Rebuilding Beveridge

Prospect Magazine

Rebuilding Beveridge

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Our welfare system undermines the value of hard work

Protestors in Trafalgar Square (© Jess Hurd/reportdigital.co.uk)


The longer parties are in power the greater the difficulty they have in breaking free from their time in government—and their former policies—once they occupy the opposition benches. This rule is playing out with a particular vengeance in Labour’s welfare reform programme. Disengaging from the past is not made easier for Labour by the  way that the coalition government has copied their welfare approach, tooth and claw.

Such a disengagement is crucial, though, if Labour is to become an effective opposition. It must do so to establish a wider electoral appeal and before the government’s approach fails. Now is the time for Labour to set out the principles that would underpin a new approach.

I always thought Gordon Brown’s aim was to replace welfare’s national insurance bedrock with a plethora of means tested tax credits. Iain Duncan Smith’s universal credit is the logical extension of Brown’s tax credit strategy, which was never more than means testing on speed. Both approaches are misguided.

William Beveridge, creator of the modern welfare state, initially included means testing in his national insurance system thinking that its importance would decline over time. This did not happen, but it was only during the first Wilson government in the 1960s that politicians accepted means testing would have a growing influence over welfare provision. Even then, hopes remained that an alternative approach would somehow emerge.

The universal credit—the sweeping up of six means tested benefits into a single payment—is almost the final destination of Gordon Brown’s tax credit journey. But there are two big problems.

First, it is doubtful that any government can deliver an information technology system that comes close to the expectations which will be placed upon it. With the exception of pension credit, I can think of no government IT scheme that has not turned out to be broken backed. One would have to be brave to put any political capital on the IT of the universal credit proving the grand exception to this dismal rule.

There is for me, however, an even bigger objection. Universal credit is incompatible with the values the public would wish to see thrive in the good society. Here it is important to go back to Beveridge’s first principles. December will mark the 70th anniversary of his great wartime report. Beveridge was part of that elite who had inherited from the late Victorian and early Edwardian period a passion about creating a certain kind of citizen, a passion shared by Clement Attlee, the post second world war prime minister who turned Beveridge’s report into policy. Beveridge and Attlee were part of that political tradition that saw as its primary goal the creation of a good and virtuous society and both of these leaders saw welfare provision taking a pivotal role.

Beveridge saw his welfare proposals as a means of moulding an active, independent citizenry that practiced the virtues of hard work, honesty and prudence. His fundamental principle was that receipt of welfare was to be dependent on what a person had paid into the scheme.

Means testing has, however, had a corrosive effect on this principle. The result is that a welfare state determined largely by contribution has been exchanged, without any debate let alone approval by the electorate, into a system of welfare determined by need.

With needs being met, and with responsibility left unrewarded, is it any wonder that we now witness an array of problems? Welfare spending affects how people behave. Means testing encourages dishonesty and penalises those who save; it flies in the face of the duty-based welfare which Beveridge designed.

This debate has a long history, but I always come back to an example from my constituency when I asked some young people on benefits about their attitudes to finding work. They told me they would not dream of taking a job that did not pay three times the rate they gain on benefits, despite having no qualifications to back up such a wage request. It cannot be right to strengthen a welfare system—with means testing at its core—which can produce this outcome.

During the last Labour government I thought the party was wrong to major on means testing, and resigned because of it. It also put the government at odds with public opinion—which Labour will need to have won over by 2015.

Part of that strategy should include new proposals on welfare, and a manifesto promise to begin rebuilding an insurance-based welfare. Such an approach would ensure that Labour’s traditional ethical approach became more dominant and that a new dialogue would open up with voters.

Benefit receipt should once again become dependent on a contribution record, with higher levels of benefit paid to those who have paid more national insurance contributions and all benefits paid at a markedly higher level than any means tested support.

How should Labour propose to pay for such a scheme? In the whole period since the Second World War governments have failed to persuade tax payers to fund fully the level of public spending they demand as voters. Indeed, deficits have been run for most of these years. Simply advocating more spending on welfare will get nowhere.

Peter Kellner, writing in these pages (A quiet revolution, March 2012) has hinted at the appeal national insurance still holds for voters despite government attempts to persuade them their contributions are little more than a tax.

We should build on this public perception by planning a new welfare state run by three mutual insurance bodies controlling health, pensions and national insurance.

The first would take over existing national insurance benefits. The mutual structure would consist of a pot into which national insurance contributions would be paid. It would be responsible to the membership for its finances and levels of benefit paid.

The second should cover the National Heath Service. Health funding will remain in a state of long-term crisis until we establish a direct link between what individuals demand as potential patients and what they are prepared to pay for as contributors. A separate national health insurance contribution would begin to establish that link, but also give members a direct say over the kind of services they wish to pay for.

Finally the coalition’s long-term pension reforms are in a political cul de sac. A pension system that reduces the need for means testing has considerable electoral appeal, until people realise that the government proposes to pay for it by pinching contributions from other contributors.

So a third mutual entity should incorporate the National Employment Savings Trust, the pensions scheme set up by Labour in 2008. This should ensure that savings over the longer term guarantee a pension scheme with the funds to make payments above means-tested assistance levels. It would have the further benefit of encouraging pensioners to build up other savings to top up their state pension.

Ed Miliband is trying to set out a new, responsible approach to capitalism. The scheme I have devised would seem the perfect fit with his vision. However there is not much time left before the election of 2015. Before then, we must prove that we are a potential alternative government. To do this, we must present fully developed policies that appeal strongly to the voters who deserted us in 2010. The way forward for Labour does not lie in its past.

  1. September 22, 2012

    S_EVERSHED

    this web site is very difficult to use

  2. September 25, 2012

    Alyson

    Young people stuck on benefits have a good point. I’d like to see anyone new to poverty trying to manage on £60 per week. People get used to it, but the alternative of chipping chewing gum off the pavement for £20 more isn’t going to inspire people to get out of bed on a cold morning.

    Those people in jobs work the longest hours in Europe. It would be better to work half the hours for twice the number of people if housing benefit could ensure a roof over their heads, since low pay is the poverty trap.

    Single parents have latch-key kids with no-one to welcome them home from school. The alternative is not being able to pay for essentials. It would be good if Labour had a plan for social housing or realistic housing benefit rates that would allow people to work to live rather than live to work, or go cold and hungry.

  3. September 30, 2012

    JONATHAN_REEVE

    I welcome the idea of three mutual insurance bodies, it sounds like a evolving of the welfare system that could have many benefits for society.
    I want to add to a point that the author makes about the welfare system disincentising work based upon his conversations with young unemployed people. I agree that means-testing devalues work but as somebody with experience of working on minimum wage for a while I found that that wasn’t the main reason why I was discouraged from working. On minimum wage the welfare system is used to top up your earnings from the employer because they pay far too little to live on. The problem comes from the fact that because employers who pay such low wages place little value on their staff, the relationship can become abusive in some respects. I found little dignity working on minimum wage, not because of the low level of income, not from my fellow employees but because the whole managment structure seemed to be based upon treating those at the bottom as little more than slaves who were used to supply very cheap labour. I cannot see how an organisation that treats its staff in such a way can be competitive in a sustainable fashion.
    I would like to see the welfare system stopped from providing subsidy to employers who do not create long-term value and the money saved diverted into something more worthwhile for society. Of course the business lobby will complain because as they rightly say it will be bad for some businesses. But that is the point of free-markets and the ‘creative destruction’ principle from economics, the poor businesses will fail to allow room for better businesses to grow and replace them. In the short-run the encumbents lose, but in the long-run everybody wins.

  4. October 6, 2012

    Rob Slack

    “A separate national health insurance contribution would begin to establish that link, but also give members a**direct say over the kind of services they wish to pay for**.”

    Low/higher earners would tend to choose a lower/higher level of provision if they were responsible for paying their own insurance premiums. It would be impossible to reconcile the differences in a mutual scheme.

    If contributions were income related, lower earners would have a **direct say over the kind of services they wished others to pay for**.

  5. October 6, 2012

    John Ellis

    Field says: “Benefit receipt should once again become dependent on a contribution record, with higher levels of benefit paid to those who have paid more national insurance contributions and all benefits paid at a markedly higher level than any means tested support.”

    Chicken and egg? if you have never had a job (whether it paid 3 x benefit or not) how do you pay into NI? Catch 22?

    Of course Welfare could be spruced up but for as long as globalisation continues to allow capitalism free movement wages will continue to be driven down – assuming that there are jobs available at all. No, Welfare is not at a dead end but capitalism as we know it certainly needs to address some fairly important economic issues that it has failed to grasp and I do wish that conventional economics would rewrite itself in order to do good in the C21.

    • October 15, 2012

      Paul Atherton

      The problem John is that we don’t have a capitalist system in its purest sense. We have a consumer one within a mixed economy.

      In a capitalist system, the worker and the consumer have the most power. One to produce one to purchase. It is their decisions that dictate wages, prices and flows of systems.

      Globalisation is a matter of branding large corporates, who have been given their mandates by government intervention and education systems that don’t educate the masses to real choice.

      If market forces were leading, energy prices wouldn’t be going up, we wouldn’t have saved the banks with tax-payers money, insurance would be standardised etc.

      And ultimately, we would accept a single benefit system that delivers a level of subsistence that was fair and equitable for all.

  6. November 6, 2012

    Kevin Albertson

    The thing which undermines the value of hard work the most is surely that for many it is no longer possible to realise a reasonable life simply by working hard. Five million people work for less than a subsistence wage and have no hope of putting anything aside for a rainy day, retirement, health care &c.

    • November 6, 2012

      Rob Slack

      Why should “hard work” guarantee a “reasonable life”?

      We live on the product of our efforts, not how hard we work.

      A man with a hedge trimmer may not work as hard as a man with a pair of scissors but he will cut more hedges and earn more as a hedge cutter.

      The man with the pair of scissors will have a lower material standard of living than the man with the trimmer, unless he is subsidised by people with trimmers.

      (Unless hedges go out of fashion, then they all all in the schtuck.)

      • November 6, 2012

        KEVIN_ALBERTSON

        By “hard work” I also include the process of maximising the return one may make from one’s human capital – including one’s parentage. There are many who, through no fault of their own, are simply shut out of professions which pay a living wage. Don’t forget that social mobility is worse in the UK than in many other developed countries.

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