Benefits boost the economy. It's the rich who are the problem

The National

04-07-2025

The simple fact every politician in this country should understand is that paying benefits often pays for itself. The reason is not complicated.
Almost no benefits go to people on high incomes. The vast majority support those on very low incomes. And what should be obvious to anyone who thinks, for even a moment, is that people on low incomes spend almost every penny they receive just to meet their essential needs.
This matters. Listen to most right-wing politicians and you'd think every pound given to someone on benefits is wasted. Nothing could be further from the truth.
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Money spent on supporting people on low incomes enhances the wealth of a country, and, ironically, especially the wealth of the wealthiest.
That needs explanation, because it runs so counter to the economic myths we are told. Yet it is obviously true because when someone spends their benefits, it is not wasted. It becomes someone else's income.
That someone else might be a carer paid to support them. It might be a supermarket selling them food and basic needs. Or it might be an energy company, a landlord or anyone else whose bills they must pay to survive.
The essential point is the same in all cases. The benefit recipient's spending always becomes someone else's income. Cut benefits and you cut the incomes of all those who rely on that spending.
What is more, this cycle doesn't just happen once. It happens repeatedly. Economists call this the multiplier effect.
Imagine a benefit recipient spends all their payment at a supermarket. That is not the end of the story. The supermarket pays VAT and maybe Corporation Tax. So, the government immediately gets some money back.
The supermarket also pays its staff, who pay income tax and National Insurance. The government gets more of its spend back. The supermarket pays suppliers, which pay VAT, business rates, maybe Corporation Tax, and who also pay staff, generating still more tax.
Because the bottom 70% of households in the UK have very few savings, most of the wages that have been paid get spent again, restarting the cycle and sending yet more tax to the government with every round.
This process keeps going, paying the government back almost entirely over time the benefits spent, unless someone saves the money. Here's the irony. It is the savings of the wealthy that interrupt this cycle. Only when someone decides not to spend, and saves instead, does this chain of spending and tax stop.
UK Chancellor Rachel Reeves has looked to push through benefit cutsIt is only because the wealthy save so much that the government does not recover all it pays out in benefits through taxes. The wealthy keep the money instead.
So, it is not the poor on benefits who drain this cycle. It is the wealthy who hoard income and halt this cycle that benefits everyone else.
Compare this to the fairytale told by neoliberals. They believe in 'trickle-down economics', the idea that if the wealthy are allowed to grow ever-richer, their extra wealth will eventually trickle down so that everyone benefits.
But the reality is exactly the opposite. Paying benefits to those in need sets off a chain of spending that enriches everyone. It grows businesses, sustains jobs, funds public revenues and enhances wellbeing. When the wealthy save their money, it breaks the cycle and, wealth does not trickle down. It floods up.
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Money spent on benefits travels through the economy, enriching many along the way, until ultimately it accumulates with the wealthy. That's why we need more taxes on the wealthy which would reduce the sums they hoard.
This would then enable more funds to flow back into the economy, not least via higher benefit payments that get spent again and again.
This would lift incomes and wealth for everyone, including ironically the wealthy, if only they truly understood how the economy works.
The ignorance and greed baked into neoliberal thinking stops us from having the benefit system we so clearly need. In short, paying benefits is not an act of charity. It is a fundamental mechanism that keeps our entire economy running.
That is the truth no politician who parrots neoliberal dogma wants to admit.