WELFARE (Mini-articles) Index

Welfare payments in the UK have become so widespread that half the adult population lives in a household where someone is receiving a main means-tested benefit-- income support, family credit and housing benefit. The House of Commons Social Security Committee acknowledged yesterday that the number of people eligible to draw such benefits now went way beyond anything that was ever envisaged.

It suggested that means-testing had become so prevalent that it was having a negative influence on people's character and honesty as they learned how to manipulated the system to get the most from from it. Also, means-tested help is lost when a person returns to work so, in effect, claimants are fined if they find a job. Some benefits were also open to "large-scale criminal activity".

Nearly 10 million receive means-tested benefits and the committee is to investigate whether an insurance-based scheme could be introduced to finance future welfare spending. The welfare system now costs £85 billion a year, nearly a third of all Government spending. There is cross-party consensus that the welfare state must be reformed if its rapidly rising costs are to be retained.

The report was an acknowledgement that, 50 years after its creation, costs are now spiralling out of control and will be top of the agenda for whichever party wins the next general election and is in power.

From an article in the Daily Telegraph, 9 June 1995

Pensions systems are in trouble world-wide because of rapidly ageing populations. Governments that attempt to deliver on overly generous pension promises made when populations were young have only two options: they can raise taxes or run deficits. Either ultimately hurts the economy on which everybody depends. Are existing private pension systems the answer? In most cases, we don't think so. Without proper regulation, private pension funds may be as prone to over-promising and mismanagement as public funds. Moreover, unless private pension saving is mandatory, only upper income groups have access to private pensions in the first place. For these reasons, we recommend that governments with large, over-burdened public pension plans shift toward leaner plans with flat or mean-tested benefits designed to provide a minimum income and alleviate poverty among the old.

World Bank Report, January 1995

Ask a retired American to tell you who subsidises his Social Security benefits and he will get angry. He paid for them himself, he will state proudly--every penny. He will then point out that he contributed payroll taxes into the Social Security trust fund for most of his life, and that he is now recouping his investment. And should you doubt him, he will produce reams of mail from the American Association of Retired Pewrsons (AARP) to back up his point.

But pride and the AARP aside, your friend will be dead wrong. This is because Social Security--established in the 1930s to combat poverty among the elderly--is not what most people assume it to be. It is neither a pension plan nor a genuine trust fund. It is, rather, a redistribution system: the federal government taxes the young and gives to the old. Of course, the payoff to the young is that they will one day retire themselves, and will then begin feeding off tomorrow's taxpayers. Indeed, it is this promise of future repayment that makes the whole thing workable. As long as incomes and the workforce are growing, each generation can give its predecessors a secure retirement, and expect to enjoy still greater comforts when its turn comes along. But if wages and population growth stagnate--or if beneficiaries become greedy--the virtuous circle turns vicious. This unhappy circumstance has now arrived.

The Economist, 21 January 1995

What happened to the clear-eyed optimism with which the welfare state began, and why did the dream elude us? In 1945, the vision was clear. The new Jerusalem would rise from the ruins of post-war Britain. A bankrupt nation exhausted by war elected a government that promised new houses, free healthcare, secondary education for all and an end to poverty. The promise of cradel-to-grave security was so popular that for 20 years no party quetioned its merits.

But, gradually, things changed. Council estates, instead of being places to which people aspired, became places from which they longed to escape. By the 1960s a new generation had emerged who knew nothing about austerity or unemployment and questionened everything. Simultaneously, technological advance opened up unhread of possibilities for a better life. Organs could be transplanted, hips replaced, premature babies made to live . . . and costs began to soar. But at the same time, people wanted to hang on to the money they had earned. With the British economy weakened by the oil cirsis and inflation, we could no longer pay our bills.

The burgeoning benefits bill has proved to be the state's biggest problem. Despite Thatcher's efforts to roll back the state, the social security bill kept growing. With fewer people paying direct taxes and more people on benefits, the mathematics of the welfare state are in constant flux. One of the great promises of the new Jerusalem had been to get rid of want, but the gap between the rich and the poor has steadily widened. Where do we go from here? Is the welfare state something we should all belong to, or a safety net for those at the bottom? After 50 years of fractured dreams, there is no clear vision.

From The Independent on Sunday, 9 July 1995

Politicians on both sides agree that social security needs a shake-up. Most people are shocked when they discover how big a business social security has become. It will cost British taxpayers nearly £90 billion this year, about £15 a day for every working person. And the social security bill is rising inexorably: since 1979, it has grown from 9 per cent to 13 per cent of gross domestic product, in spite of the efforts of the Tory governments.

Yet this increasing expenditure appears to be producing diminishing returns: unemployment remains high, the gap between rich and poor has widened, the number of elderly people -- with all their attendant costs -- is due to increase sharply in the next decade, and the number on benefits is already greater than at any time in recent decades. Nearly one in three households now includes at least one person claiming a means-tested benefit. Both left and right now debate the same questions of cost, affordability, dependency, fraud and family values. A glimpse is given by a series of lectures by Peter Lilley, the Conservative social security minister and critiques given by Frank Field, the Labour chair of the Commons social security committee. There is substantial common ground in the Lilley-Field debate. Both are at pains not to equate social security with state provision. As Mr Lilley points out, some £500 billion is invested in private pension schemes alone. Both also agree about the shortcomings of means testing as a way of cutting budgets and reducing dependency. Most importantly, Mr Field and Mr Lilley agree that public spending on welfare is approaching the limit of economic and electoral tolerance.

But their prescriptions differ fundamentally. For Mr Lilley, the moral imperative of self-reliance means that the state should gradually shed its obligations, leaving individuals and families to decide how to meet them. And this is what he has been doing so far. He points to the success of reforms allowing people to opt out of state earnings-related pension scheme that tops up the basic state pension. For Mr Field, the same moral imperative means that the state must force people to be self-reliant through an extension of social insurance and obligatory saving for pensions. He makes his case in almost apocalyptic terms: unless "compulsory savings" replace and enhance "compulsory taxation", there could be "the collapse of civil society as we know it". This could take the form of "a right wing government allowing the upwardly mobile to gain priivate market coverage, as even greater numbers sink on to means-tested dependency".

From the Financial Times 17 July 1995