|Are the Government’s welfare reforms quite as radical as claimed, or are they just another case of ineffective tinkering at the edges, resulting only in a slightly meaner version of what went before?
Iain Duncan Smith, the Work and Pensions Secretary, likes to think of himself as a natural heir to William Beveridge, founding father of the modern welfare state, and in a number of important respects he is indeed attempting to re-enact some of those early guiding principles.
Beveridge took the view that “the state in organising security should not stifle incentive, opportunity, responsibility; in establishing a national minimum it should leave room and encouragement for voluntary action by each individual to provide more than that minimum for himself and his family”.
By introducing a single Universal Credit to replace myriad working-age benefits, and by substantially tightening the test for widely abused disability allowances, Mr Duncan Smith’s reforms go some way to reinventing these incentives.
However, in one crucial regard, they are the very antithesis of what Beveridge was trying to achieve. Again to quote from Beveridge, his plan for social security was “first and foremost a plan of insurance – of giving in return for contributions benefits up to subsistence levels, as of right and without means test, so that individuals may build freely upon it”.
Neither of Mr Duncan Smith’s two flagship welfare reforms – the Universal Credit and the single-tier pension – conform to this underlying aim. Indeed, they mark the final nail in the coffin for the contributory principle.
The first of these benefits is an entirely means-tested form of entitlement which bears no relationship to what you might have paid the state in taxes and National Insurance. Likewise, the single-rate state pension is a no-strings form of entitlement. It has as little in common with the concept of insurance as a minor win on the National Lottery.
In this sense, Mr Duncan Smith’s reforms, far from being a decisive break with the past, are merely the last staging post in the welfare state’s long transformation from a system of social insurance to one of straight state handouts, universally applied regardless of contribution. Government-sponsored saving has given way to just another form of redistributional indulgence. Both recipients and donors are left with no discernible stake in the system. Mr Duncan Smith can therefore reasonably be regarded as more the heir of Gordon Brown than William Beveridge.
To be fair, the Coalition is only part of the same failure that has dogged all post-war British governments. None of them has managed to get a proper grip on welfare spending, which has been rising relentlessly in real terms ever since the war. During the 13-year rule of the last government, social spending rose by 50 per cent in real terms (that’s on top of inflation). It was even worse under the great reformer Margaret Thatcher, when social spending rose by more than 80 per cent in real terms.
Rising pension costs account for the bulk of this growth, but the working-age benefits bill has increased very substantially, too. Unfortunately, Mr Duncan Smith’s reforms do little to curb such spending. The £26,000 benefit cap may or may not be good politics, but it saves relatively little. Benefit claimants as extreme as Mick Philpott are mercifully rare.
Likewise with the so-called bedroom tax, which I suspect doesn’t even amount to good politics. Reported instances of apparently deserving cases caught by this unashamed piece of claimant bashing are mushrooming, and the evictions haven’t even started yet.
No, to the extent that the Government is achieving meaningful savings on working-age benefits, it comes essentially from salami-slicing the entire system by limiting increases in benefits to below the rate of inflation. This is not reform, but mere economising, a laudable objective in itself but hardly an answer to rising welfare dependency.
The problem with welfare is that it obeys the water bed principle of spending; squash it down in one area, and it rises somewhere else. Even if you were to slice benefits down to virtually nothing, it would merely cause other forms of spending, such as policing and social care, to rise.
Proper reform must therefore seek to address not just supply, but the root causes of the problem in demand. All stick and no carrot won’t ultimately work.
Housing benefit provides the obvious example. This has been one of the fastest-growing areas of entitlement spending not because of deliberate sponging off the state by the feckless, but because of inadequate social housing supply for the low-paid, allowing private landlords to game the government for excessively high rents. This in turn has spawned a new, and largely parasitic, industry in buy-to-let.
As for pension spending, this is politically an extraordinarily difficult issue for democratically elected governments in ageing societies to tackle. Demographics alone causes spending on the past – pensions and health – to be prioritised over spending on the future – infrastructure, education, defence and so on. The latter gets squeezed to pay for the former.
I don’t wish to be unduly critical of Mr Duncan Smith. His approach to reform is both measured and sensitive, but I fear he has barely begun in rolling back the frontiers of welfare spending.