Public spending cuts - how the poor subsidise the rich

There is a widely held falsehood that the rich subsidise the poor. The poor are poor because they don’t have enough money, and therefore it is supposed that the rich give them handouts via their taxes.  There are various fig-leaves to justify this disparity in cashflow. A few truly talented executives justify bumper payrounds for the mediocre herd. And a few truly awful pieces of trash justify the pitiless treatment of all the other poor. But the reasons for who gets what is not my current purpose. My purpose is the question of inequality, subsidies, and public spending cuts.

Subsidies, including those that come from public spending, are about personal spending, made up of discretionary and mandatory spending. For those who have all the money they can toss around, there is only discretionary spending. They have no need to mandatorily put aside money before they can splash their cash.  Even after all the splashing, they have plenty to pay for their housing, health and education.

Next come the less well endowed who have to make crucial budgetary decisions to choose whether or not to take the state subsidies. Whether to buy a new car every two years or pay for private education; whether to spend a few thousand on a family holiday, or take a mortgage to buy a home; whether to purchase the all-encompassing phone-internet-cable tv deal for hundreds of pounds, or buy private health insurance.

And the rest, well, they have no choice but to rely on “subsidies”. Their income is simply not sufficient to pay market rates for those must-have things such as housing, schooling, and doctoring. Hence some of the main “subsidies” in Britain come in the form of the National Health Service, state schools, and social housing. Societies that don’t ensure there is enough money for health, housing and education can be seen all over the world. They are ghastly morasses with all the bad stuff that comes with that, together with strong walls and fierce militias to keep the haves separate from the have-nots.

For countries such as Britain that wish to stay above the morass, the option of actually paying everyone enough not to need subsidy is considered way too expensive. Relying on people to choose would mean paying them enough money to take all the more appealing choices and still have enough left over to pay for the mandatory stuff.

Therefore, in order to force ordinary people to buy those mandatory things – healthcare, housing, and education - a society like the UK withholds their pay.  Not as a deduction from their salaries, but by not putting it in their salaries in the first place. And it uses this withheld money to pay for the services such as the NHS, social housing, and government schools.

Together with their withheld money decisions on priorities are taken away from ordinary people. As an example, the NHS is prepared to provide treatment based on its valuation of a quality year of life (measured by the NHS as a “QALY”) being worth about £20,000. If your treatment costs more than that then you are not a priority – unless you have bought private health insurance. The National Institute of Clinical Excellence states:

“A QALY gives an idea of how many extra months or years of life of a reasonable quality a person might gain as a result of treatment..


Cost effectiveness is expressed as ‘£ per QALY'.


Each drug is considered on a case-by-case basis. Generally, however, if a treatment costs more than £20,000-30,000 per QALY, then it would not be considered cost effective.”

Social housing too aims to provide little more than a roof overhead, and a brick wall between neighbours. And for many families, state schools provide not much more than a place to keep their children during the day.

It is not the taxes of the rich that pay for the subsidies. Subsidies are paid for by the poverty of the poor, using their withheld money. To add insult to injury, the wealth of the rich is also paid for by the poverty of the poor – company profits puffed up by low wages and high prices.

The reality is that public spending cuts take away from ordinary people their own withheld wages. Leaving the rich relatively unscathed.

We are where we are, and these cuts maybe necessary.  But they are also very revealing. The rich don’t subsidise the poor. The poor subsidise the rich.