at state schools. They are not really getting a free education for their children. They pay through their taxes. They are merely losing a choice about how they spend their money and what kind of education their children receive. The beneficiaries are those state schoolteachers who would not find employment in education if it weren’t for the government compelling people to buy their services. 

The consequence is not only a loss of choice but a collapse of quality. Why should state schools provide a good service when you are obliged to pay for it even if you dislike it? State education is so bad that, even when free, many children are reluctant to attend school. But state schoolteachers needn’t fear. The government has also made attendance compulsory.

It’s like the government offering to pay the full cost of your Sky TV subscription from its tax revenues and then compelling you to subscribe. The beneficiary ain’t you. 

Of course, some people pay less in tax than the cost of what they receive in ‘free’ government services, such as health insurance, education, travel subsidies, pensions and the rest. It may seem that people on low incomes are beneficiaries of government spending on these services. 

They aren’t. If the government instead just gave them the money – not a place at a state school that costs £7,500 to supply, but £7,500 in cash – they would be better off. They could spend the money according to their own priorities, not the priorities of politicians. 

In fact, government directed spending harms the poor more than the rich. Suppose the government spends £35,000 on your family of four – allocating, let’s say, £15,000 to a school for your two children, £18,000 to health insurance (the NHS) and £2,000 on transport subsidies. If the politicians have got your preferences wrong, and your family consumes a total of £50,000 a year, that’s a serious problem. The government is misdirecting a large portion of your total consumption.

In contrast, if you consume £500,000 a year, the misdirection is a negligible problem. Suppose you value the government’s free goods at only £30,000, which means you are £5,000 worse off than you would have been spending the £35,000 for yourself. A £5,000 loss to a family consuming £500,000 a year isn’t a big deal. To a family consuming £50,000, it is. In fact, on standard economic theory, the loss of welfare is ten times greater for the poorer family.

Politicians are not billionaire benefactors. When they claim to be helping you with ‘their’ spending, they are having you on. It’s your spending. All they’ve done is compel you to spend as they want you to. 

Khan wants you to spend your money on TfL workers. That’s not surprising. He is a Labour Party politician and Labour is funded by the trade unions whose members benefit from the spending politicians compel. Why the Conservatives go along with these policies is more of a mystery. 

Gutlessness may be the explanation where some are concerned. But I fear the main reason is that Conservative politicians have bought into the authoritarian left-wing agenda because it flatters all politicians. They are so brilliant and virtuous that, even knowing nothing of your individual circumstances and preferences, they know better than you do what you should consume. 

It’s a preposterous idea. But forcing people to consume as you see fit would be even worse if they didn’t believe it. Yet again, we must believe that politicians are deluded enough to avoid drawing the conclusion that they are wicked.

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Jamie Whyte is a Senior Research Fellow at the Institute of Economic Affairs.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.