Tony Blair has chosen to speak out on the moral crisis of the welfare state but he may have raised expectations that he cannot fulfil. Roderick Nye considers the trouble aheadby Roderick Nye / July 20, 1997 / Leave a comment
Published in July 1997 issue of Prospect Magazine
When Tony Blair chose welfare reform as the subject for his first big speech as prime minister-outlining his “will to win” for single parents and the longterm unemployed-he was signalling a decisive break with the recent past both of his party and his country. Labour has chosen welfare reform as its first big idea because it appeals to those who, in the words of Blair borrowed from Bill Clinton, “work hard and play by the rules.” Stating that you cannot take out what you do not put in is aimed as much at taxpayers as at clai-mants, because Blair knows that restoring confidence in the welfare state is good politics as well as sound economics. It is also the essence of what is supposed to make New Labour, “new.” A willingness to talk about fundamental reform of welfare means breaking with the moral relativism which dogged Labour for much of the postwar era, and which disconnected it from ordinary voters throughout the 1980s. As Blair and the minister for welfare reform Frank Field both know, the call for more self-help and the rise of a new generation of “social entrepreneurs” also conjures up a much older brand of friendly society socialism. Welfare reform involves Labour going back to its own basics and offers a showcase for what Blair has called “traditional values in a modern setting.” Judging by the reaction to his speech, the prime minister has achieved his immediate political objective. He has succeeded in setting the stage for a programme of reforming social security without, as yet, having to announce the details. The question is: does ending the “dependency culture” mean anything more than inviting single parents to job centres for a cup of tea and a chat about their career prospects? Optimists argue that it does. They say that Blair’s speech was simply the first stage, a necessary softening up exercise. The appointment of Frank Field, whose views on remoralising welfare are well known, and Martin Taylor of Barclays Bank, who will attempt to fuse together taxes and benefits, are seen as signs of the prime minister’s ultimate ambitions. From now on, political objectives will determine the shape of the social security system, not the other way round. This is a long way from post-ideology, where what counts is what works. It is also a distinctly American theme, picked up in a recent Social Market Foundation book by Robert Skidelsky, Beyond the Welfare State. He argues that too much debate on the welfare state has focused on the size of the social security budget. This is important but it misses the main point. Affordability has only become a problem because the welfare state is self-perpetuating. It is set up in such a way that playing the welfare system and playing fair are at odds. Welfare recipients do not have to take responsibility for the consequences of their actions. Taxpayers understand this and are reluctant to finance more spending on social programmes, so governments borrow the money instead, undermining economic performance in the process. The idea that moral behaviour should be the starting point for examining the future of the welfare state-and that there can be a distinction between the deserving and undeserving poor-has moved in only five weeks from being beyond the pale to become mainstream thinking, proof positive that what counts is not what is being said, but who is saying it. Just as only Richard Nixon could go to “Red” China, so only a government of the “radical centre” could talk about there being no “stay in bed” option for the longterm unemployed and still receive cautious approval from the Unemployment Unit. But the prime minister has a minefield to negotiate if he is sincere in his desire to shake up the system. Attacking the welfare system for its “fatalism” and “the deadweight of low expectations” is fine as far as it goes. But how do you change the attitudes and behaviour the system has encouraged? Do you compel single mothers with children of school age to look for work? If so, do you put the onus on them to make the necessary childcare arrangements? If not, how much will it cost to put in place an infrastructure provided by the state? Compulsion does not necessarily deter single parents from “marrying” the state, it simply means-as Melanie Phillips points out-that instead of marrying big daddy who hands out money, they marry big mummy who hands out free childcare (which is unfair to working married parents). Also, Blair’s team seems to be pulling in different directions. Field’s antipathy to means-tested benefits is well documented. He regards them as a tax on honesty. Yet at the same time, Taylor has been brought in to integrate the tax and benefits systems which will surely entail an extension of means-testing. The latter is, in any case, a mammoth task and not simply a matter of political will. Through the 1960s and 1970s, successive governments promised much the same as Blair does now. These reforms brought forth mice because taxes and benefits have different targets, and are assessed over different periods of time. The underlying problem is that tax is assessed individually while benefits are family based. Labour has a number of options: to reverse the individualisation of taxation; to focus benefits on individuals rather than families; to pay benefits less regularly; or to tax people more often. Each of these involves enormous upheaval. There are contradictions in the new government’s job creation agenda. So far as we know, Gordon Brown’s welfare-into-work programme will in effect subsidise employers for taking on the longterm jobless. In so doing, Labour appears to accept the idea that the availability of jobs is related to employment costs. Setting aside the possibility that this may not apply in the case of the “bad attitude” hard core unemployed, it is certainly at odds with a policy of introducing a minimum wage to eliminate wage subsidies for employers at the bottom end of the labour market. The social chapter has also now become a wild card in Labour’s employment policies. Blair has signed Britain up to it, both because there is nothing much to it at the moment and because he hopes to persuade our EU partners that Europe should be adopting more flexible labour markets. If he should lose that debate-and the French elections are hardly encouraging in this regard-being signatories to the social chapter we may no longer be able to escape the consequences. Finally, Blair faces Britain’s pension problem. The growth in private second pensions is one of the undoubted successes of the last government. As a result more people are retiring with higher living standards than ever before. But the question remains of what to do about those who have only the basic state pension to rely on. Frank Field has written widely on the need for “stakeholder welfare,” to move from a system where poor pensioners are supported by means-tested income support and a tax-financed state pension, to one where people-or the government on their behalf-are investing money throughout their adult lives so that they can retire with security and dignity. The difficulty here is cost. At least one generation is going to have to pay for two pensions, its own and those of the people who are currently retired. The only solution is time, so that the cost can be spread out. Lilley’s basic pensions plus scheme would have allowed those who were beginning their careers to invest some of their National Insurance contributions in a personal fund, to which they could add their own savings. Older people’s state pensions would have been met in part by no longer offering tax relief on these contributions. People retiring in 40 years’ time would have had a basic pension which grew in line with the economy instead of simply with prices. During the election, Labour claimed that this amounted to abolishing the state pension, but it is difficult to see how any scheme Frank Field comes up with would differ in essence unless Labour were prepared to increase National Insurance and effectively raise personal taxes in the process. Such are the problems facing any government which tries to wrestle with the blancmange of the welfare state. Blair has to understand at the outset the political costs of dealing with them and calculate whether they are outweighed by the political dividends. Here he may wish to learn from Clinton’s experience. The president lost the plot on welfare reform-an issue of genuine concern in the US-by opting to concentrate on reforming healthcare instead. (This was also superficially popular, but became less so the more voters understood the issue.) As a result the Clinton presidency was paralysed for much of its first term and yielded the initiative on welfare reform to the Republican Congress and largely Republican-controlled state houses. Blair has seized on ending the dependency culture as a superficially popular issue, but it remains to be seen whether the enthusiasm of the voters will be sustained through the gains and losses that real reform entails. In the meantime the NHS, support for which is deeply ingrained, requires more urgent attention than the elimination of a few invoices. Despite these dangers, this government is determined to appear different from its predecessor. Peter Lilley chose a business school speech to enumerate his proposals for reform, concentrating on containing the size of the social security budget. Enacted quietly and systematically, his reforms postponed an immediate financial crisis in the welfare state, perhaps to the chagrin of more radical colleagues who preferred to dismantle large chunks of it. Blair, on the other hand, selected a south London housing estate for a sermon on a moral crisis in the welfare state, hinting at far-reaching changes with details to follow. There is no doubt whose speech generated the more publicity. Who ends up achieving the most remains to be seen.