WHO FNUDS YOU?

On tax, birth rates, and social housing

I experienced something rare this week: the online world of Discourse collided momentarily with the offline world of the London transport network. I was travelling home on the train when I overheard two passengers discussing a piece published a few days earlier by Conservative Home editor Henry Hill, which has been causing a ruckus on British Twitter.

The thesis of the piece (very briefly) is that an enormous quantity of inner London housing is currently occupied by economically inactive social housing tenants – one fifth of whom were born overseas – and moving those people to cheaper housing elsewhere in the UK would be good for the people on middling incomes who are currently being priced out of London, particularly those under the age of 40.

My fellow passengers were not impressed by this argument. “Moron” was the word they used to describe Hill. A few times.

Their objections, as far as I could make out, were empirical. Firstly they rejected the idea that social housing tenants were somehow beneficiaries of taxpayer subsidy of any kind. Secondly, they wanted to know who would staff the bars and shops if social housing tenants moved further out and were forced to commute into the centre of the city. They seemed to have missed the bit where Hill specified that his argument applied only to the unemployed, but then it’s unlikely that they read the piece itself – more likely they read the Twitter commentary.

These men looked to be about 30 and, based on their accents, I’d bet money on them both being graduates. From the look of them, they probably work in professional creative jobs of some kind, so will be on salaries of £40-50k (I know that may not seem like much, American readers, but that puts them in the top third of earners nationally – we are poorer than you).

And given that they got off the train at Peckham Rye, a once-affluent inner London suburb that is now home to a combination of millennial natives made downwardly mobile by housing costs, alongside much of the UK’s West African diaspora, they’re probably spending about half of their after-tax income on a dingy flat share, while also experiencing the highest level of taxation since WW2 on top of their student loan repayments. All in a Labour-run council in which 40% of housing units are allocated to social housing, with roughly half of those tenants out of work.

If they somehow manage to save up for the deposit – they’ll probably need help from their parents to do this – they might just about be able to afford a £300-400k ex-council flat within walking distance of Peckham Rye station. Their next-door neighbour will then be subsidised, potentially to the tune of tens of thousands of pounds per year, in order to live in exactly the same quality of housing.

In other words, whether or not they choose to believe it, their tax revenue is not only being spent on their unemployed neighbours’ rent, it is also being used to reduce the supply of private housing available to them, thus driving up prices even further. And all the while this cohort are busy telling pollsters that they’re foregoing parenthood because they can’t afford to buy a house. “Because of the Tories.^⁠1”

I’m being mean. In truth, these men (I refuse to say “young”, 30 isn’t actually young) are tragic figures. And, like most of their peers, they are proving to be incapable of pushing for the kind of political change that would best serve their material interests.

The big problem here is that many voters – graduates or not – cannot give correct answers to these two questions:

1) How much do you need to earn to be in the top 1%?

2) How much do you need to earn to be a net-contributor?

People tend to overestimate on 1 and underestimate on 2. They assume you need to be earning millions in order to be in the top 1% when in fact the figure is more like £160k. And they think that most people are net-contributors, when in fact most people – by design – are not. Depending on how you calculate it (there are a lot of variables at play), you need to be earning at the bare minimum £40k in order to break even on what you take out of the state in any given year. In other words, it is the top third of earners, and in particular the top 1%, who are responsible for keeping the financial show on the road.

These figures will vary between countries, of course, but the general principle remains the same across the West. Income conforms to a Pareto distribution, and welfare states are designed (rightly!) to redistribute money from the rich to the poor. These facts in combination mean that most people end up taking out more than they put in.

All of which is to say that, although the upper middle classes are often very annoying – they are the luxury beliefs class, after all – they are not parasites or sponges, as many on the Left would have you believe. Quite the opposite. We are all incredibly dependent on them, even if many voters don’t realise it.

Before you all rush into my Twitter mentions, I do realise that the effects of capitalism are often cruel and perverse, and that people can make many different kinds of contributions to the nation state aside from tax revenue, for instance as stay-at-home mothers or by performing essential work that needs to be subsidised (British farmers are in this category).

One manifestation of capitalist dysfunction is that we currently funnel many of our sharpest minds into the finance sector, where they spend their careers playing games with funny money. I would much prefer them to be spending time on, say, making nuclear energy safer and more efficient (a government truly committed to making Net Zero happen would be offering £500k salaries to top graduates who decide to work in green tech, rather than persecuting small business owners who need to drive in London).

But, whether or not you want to overthrow the capitalist system (not, historically, either an easy or a bloodless project), our current reality is that the top 1% of UK earners contribute 28% of all income tax. And yet, because most voters don’t understand the numbers, they expect the state to ‘give back’ money they think is theirs when in fact they’re asking for money contributed by other tax payers. “I’ve paid into the system all my life!!!” says every single pensioner in the comments section under an article on the triple lock. “No,” replies the weary millennial, “your National Insurance contributions have already been spent, and were too low to cover the cost of your pension anyway – you paid for a much smaller sum for the previous generation, and now I’m tasked with paying a much larger sum for you.”

And as the demographic pyramid becomes ever more inverted, working age people are facing an ever heavier tax burden, even while pay stagnates and house prices rise. Our Peckham Rye millennials are sitting on the train bitching about Henry Hill when they should be burning down Parliament [note for any Prevent officers reading: this is a joke].

This is why the economic problems generated by low birth rates are so intractable. Most people don’t have an intuitive grasp of a problem, which – to be fair to them – is really not at all intuitive. They don’t realise that the generous welfare provision we’ve all grown used to is paid for by an increasingly tiny share of the population, and they don’t realise that this system will eventually collapse under the weight of an ageing population with 70 years worth of sub-replacement fertility behind it. Our Peckham Rye friends are being fucked and they don’t even realise it.

Personally, as a 31-year-old London resident – and a mother, too – I very much realise that I’m being fucked. One feature of being self-employed is that you end up with a very clear idea of how much income tax you pay because you have to transfer it directly to His Majesty’s Revenue and Customs, and they don’t even send you a ‘thank you’ note in return. You tell yourself that this tax revenue is going towards good and important things – ok, not tax breaks for families with young children,^⁠2 or long-term infrastructure, or generally any investment in the future, but other good and important things… right?

But then sometimes you’re brought up short by how badly the social contract has frayed. Not long after I completed my last tax return, I happened to read a news item about a foreign national who had committed a series of particularly horrible crimes and had relied on taxpayer funded legal aid in order to avoid deportation. His legal aid bill was almost exactly equal to my income tax bill. I doubt he’ll be sending me a ‘thank you’ note either.

I’m not saying I oppose legal aid, or social housing, or state pensions, or the welfare state in general. I believe that the nation state ought not to be understood like a shop – as the Right liberals would have it – in which people come and go as they please, with no particular connection to the business or its customers. It should instead be understood like a home, in which people are obliged to look after one another: from each according to his ability, to each according to his need. And this should be a home in which the inhabitants have control over who they live with (i.e. immigration policy) and the standards of behaviour they expect in return for support (i.e. crime policy). One of the best things about living in a rich country is that we can spend the surplus on looking after the young, the old, the disabled, and those fallen on hard times. I’m not proposing that we do otherwise.

But what do we do as that surplus shrinks? Because it is shrinking, and fast. And, as Mary Harrington pointed out in her column this week, we’re also haemorrhaging the social trust necessary to maintain mass democratic support for a large welfare state.

For now, most of the property-less net contributors of Peckham Rye don’t realise this, and even if they did, they would be reluctant to acknowledge that the policies they tend to support – mass migration, the triple lock, Covid lockdowns – are policies that make them worse off and further disincentivise productive, law-abiding people from playing by the rules. I don’t know when this class is going to snap out of its false consciousness. Maybe it never will.

But the problem won’t go away just by ignoring it. Western countries facing the consequences of sub-replacement fertility have just two options, I’m afraid, unless the care robots – or the AI singularity – arrive just in time to save/destroy us. Either they somehow start having more children, or they become much poorer, as they eventually break the backs of the dwindling number of working age people who are tasked with funding the system. That’s what my next book, The Case For Having Kids, will be all about.

¹ They’re actually not wrong to blame the Tories, #13years and all that. But the sad truth is that Labour is likely to make their predicament even worse.

² Did you know that childcare costs are not tax-deductible??