Is it time for a radical new approach to welfare?
State Welfare – Time for New Perspectives
By Dr Stephen Davies, Senior Education Fellow at the Institute of Economic Affairs
The welfare state is the object of intense dissatisfaction and criticism, which has become louder and more intense over the last two decades. This criticism comes from all points of the political spectrum so we can truly say that nobody is satisfied. On examination the surprising finding is that there is a great deal of shared diagnosis between conventional left and right. Both attack the dominant approach of the right and left of the managerial centre. What the complaints and research reveals is that firstly the system of state support and income transfers for the poor simply does not work. It traps its recipients in a condition of dependency and a state of barely getting by – if that – while also being experienced as intrusive and humiliating. All this while also being very expensive. The second finding is that repeated efforts at managerial reform have done nothing to alleviate these problems or have even exacerbated them, while making the lives of welfare recipients worse and doing nothing to reduce costs. They have failed on their own terms. The ultimate conclusion is that this reflects not so much a failure of policy or of public administration as a systemic crisis, reflecting structural features of the way the system works and interacts with other policy areas (notably housing and energy). That means that attempts at greater efficiency or cost reduction will simply move problems from one part of the system to another while having a bad impact on clients/recipients yet doing nothing for the hard-pressed taxpayer or the wider economy. The time has come to look beyond both the neoliberal-market and social democratic models that define debate at the moment and adopt a different perspective.
Here, the welfare state means not the NHS or old age pensions but the enormously complex system of money transfers and benefits, assistance and services provided by both national government and the embattled and struggling local authorities. (Healthcare and pensions have their own, increasingly desperate, problems but they are another story). The main points of complaint are well known. The system is very expensive and the costs are rising steadily. Given lack of growth and stagnant productivity, this rise in costs is simply unsustainable. Despite this, the system does not succeed in its central task of helping the poor. Their material conditions are at best static and in many cases have deteriorated. Nor does it succeed in an important secondary purpose, that of helping people to get into paid work and thereby improve their circumstances. Instead, it has the opposite effect, trapping people in low-paid and part time work or the shadow world of the ‘economically inactive’ a category that has grown rapidly in recent years. Although its stated aim is to help the unfortunate of all kinds, the experience is that it is harsh, intrusive, unhelpful, and bewildering. Instead of being built around relationships and connections it is a structure of abstract rules and procedures that create an experience utterly lacking in humanity, more like a Kafka novel than anything else.
Since the financial crisis of 2008 or even before there have been a series of attempts to address specific problems in the system so as to address these problems. Currently the Labour government is trying to reform the system of Personal Independence Payments and disability benefits. Previously, the Coalition government and the subsequent Conservative one brought in major reform of the system of pay supplements with their consolidation into Universal Credit, as well as changes to both disability benefits and educational support for people with Special educational needs. The general perception, across the ideological spectrum, is that none of these has worked or is likely to work. That is, they have not achieved their stated objectives, whether of helping people into work, alleviating poverty, or reducing costs to the Treasury. Rather, the underlying problems have at least persisted and in many cases have worsened. A common occurrence is that an attempt to sort out a problem in one area leads to a migration of costs and the same problem to a different part of the system. An example is the way that reforms to JobCentrePlus have made that service so punitive and ineffective that many have moved to incapacity benefits so that they do not have to deal with it. Another is the way that attempts to reform Special Educational Needs payments so as to reduce their costs have led to a massive increase in Education and Health Care Plans (ECHPs) which are far more expensive but also require a more complicated assessment process and much more intrusive management.
This should lead all of us to a similar conclusion, regardless of our disagreements or starting points. This is not a challenge that can be addressed through wonkish policy fixes or improved management – the favoured solution of the technocratic centre. (The latest panacea making the rounds among those circles is AI which will undoubtedly be as big a failure as all of the other magic pills that have been tried). Nor is it simply a matter of spending more money – the favourite response of the social democratic left. Quite apart from the state of the public finances which makes that impossible, the evidence of steadily rising costs in several areas, such as housing benefit, shows that the things making people’s lives worse lie elsewhere. That said, cutting the benefits or targeting them – the favoured solution of many on the free-market right will not work either. The precarious state of most welfare recipients means that any reduction in benefits will be keenly felt and will drop many of them into outright destitution. Because of the way the system works as a whole and the way it interacts with the taxation system, they will not be able to respond by finding work that leaves them better off (and in many cases that is impossible anyway). The conclusion everyone should arrive at is that the problem is with structural features of the existing system.
Since the later 1970s the current system, as consolidated and refined by Gordon Brown as Chancellor, has been mainly about supplementing the incomes of those in low paid work while providing an income for those unable to work, through various payments and transfers. The other side is organising this so as to encourage paid employment. This has a number of problems that are unavoidable as they are essential features of the system, not bugs. The system creates perverse incentives and very powerful dependency traps, locking people into part-time or casualised work and low pay, while actually reducing incentives for many to seek work. This is made much worse by means testing and tying benefits to incomes via a taper but would still be present without that. The inevitable complexity requires a very intrusive and harsh management and leaves many people baffled or infuriated by the unpredictable and capricious way that it works. It has the macroeconomic effect of orienting the labour market and the wider economy around large numbers of unskilled, less productive and low paid jobs. It also encourages a level of labour market participation that is excessive, with the marginal costs now greater than the returns, both for individuals and society as a whole.
Because the system consumes such a large part of public expenditure there is constant pressure from the Treasury to reduce costs. This means that although the cost of benefits as a whole rises, they do not rise much if at all for individual recipients. In particular they do not keep pace with the relentless rise in the cost of essential goods, above all housing and energy (and latterly food). This is due to policy failures elsewhere but it means most people on benefits are simply getting by – increasingly also the condition of many who are not getting them.
All of this reflects inherent features of the present welfare system. Because it is centrally funded and aims at being uniform and standardised (so as to avoid the dreaded ‘postcode lottery’) it is centralised, uniform, and top down. Above all it is driven by an increasingly manic obsession with rules and processes rather than personal relations, individual circumstances, and actual outcomes. This is in marked contrast to other, older ways of thinking about welfare, which emphasised local administration and consequent variability and adaptation to local circumstances, attention to the specific details of particular cases, and earned entitlements rather than ones acquired by overcoming an unbelievably complex obstacle course.
All of us need to move away from the current approach. That is what emerges from studies and surveys of local opinion and activist groups around the country. All over the United Kingdom people are coming together in their own localities to try to address the specific challenges that particular people face there. There are common features that recur over and over again but the forms these take vary widely and there are others that are very specific. The variety of individual and local circumstances do not easily fit into standardised national or even regional categories. All of these local efforts face resource problems and challenges but a constant theme is that relatively small amounts of money could make a big difference and the major problems are access to physical resources of various kinds (most notably facilities and buildings) rather than simple money. In addition, this is not an area where commercial and marketised relations and structures are of any help, any more than bureaucratic and managerial ones are. That is because they also lack the personal, local and above all relational quality that is needed.
What both conventional left and right critics of the status quo need to rediscover is an older tradition of thought and action, one almost entirely forgotten. That is voluntary action, mutualism, collective cooperation and mutual aid. This is a tradition that stands in distinction to both state action and market exchange and in clear distinction to the contemporary managerial forms of both of those. This is emphatically NOT the same thing as philanthropy and charity, being rather a form of collective mutual assistance and provision. It is what Beveridge referred to as Voluntary action in his book of that title – he saw it as providing the bulk of welfare services and aid with his own social insurance scheme simply assisting it and providing a national standard.
This all leads to an approach that is bottom up, voluntarist, decentralised and localised, and relational as opposed to top down, centralised and national, and process driven. It is pluralistic and takes account of specific problems and circumstances and makes use of dispersed and tacit knowledge. There is still a role for national government in providing a structure for this and we can argue about the form that should take (the two main models are a ‘safety net’ to prevent destitution and a ‘national minimum’ that enables access to foundational services for everyone so that there is a floor living standard – these two are also not mutually exclusive). What everyone should be doing now though, on all the evidence, is putting aside fruitless efforts to get the existing system to work and exploring how we can radically change its foundational principles, from the bottom up.
Stephen, you are obviously thoughtful, trying to look at the same problem like all gone before in a way that’s approaches it from a different angle. But in all honesty, just like all politicians now and before completely miss the point and reality of our predicament. Everyone is basing views and decisions on misunderstanding of our economy and tax collection system. And I fear you are adding to that amount. Now I font place blame as I feel everyone is doing or trying to do the right thing but, no one has the answer that works! No one! Ever!!… I like to use the analogy of a wall of cogs, all interconnected and a wall that goes on for miles! All represent part of our economy that have to mesh with each other. And politicians pundits and thinkers alike, are all picking on a cog and taking it off and putting back a bigger one or smaller ones and no matter what ones are changed the turn wheel one end only make a proportion of the cogs turn! When we need the cogs to turn all in unison and perpetually and completely autonomous. But people come along keep picking on individual cogs and think a different one will work but hasn’t thought it through! Sorry Stephen but it’s a true analogy. But as thinkers, I feel we can get there but we must stop misinterpreting the facts! Let’s start with an economy. We need it to work. And it needs money, sufficient money! Now I am not convinced at all that we have sufficient money in our daily economy participating in it in sufficient amounts to make it work. It should be obvious that a population of 60 million needs more money in it than one day of 1 million people! The true and right amount must be a calculation by mathematics and I’m not one but we need to know that first! Without knowing that how can we be sure it is sufficient? At this time we are unable to maintain our needs on the amount of tax we take. Obviously that’s the predicament. So Starmer and Reeves are in the same circling pattern of all gone before, cut costs, avoid paying, higher taxes or make new taxes like a wealth tax! But instead of that another phenomenon is now in play, borrowing! And we all know what that means ..,. We have to pay it back!… with interest!! Do we end up paying back plus more! Now the same applies with investment’. People who invest want it back and more! So inevitably it costs us all more in the long run! At present we owe £2.800,000,000,000.00 trillion pounds! Snd counting!!!! We can’t pay the interest on it let alone pay it back!!!! So of course it looks plausible that the only answer is to cut handouts to the OAPs the disabled, the ill and infirm, the unemployed and let’s face it the unemployable! People who work wrongly assume they are better than them and feel their hard work is paying for those who are ill and disabled snd unemployed etc., and because they pay income tax and NI they are the ones paying for them to stay at home! Starmer does! I’m sure. Never before had a Labour leader turned on the poorest and infirm first before the rich! Why, because he us deluded to think it will work cutting costs! He might as well just give them all assisted dying chances! Like Thatcher you can’t treat an economy like a household budget! Yet that’s what everyone does! Including you it seems Stephen. An economy is for all! The spending power of every citizen is key to the economic benefit of all! Without the poor spending all their money each month means those in work get an income fir gods sake! You shouldn’t ignore the needs and the spending power of the most needy in this Country assuming they don’t contribute to the income and profits of everyone else! Workers don’t pay for the non workers! The non workers also pay for the workers! That’s how it must work and it does! Are you aware, that the tax revenue from VAT and Duty on alcohol, fuel and tobacco as well as stamp duty etc provide more income than income tax and NI combined! So people who spend all their money each month, which increasingly is not the poor but most of the middle working class do if have to do or choose to do every month! It’s the rich yes the rich who don’t pay the equivalent taxes! They don’t pay any tax, none on the money they don’t spend every month none! Nothing!! If they don’t spend and hold it for years on end pay nothing in taxes! On that unspent money! Do pro rata the non workers and workers who spend all they get pay as much tax as they can, but not the rich who don’t have to spend it all. It’s that amount that is why we are in a predicament! Our economy is devoid of it! So we try and meet our country’s needs off a smaller amount in iur tax earning pot every month do we are short each month in our ability to pay our way! For goodness sake surely that’s clear! We are all coned into believing workers pay income tax! We don’t! Employers pay it! We they don’t have any choice. We don’t get it to spend and enjoy and pay tax that way through vat and duty, no! It’s paid by our employers and those self employed by their customers who do spend their money to be able to earn do income tax can be generated. It’s employers who pay the tax! Not employees! It’s based on wages yes, but it’s not actually paid by the employee! They just think they pay more tax but in reality it’s smoke and mirrors! The truth is it’s wrapped up in one thing. Tax is based on spending. If an employer spends on the wages of an employee, income tax and NI are triggered. Without spending there would be no wages to pay them and by fording employees get money! And as we all spend VAT and DUTY us also triggered for tax revenue. So workers and non workers all pay tax! And it’s triggered by spending and to have spending you need money. Whether you are a worker or no it’s the need or requirement to spend and move money from one to another is the trigger for all taxation. When money doesn’t move or is idle, unspent, and unused, no tax is triggered! None! So if we need to increase our tax revenue, without cuts and without putting taxes up then we need to endure more money is spent and changes hands! Stephen snd all, it’s that simple. It’s important to know the amount we need to begin with but, there is the answer for government. Give the rules and laws to make money move in greater amounts and in faster time! Do that and you will have the tax take we need to pay for all workers and non workers! Workers rely on the spending power if all not just workers but non workers too! Without all spending it won’t work, like now!!!! It’s not rocket science. They say, 95% of all money is held by just 5% of people. I don’t know if that is right but if we assume it is, then 95% of people are fighting over just 5% of money! Now that’s clear, not enough money is being spent back! So why can’t we all see it? If spending is the trigger for tax revenue it stands to reason we need to make all money move or be spent in the same monthly time frame for all bills to be met so the tax take can be higher! To pay for our needs! We have to accept all citizens are tax payers and in do doing wealth creators based on spending. Snd too few people have too much money not revolving fast enough so we don’t need to borrow or pay rich to be richer. It’s as obvious as the day is long. Greed makes us think we can’t spend if font want to spend but it will work better if we all do! The rich will be richer from all we spend on snd buy! Not money itself. That makes us pay for employment and wages as well as proper pensions and benefits. Let’s be more happy, all have more to spend and be happy not miserable and destitute. What do you say Stephen?