It’s all gone a bit wrong since William Beveridge
Image is photograph D 17134 from the collections of the Imperial War Museums, via Wikipedia
An interesting article in the (still paywall-free for the moment) Telegraph today.
Jeremy Warner identifies most of the problems with our welfare state (and then rather unfairly accuses Iain Duncan Smith of making them worse – indeed of being the heir to Gordon Brown).
He quotes William Beveridge, whose report during the War was the foundation of the welfare state thus:
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.
Our modern, insane, welfare system has of course departed far from those principles. Mr Duncan Smith has been trying to set a saner course. But Jeremy Warner is not impressed.
On Universal Credit, Mr Warner complains that the new Universal Credit and the single rate pension are not contributory:
The [Universal Credit] 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.
He also complains that the welfare bill has been rising for decades, but quite rightly notes that most of this is accounted for by the additional costs of old age pensions for an aging population.
He correctly points out that the new £26,000 welfare cap will not affect many claimants, and also takes a justified swipe at the so-called “bedroom tax” as being bad politics.
He then scores a bulls-eye on housing:
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.
And he concludes that:
I fear [Mr Duncan Smith] has barely begun in rolling back the frontiers of welfare spending.
Some good points in that article – but some critical issues missed as well.
So what would a sane welfare system look like?
Start with housing. Mr Warner is on the right track there. It is sheer lunacy paying housing benefit to private tenants. All that happens is that private rents are driven up, and private landlords pocket the benefit.
Much more sensible to have a real program of old-fashioned council house building. It would without question be much cheaper, for a start. (The maths is pretty easy to do.) And it would give private tenants who don’t get housing benefit a break, delivering lower rents for them. It would also drive down house prices, which would clearly make everyone better off – despite the peculiarly British lunacy that believes otherwise.
A program of this kind, apart from saving taxpayers’ money, would give a much-needed boost to the construction sector as well.
What’s not to like?
Mr Warner is also hesitantly on the right track here – but hasn’t really thought it through. Right now we have at least four means testing systems – the benefit system, the tax credit system, the income tax system and now the child benefit system.
What a ridiculous way to run things. Far better to pay the benefits in full, and do the means testing exclusively through the income tax system. From the politicians’ point of view, the disadvantage would be that the real marginal tax rates we all pay would be laid bare (most people pay over 60%). But the administration savings would be huge, and the system would be much less open to abuse.
Mr Duncan Smith’s Universal Credit is a welcome step towards this.
However, he missed the opportunity to do the tapering of it through the tax system. (Both Mark Wadsworth and I suggested this in Mr Duncan Smith’s consultation on the new system, but I guess the civil servants never let the suggestion get anywhere near Mr Duncan Smith.) Also, he let his officials persuade him that they needed a £1 billion real time income notification system to deliver the new benefit. Clear nonsense – and given the government’s record on delivering big IT projects, a pretty big concern.
But let’s not be churlish. Mr Duncan Smith, the “Quiet Man”, has been making a big hash of explaining the new system, but the system will actually be an improvement on the old one.
A Universal Credit would be at the heart of a sensible benefits system. The difference would be that it would be paid in full to all claimants, and clawed back when people started earning, via the income tax system.
Care of the Elderly
There has been a great deal of cant about this recently. The biggest nonsense has been talked about funding old people’s homes. The government (and the previous one before it) have been trying to prevent people having to sell their homes to pay for “care”. Who gets hurt by those sales? The elderly people themselves? No way.
Their heirs are the ones who are upset, because they don’t get to inherit their parents’ house. A big raspberry to them. If they want the cash, they could of course consider looking after their elderly mums and dads themselves. If they want an old people’s home to do the work instead, and their mums and dads have big assets, then why should taxpayers fund the protection of the kids’ inheritance?
On pensions, the elephant in the room is the lie that has been at the heart of the old age pension system ever since it was introduced. The system pretends to be a funded pension scheme. You pay into a “national insurance account” and get your pension as a result of entitlements built up by these payments.
But the truth is that these “funds” never existed. They were grabbed by the government from day one to pay the pensions of current pensioners.
What this means is that the idea of the old age pension as a “contributory benefit” is basically a lie. It is funded out of tax, and national insurance is really an additional income tax.
So why not simplify the system by merging income tax and NI? (As UKIP have proposed by the way, and as the government is creeping towards doing.)
So a sane welfare system would pay a basic pension to all, a credit to poorer pensioners, and tax people’s private pensions. In other words, a sane system would treat pensioners exactly the same as working-age benefit claimants – with a Universal Credit, and withdrawal via the income tax system. The only difference would be that pensioners would not be expected to be “available for work” to qualify for the benefit.
Of course a sane welfare system would not pay benefits to EU immigrants as soon as they land in the UK. A sane welfare system would not pay child benefit to Polish or Latvian immigrants for children who still live back home in Poland and Latvia.
Sanity of that kind would, of course, mean leaving the EU. So it is anathema to the establishment political parties.
Welfare Reform – and the Philpotts
Any welfare system is always a balancing act – between providing support to the poor to prevent their becoming destitute, and not providing enough for it to be a lifestyle choice to remain on benefit.
The Conservatives – in their guise as the nasty party – often rant on about the problems being the claimants’ fault. George Osborne was at it again today, in response to the awful Philpott murder case:
Mr Osborne was yesterday asked during a tour of a brewery in Staffordshire whether he thought the Philpotts were indicative of the type of people on benefits in the UK.
“I think the question for Government and society, if you like, is a broader one about the welfare state and a question we ask on behalf of the taxpayer about whether we should be subsidising these kinds of lifestyles,” the Chancellor said.
No, Mr Osborne, “these kinds of lifestyles” really are not typical of welfare claimants.
He got enthusiastic support from Tory MP Priti Patel, though, who said:
I completely support George Osborne’s comments. We are at a stage where society has to look at the way benefits are used and abused.
The Philpott case typifies that and it is absolutely legitimate to ask these kinds of questions.
No, Ms Patel, the Philpott case does not typify Britain’s welfare claimants at all. It was an extreme case of ghastly evil, and it is pretty rum to suggest that abuses like theirs are widespread – or to hint that everyone on welfare is morally repugnant.
What we need is some serious thought about reforming Britain’s creaking welfare system, not cheap political point-scoring. All credit to Iain Duncan Smith that, unlike most Tories, he doesn’t seem to indulge in it.
Perhaps a future government will build on Mr Duncan Smith’s Universal Credit to create a genuinely sane and fair welfare system, that provides a safety net for the poor without bankrupting the rest of us. In other words, perhaps a future government will build on Mr Duncan Smith’s work to return us to the principles of that original welfare system envisaged by William Beveridge.