The cost of the welfare state - challenges posed and solutions

[BuhSnarf]

As someone who is working with it in a business context, it's largely the exact same AI! The only real guardrails in place are ones that prevent the AI learning from the information given to it to avoid e.g. GDPR breaches. All AI hallucinates, though you can reduce the risk by careful use of prompting such as specifically instructing it to evidence everything it says. But the models themselves are the same ones.

They use the same LLMs in the background, but certainly where I work (large financial sector company) it's a very different product than what the public see and use.

Whilst we do have access to a chatbot type interface for general queries most of our work is done through specialised interfaces, sandboxed within our organisation which specifically uses only internal documents and does not train outside the business models. We've been testing and manually validating the outputs consistently over the past 18 months and it is actually insane the leaps and bounds it has come on in that short space of time.

Most of the AI testing we do is repetitive tasks (agents) or analysis (ad-hoc) and we've been running it alongside the human equivalent workers and the accuracy from the AI has....

 

[styles]

I think for most of us £100k still seems like a rather unachievable dream salary. The average salary in the UK is still <£45,000 whilst the median salary is still less than £40k. At £100k you're still earning more than twice as much as the average Joe.

Yes, but is it such an astronomical sum that it justifies a 70% marginal rate of tax? I really don't think so personally. And for the tax rate to go up, then come back down again once you earn £125k, is bonkers.

 

[BuhSnarf]

Yes, but is it such an astronomical sum that it justifies a 70% marginal rate of tax? I really don't think so personally. And for the tax rate to go up, then come back down again once you earn £125k, is bonkers.

Agree, it's absolutely ridiculous that it goes down once you earn £125k.

 

[Bletchleyite]

Agree, it's absolutely ridiculous that it goes down once you earn £125k.

70% is too high even if it didn't come down. 50% but not going back down again would be better, and we had that once, but a stupid manifesto promise was made. Maybe Burnham should consider a GE to get a mandate to get rid of that pledge.

 

[speedy1]

What I find curious about the tax trap is how people give up and don't think long term. My brother for example, doing very well in his career, accepted the situation and reduced his hours to stay under. I tried to encourage him to accept the temporary pain – him being in London he could quite easily break through and continue flying above £125k. It's some temporary pain that can pay off in the future.

In my experience the 'trap' is more about the way it encourages people to self-impose an earnings/career limit

 

[BuhSnarf]

70% is too high even if it didn't come down. 50% but not going back down again would be better, and we had that once, but a stupid manifesto promise was made. Maybe Burnham should consider a GE to get a mandate to get rid of that pledge.

You only pay the 60% on the earnings between £100-125k. You're not paying 70% on your full earnings. Someone on £100k is still taking home £68k even with the high rate of tax, double what the average UK salary is. Someone on £125k is still taking home £78k.

I don't think we should cry too much for them.

 

[Bletchleyite]

You only pay the 60% on the earnings between £100-125k. You're not paying 70% on your full earnings.

I am fully aware of how a progressive tax system works, thank you.

Someone on £100k is still taking home £68k even with the high rate of tax, double what the average UK salary is. Someone on £125k is still taking home £78k.

I don't think we should cry too much for them.

I do, it's grossly unfair. Tax should be progressive, i.e. the more you earn the more you pay on that higher proportion. This is regressive, which is the total opposite of that (i.e. the more you earn the lower a proportion you pay on that earnings).

The fix is to have an upper rate of 50%ish on all earnings above 100K (say), not this silly fudge which is having unintended consequences all over the place (e.g. causing train drivers to be less willing to do overtime) and the longer it goes on the more of an issue it will be as inflation takes more people into that bracket.

The child benefit "cliff edge" is another issue and creates a band around there where the marginal rate is even higher. There shouldn't be "cliff edges" of that nature - means testing needs to be tapered, or just pay it to everyone and knock the upper rate of tax up a bit to get it back that way.

With regard to the latter people will moan "but why should I pay for others' children", the simple answer to which is that their work will be paying for your pension and healthcare in old age, and if they don't have them and the population decreases funding those things become non viable.

 

[BuhSnarf]

I agree that the £100-£125k tax gap is not fair, but I'd rather we sort out those on the lower end of the spectrum who are actually genuinely struggling to eat before we start helping the rich, again. And as much as people may want to claim £100k is not rich, it is.

It's also unlikely to change as the even richer (over £125k) won't want to pay more tax - shock - and they have the law makers ear.

 

[brad465]

My solution to all this is to achieve (or return to) a society where one working adult can earn enough to support a household without needing additional welfare support.

I won't pretend this is simple, it will require action to increase pay and lower living costs (especially energy and housing). But if achieved, this will go a long way to reducing welfare spending and reducing unemployment, as well as allowing for AI-induced job losses.

 

[Bletchleyite]

I agree that the £100-£125k tax gap is not fair, but I'd rather we sort out those on the lower end of the spectrum who are actually genuinely struggling to eat before we start helping the rich, again.

This is a strawman. It is possible to sort both things at once, they are not mutually exclusive. Indeed it would be sensible to sort them at once by recasting tax bands rather than doing it multiple times which is more of an issue for peoples' planning.

 

[Yew]

And as much as people may want to claim £100k is not rich, it is.

I don't think anyone is claiming that, merely that with inflation, it's a lot less money in real terms than it was when the thresholds were set. Back in 2010, 100k was a decent house in many places, not so much these days.

 

[Bletchleyite]

My solution to all this is to achieve (or return to) a society where one working adult can earn enough to support a household without needing additional welfare support.

I won't pretend this is simple, it will require action to increase pay and lower living costs (especially energy and housing). But if achieved, this will go a long way to reducing welfare spending and reducing unemployment, as well as allowing for AI-induced job losses.

That isn't a solution, though, it's an ideal (and one I do agree with - and no it shouldn't just be the woman, it could be either person or indeed each could work part time). How would you propose to actually achieve it?

Housing is the main issue as it's the single biggest cost for most people. I think you might achieve it over 20-30 years if every year you flooded the market with new housing both for sale and rent. It's important to remember that a price crash is dangerous as it bankrupts people, so you can only bring house prices down by long term stagnation and having inflation do its job unless you want mass bankruptcies which become a huge draw on the public purse.

One way it could be aided would be to allow married couples to pool their tax allowances. That makes a single wage household more economic.

 

[BuhSnarf]

This is a strawman. It is possible to sort both things at once, they are not mutually exclusive. Indeed it would be sensible to sort them at once by recasting tax bands rather than doing it multiple times which is more of an issue for peoples' planning.

It's possible to do both at once, but very unlikely and therefore I'd argue that the most important one (those really struggling) should be tackled first.

If we're talking radical, what I'd love to see is Universal Basic Income. Whilst it's a bit pie in the sky it's possibly something that could be a reality in the AI-dominated world.

 

[Bletchleyite]

It's possible to do both at once, but very unlikely and therefore I'd argue that the most important one (those really struggling) should be tackled first.

I don't agree that it's very unlikely.

If we're talking radical, what I'd love to see is Universal Basic Income. Whilst it's a bit pie in the sky it's possibly something that could be a reality in the AI-dominated world.

It's very pie in the sky. It might be necessary to look that way, but how to tax AI is an interesting question in itself.

 

[Bald Rick]

Housing is the main issue as it's the single biggest cost for most people. I think you might achieve it over 20-30 years if every year you flooded the market with new housing both for sale and rent. It's important to remember that a price crash is dangerous as it bankrupts people, so you can only bring house prices down by long term stagnation and having inflation do its job unless you want mass bankruptcies which become a huge draw on the public purse.

By all economic measures, UK house prices have been falling relative to other prices and earnings in the long run for at least a decade. Particularly in London and the South East. Part of this is due to interest rates, part due to the thoe of housing stock, but part is inevitably the balance of supply and demand. The longer this persists, and in my opinion it will for some time, then housing will continue to become relatively more affordable (the Bank of England forecasts interest rates staying in the current range, or perhaps a little higher, for the rest of the decade).

For example, in the past deacde:

RPI +59.3%
CPI +41.3%
Average Earnings +53.1%
Average House Prices +38.8%
Average House Prices (London) +10.6%

 

[BuhSnarf]

I don't agree that it's very unlikely.

The government doing two things at once? You're much more of an optimist than me!

Taxing AI is a VERY interesting subject but probably outside of this thread.

 

[styles]

I agree that the £100-£125k tax gap is not fair, but I'd rather we sort out those on the lower end of the spectrum who are actually genuinely struggling to eat before we start helping the rich, again. And as much as people may want to claim £100k is not rich, it is.

Apart from disagreeing that £100k income makes a household 'rich', these things are not mutually-exclusive. It is possible to sort out the regressive personal allowance tapering while also helping people on lower incomes; it's not one or the other.

It's also unlikely to change as the even richer (over £125k) won't want to pay more tax - shock - and they have the law makers ear.

I mean, the minimum wage has outstripped inflation (whether measured by CPI or RPI) and median wages for over 20 years now. It's not like various governments aren't also trying to improve things for lower earners.

 

[Bletchleyite]

By all economic measures, UK house prices have been falling relative to other prices and earnings in the long run for at least a decade. Particularly in London and the South East. Part of this is due to interest rates, part due to the thoe of housing stock, but part is inevitably the balance of supply and demand. The longer this persists, and in my opinion it will for some time, then housing will continue to become relatively more affordable (the Bank of England forecasts interest rates staying in the current range, or perhaps a little higher, for the rest of the decade).

For example, in the past deacde:

RPI +59.3%
CPI +41.3%
Average Earnings +53.1%
Average House Prices +38.8%
Average House Prices (London) +10.6%

Yep, and this "inflationary fall" is the best kind, because it makes houses more affordable but doesn't result in negative equity. The only problem with it is that we have to wait for it.

Making owning a house more affordable, to get back on topic, benefits the welfare state, as someone who owns a house outright at retirement doesn't require housing benefit.

 

[Broucek]

I think for most of us £100k still seems like a rather unachievable dream salary. The average salary in the UK is still <£45,000 whilst the median salary is still less than £40k. At £100k you're still earning more than twice as much as the average Joe.

True. But £40k gross is £32k after tax. £120k is "only" £76k after tax ignoring student loans

 

[BuhSnarf]

Apart from disagreeing that £100k income makes a household 'rich', these things are not mutually-exclusive. It is possible to sort out the regressive personal allowance tapering while also helping people on lower incomes; it's not one or the other.

Taking home £68k a year absolutely is rich. You're earning double the average wage - if you can't cope quite comfortably on that wage then you're clearly not managing your money well! My only exception would be for those living in London.

I mean, the minimum wage has outstripped inflation (whether measured by CPI or RPI) and median wages for over 20 years now. It's not like various governments aren't also trying to improve things for lower earners.

The minimum wage has outstripped inflation but is still not enough to fully support a family in any comfortable way. Various governments have tried to improve things for low earners, it doesn't appear to have made too much of a difference to those actually living on the lower end of the spectrum. Now, it could be argued that this may be due to more discretionary spending, but the quality of life for someone on minimum wage is still VERY tight and offers little chance to ever be able to afford a home so you're relying on soaring rental prices. When even a 3 bed home in a midlands town costs £1k+pcm how are these people supposed to save?

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True. But £40k gross is £32k after tax. £120k is £76k after tax.

Exactly, you're still taking home more than double the average salary?

 

[Bletchleyite]

Taking home £68k a year absolutely is rich.

It's well off but it's not rich - I'd call it upper middle class (assuming two such incomes in the household if it's the South East). Rich to me is where you have enough assets etc that you don't need to work at all.

== Doublepost prevention - post automatically merged: 21 Aug 2026 ==

The minimum wage has outstripped inflation but is still not enough to fully support a family in any comfortable way.

It is the MINIMUM wage. It is not supposed to be that comfortable, it is supposed to be possible to live a very basic life on it. A room in a shared house (or a small rented one bed flat in a less desirable area if living as a couple, maybe a two up two down terrace if in one of the Northern cities where these are plentiful), basic but nutritious home cooked food, a bus pass, a budget mobile phone and the likes. Maybe a camping holiday in the UK once or twice a year. That's possible in most places bar London itself.

The idea is that you start there and you progress, though obviously not absolutely everyone will.

 

[Broucek]

Exactly, you're still taking home more than double the average salary?

Yes, that's comfortable but hardly "rich" unless you live somewhere very cheap (and salaries are generally lower in such places).

 

[styles]

Taking home £68k a year absolutely is rich. You're earning double the average wage - if you can't cope quite comfortably on that wage then you're clearly not managing your money well! My only exception would be for those living in London.

You're building a strawman now. At no point has anybody said that people on £100k "can't cope comfortably".

That level of income is obviously well-off, but it's not rich.

The minimum wage has outstripped inflation but is still not enough to fully support a family in any comfortable way.

Except all the people supporting families on minimum wage, you mean? My single mum was one of those people while working three jobs.

Various governments have tried to improve things for low earners, it doesn't appear to have made too much of a difference to those actually living on the lower end of the spectrum. Now, it could be argued that this may be due to more discretionary spending, but the quality of life for someone on minimum wage is still VERY tight and offers little chance to ever be able to afford a home so you're relying on soaring rental prices.

I think the proportion of people going on holiday or owning the latest technology would disagree. There are of course people struggling, there always has been. But relative poverty has dropped over the past 30 years, with child poverty rates dropping the greatest in the past decade. There's always more work to do, but the idea that this needs to come at the expense of shelving the abolition of the personal allowance tapering (which may even be reducing tax receipts) is wild.

When even a 3 bed home in a midlands town costs £1k+pcm how are these people supposed to save?

There's no entitlement to save. Many however do manage to save. And in fact the government gives a 50% boost to Universal Credit claimants who choose to save: https://www.gov.uk/get-help-savings-low-income

I notice of course that we've significantly shifted the goalposts here.

 

[AlterEgo]

My solution to all this is to achieve (or return to) a society where one working adult can earn enough to support a household without needing additional welfare support.

I won't pretend this is simple, it will require action to increase pay and lower living costs (especially energy and housing). But if achieved, this will go a long way to reducing welfare spending and reducing unemployment, as well as allowing for AI-induced job losses.

That will never happen. It will inevitably lead to women being more likely to become housewives again and the loss of freedom that brings.

 

[BuhSnarf]

It's well off but it's not rich - I'd call it upper middle class (assuming two such incomes in the household if it's the South East). Rich to me is where you have enough assets etc that you don't need to work at all.

I guess people's definitions of rich really depend on their own personal circumstances, savings and stage in life so I'm willing to agree to disagree on this one as I guess you can't base it solely on salary.

It is the MINIMUM wage. It is not supposed to be that comfortable, it is supposed to be possible to live a very basic life on it. A room in a shared house (or a small rented one bed flat in a less desirable area if living as a couple, maybe a two up two down terrace if in one of the Northern cities where these are plentiful), basic but nutritious home cooked food, a bus pass, a budget mobile phone and the likes. Maybe a camping holiday in the UK once or twice a year. That's possible in most places bar London itself.

The idea is that you start there and you progress, though obviously not absolutely everyone will.

However, when we're at the point where 15% of the jobs in the UK pay less than then national living wage, 6% of them on the minimum wage it's not as easy as it was back in the day to progress. Many of the careers that previously would have allowed a person to live a more comfortable life no longer exist or are not paid the wages they were, sadly. There's a real possibility that a high proportion of the UK workforce will never progress in to a well paying role.

It is possible to achieve what you're saying if you're a single person. As soon as you add in a child you either have to have both parents working (and then paying childcare or having a very accommodating family) or you claim benefits. The minimum wage does not cover these people and whilst it's great saying that they should get a better paid job, for many people getting just a minimum wage job is hard enough.

"4.4 million jobs across the UK (about 1 in 7 jobs) are paid below the voluntary, independently calculated real Living Wage managed by the Living Wage Foundation."

 

[Bletchleyite]

It is possible to achieve what you're saying if you're a single person. As soon as you add in a child you either have to have both parents working (and then paying childcare or having a very accommodating family) or you claim benefits. The minimum wage does not cover these people and whilst it's great saying that they should get a better paid job, for many people getting just a minimum wage job is hard enough.

Both parents working is the norm at most income levels. Someone does allude to seeking to change that above, but you wouldn't be bringing up a child on one minimum wage without benefits and nobody is really suggesting you would.

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"4.4 million jobs across the UK (about 1 in 7 jobs) are paid below the voluntary, independently calculated real Living Wage managed by the Living Wage Foundation."

A slight problem with that calculation is that costs aren't consistent across the country. With two minimum wages coming in to the household you'd live reasonably OK in West Cumbria, but a pauper's life much nearer London.

 

[BuhSnarf]

A slight problem with that calculation is that costs aren't consistent across the country. With two minimum wages coming in to the household you'd live reasonably OK in West Cumbria, but a pauper's life much nearer London.

I believe the NLW has a London weighting, which would be accounted for in this figure.

I can assure you that as someone who has previously lived in a situation where two NMW incomes are coming in to a house and I don't live in or near London you don't live "reasonably OK."

 

[Dave61]

I'd love to share this viewpoint, but in my company we've already gone through a number of rounds of redundancy with AI literally being called out in the scripts being read. It's so far targeted mainly middle management, analysts etc. It hasn't targetted those lower down so far, but we are starting to now see it with more AI agents being introduced. The only people who have so far escaped any type of redundancy? Those on the top bands...

I think you're confusing AI chat bots, with AI. What you use publicly is very different to what is being used within businesses to provide agent/modelling type work. This is specifically designed to not hallucinate and to use specific guardrails as put in place by the compliance teams.

Not at all regarding confusing with AI chat bots, companies that are blindly using AI for software programming are at great risk and for exibit one I quote this story from The Register:

AI agent suggested installing a malware package. Engineer almost took its advice

Fortunately, the company had a policy of checking source code on GitHub first

www.theregister.com

Our tale of machine learning malfeasance comes courtesy of Sergiy Fitsak, managing director of Softjourn, a consulting and software development company. He reminds us that, when it comes to AI, don’t trust: verify.

During the course of business, one engineer asked an AI agent to recommend a package that they needed for a common task. The agent came back with the name of a legitimate-sounding package, which was formatted like a familiar library.

At many organizations, this would have been the end of the story. The developer would have taken the AI agent’s advice and downloaded and installed the recommended package.

However, at Softjourn, the company has a policy which they actually followed: double-check any software recommendations made by AI to make sure they are legit. The developer skimmed the recommended package’s source code on GitHub and noticed that it had few downloads and had just been created a few days earlier. In other words, it was suspicious.

According to Fitsak, attackers have found a way to exploit package names hallucinated by AI models.

“The problem is that AI models sometimes invent package names that sound plausible but don't exist, a pattern security researchers have started calling 'slopsquatting,'” he told us. “Attackers have caught on and now register real packages under those exact invented names, betting that a developer under deadline pressure will install first and check later.”

If Softjourn hadn’t been so careful, they could have installed a malware package. We don’t know the exact payload, but this malware package could have given crims a backdoor into their systems and the ability to steal data or wreak other havoc.

“We caught it because we'd already built a habit of verifying download counts and reviewing source code on GitHub before installing anything an AI recommends, even when it looks routine,” Fitsak said. “It takes a few extra minutes. Skipping that step once is how a team ends up explaining a supply chain compromise instead of shipping a feature on time.”

In this instance they have clearly kept the people and are manually checking what the AI LLM is suggesting, but for many companies the drive is to get rid of all those pesky humans in the name of profit and those who remain are driven to produce more with less people, so this sort of stuff will get (and had got) into commercial software. This is where AI Slop at its worst is coming from and is creating a huge problem the future. A read of The Register website can be an eye opener for those blindly using AI

 

[Bletchleyite]

I believe the NLW has a London weighting, which would be accounted for in this figure.

It doesn't however account for the vastly different cost of living between say West Cumbria* and Milton Keynes. Neither of those places is in London and so neither would receive London weighting.

House prices are the main influencing factor (and they of course indirectly drive rent prices) and they vary wildly. Houses are ten a penny in Whitehaven or Workington, but they're a lot more expensive in Milton Keynes, and rents follow that.

It appears that take home from a full time minimum wage job is roughly £1800, so £3600 for two. That's not massive but it's liveable, even in the South East, but if your house costs next to nothing as it would in West Cumbria you're going to get a pretty decent life for that.

Minimum wage under 21 is lower, but it's generally the expectation that people of that age will still be living with their parents (and even if they charge them rent it won't be the full cost of a flat to themselves), and most indeed will.

* I'm picking that because it's one of the cheapest places in the country, though there is probably cheaper if you're willing to live in a proper hellhole rather than just a bit of a backwater.

I can assure you that as someone who has previously lived in a situation where two NMW incomes are coming in to a house and I don't live in or near London you don't live "reasonably OK."

Aside from London and its immediate environs I'd say you do. £3600 a month between you isn't a king's ransom but it isn't a pittance either. You would be able to rent a reasonable two bed flat, run a reasonable car (maybe 6-7 years old) and have a couple of weeks away each summer on that sort of income. Nothing fancy, but perfectly acceptable, and the upside that the jobs are likely quite low stress "go home and forget about it" ones too.

Where it gets much more difficult is a single person on ONE minimum wage, of course. But everything in life is set up around couples and families, so living on your own is always going to be costlier.

 

[Sorcerer]

I haven't kept up with a lot of the thread but it has got me wondering how we can possibly reduce the cost of the welfare state and pensions which are a huge cost of government spending.

What if we implemented a Singapore-style Central Provident Fund where social savings are compulsory, only in this case you aren't bound to the state and can switch to private savings if you wish.

Unpopular as it may be, this might also have to come with getting rid of the triple-lock. It's quite simply unsustainable and there's no reason why it has to be pegged to the highest possible payment.

The only reason it's been kept is because pensioners are an active voting bloc and will punish the party that dares to make such a decision, evidenced by Starmer's original winter fuel policy.