From the Cradle to the Grave

Dr Karen Rowlingson, Senior Lecturer in the Department of Social and Policy Sciences, University of Bath

14 May 2004

 

The speaker commented that the social security aspect of the Welfare State receives much less attention than other aspects (such as health and education) although it merits as much, despite the complexities involved and its constant changes. She would give an overview of the system and the problems it tries to address, using many charts and graphs.

Scope More is spent in Britain, in fact, on social security than upon health and education combined- around £113 billions in the 2002/3 year. The proportion of GNP however is less than that of most other European countries, probably because it viewed as ‘waste’ rather than ‘investment’ in society. Around three-quarters of the population receive benefits. While 2.5 million children live in families in receipt of means-tested benefits, nearly 5 million people of working age ( such as the sick, disabled and lone parents) receive key benefits. However, over 10 millions are pensioners. While the popular view of beneficiaries is of the unemployed, beneficiaries experiencing real poverty include children, pensioners and other less obvious groups.

Poverty and inequality A chart indicated that if no benefits were provided a bottom ten per cent of the population would have no income at all, whereas the top ten per cent would have around £70,000 of income at current values. Social security and taxation redistribute national income, so by 2000 the bottom group were receiving around £10,000 per annum, whereas the top group were receiving around £50,000 per annum – still a ratio of five to one. Thus, the system does alleviate poverty to some extent. Savings and national insurance help to provide for incapacity and retirement, although currently there is concern about pension schemes.

From origins to the 1960s After the Boer War, Lloyd George introduced limited reforms, but the present system stems from the Beveridge Report of 1942, under the stimulus of war. Hoping to improve on the 1930s depression years, he based the system on the ‘national insurance’ principle, universal in compass and with flat-rate subsistence benefits irrespective of income. Because some could not make contributions (such as children, the disabled, women out of work, etc) means-tested ‘national assistance’ was to be provided, but because he expected ‘full employment’ he saw the latter component as tiny. ‘Family allowances’ were introduced, to help large families. Later, during the relative affluence of the 1960s, while earnings-related benefits were then generating higher pension entitlements, some families with children were seen to be in poverty, so ‘child benefit’ replaced family allowance and ‘family income supplement’ was provided to help low-income workers with children. New benefits were introduced for the disabled.

From the 1960s Employment: men After the 1974 oil crisis, a recession developed, so by 1983 over ten per cent of men in Britain were unemployed. A chart showed how employment varies with the economic cycle. By April 2004, although the unemployment figure (1.3millions) was historically very low, the rate was almost 5 per cent . After 1975 a new problem developed – ‘male economic inactivity’, affecting the sick, disabled, child carers, early retirers and others of working age. Since 1975, when 2 per cent of men were inactive, the percentage steadily grew until by 1998 the figure reached 13 percent – ‘a massive increase’.

Employment: women While men have left the labour market, women have joined it. The fastest growth has been among women with children, particularly those with very young children and those with working partners. In 1981 under 20 per cent of women returned to work after childbirth, but by 1998 that figure had risen to over 50 per cent. Rates for mothers with non-working partners and lone mother rates show much less change, amounting to 20/25 per cent by 1998.

Changes in family forms There is polarization between families where couples both work and those without workers – between ‘dual-earning’ and ‘non-earning’ families. The Beveridge period ‘breadwinner’ and wife pattern is now much less common. Similarly, there have been changes in wage inequalities- in the 1980s those in the financial services sector did quite well, but others suffered either stagnation or decline. By the middle of the 1990s Britain was prominent among the list of low-wage countries. Various social changes have also affected family composition and fortunes. In the 1960s and 1970s, there was a rapid rise in the divorce rate, now tailing off because fewer are marrying, but still registering a rise between 1961 at 27,000 to 160,000 in 1999.

Co-habitation has become the norm, births outside marriage have increased, as have figures for lone parents and step families, and those living alone. The birth rate, however, has decreased, while life expectancy has increased. In 1942 average male life expectancy was age 59, whereas in 1951 it was 66 and by 1991 it was 73. Pensions must now last much longer than Beveridge calculated. While the birth rate in Britain is still high relative to Europe, it is in decline and currently around one-quarter of women of childbearing age will never have children. Although ethnic diversity has increased, 91per cent of the population remains white.

Overall In the 1980s there was a large increase in inequality. While 10 per cent of the population (half being pensioners) had below half of average income in 1961, by 1977 the percentage had fallen to its postwar lowest. By 1991, however, the figure of 1961 had doubled to 20 per cent (most being families with children). Today, the average income in Britain is around £20,000, so at that percentage one-fifth of the population would now subsist on under £10,000 per annum.

The attempts to cut the cost of social security in the 1980s were directed at young people and pensioners. By 1986 benefits were withdrawn from 16/17 year-olds and from 1981 pensions were linked to inflation rather than earnings, which brought deprivation. This was contrary to the Beveridge insurance principle, since non-contributors would receive more than contributors through means-tested ‘pension credit’ and there would be no incentive to work and save. Despite later attempts to improve the situation the maximum value of state retirement pension is now about £75 per week, topped up for those eligible for pension credit to £105 per week.

Some attention was paid to disability issues in the 1980s and by 1992 a ‘disability living allowance’ and ‘ disability working allowance’ brought a large take-up. From the 1990s policies by successive governments differed only slightly. ‘Unemployment benefit’ became ‘jobseekers allowance’, to reflect a new emphasis, and each administration has been keen to tackle benefit fraud.

Recent years The post-1997 Labour government was pledged to Conservative policies with respect to taxation and expenditure, but later Gordon Brown and the Treasury became responsible for ‘welfare to work’ policy, based on the slogan- ‘work for those who can, security for those who cannot’. ‘New Deal’ programmes were developed primarily for young people, but also for lone parents, disabled, older workers, partners of the unemployed, communities, etc. (and even musicians). As an incentive to work, the Minimum Wage was introduced and top-up benefits for low-earners. One distinctive pledge was the elimination of child poverty by 2017 and in an unnoticed footnote to a budget (to avoid criticism for profligacy) families with children were awarded increased benefits. While 500,000 children have thus been relieved, some 2.5 millions are left in need. A move from benefit to tax credit for those at work has brought such complexity that many are deterred from claims. Apart from pension credits, ‘stakeholder pensions’ and second state pensions tend to complicate provision also. Significantly, the ‘Department of Social Security’ has been renamed the ‘Department for Work and Pensions’. Beveridge’s concept of ‘full employment’ has become a concept of ‘full employability’.

Conclusions The drift of the changes analysed have shown additions to the objective of providing a ‘safety-net’ against poverty, through attempts to help people to save for retirement and provide for illness and unemployment, and by recognizing the extra costs of having children and/or being disabled or a carer. The continuing levels of poverty and inequality in Britain nevertheless show how much more is needed.

Discussion: Attitudes Problems of increasing complexity, relative illiteracy of the needy, and dislike of means-testing (particularly by the elderly) were raised. The speaker suggested that the ‘insurance principle’ would avoid reluctance to accept ‘handouts’, since the benefits would be ‘entitlements’. Tax evasion The speaker commented that much less effort is applied to those who defraud the tax system than that applied to benefit fraudsters, although the amounts involved are incommensurate – benefit fraud amounts are relatively small. That was challenged by a contributor, who argued that the OECD is determined to remove tax havens and that VAT is pursued stringently.

Employability The incidence of poverty in certain depressed areas reveals cyclical deprivation, where children tend not to develop employability. Further, despite complex credit systems, where a partner gains income there is a tendency for the family to lose eligibility – one credit destroys others. ‘Ageism’ also affects employability maximization.

Population and policy Some argued that Britain is already over-populated and that having children should be discouraged. Funding increasing lengths of retirement (through earlier retirement and longer life trends) is increasingly difficult. Rising expectations put unreal strains upon welfare demands, argued one contributor. The speaker noted that rising affluence usually reduces population growth, making provision easier. When problems of ethnic welfare were discussed, the speaker saw a mixed picture – some were doing well, but recent immigrants (such as Pakistani and Bangladeshi people) yet to become established often do not. Also, larger families tend to be linked to more poverty- those eligible for more benefits find application difficult, causing even more hardships.

Comparisons and expectations The speaker suggested that, apart from rising expectations, people ‘feel worse off’ when making comparisons. Others commented that wealth comparisons are difficult, since lifestyles and expectations differ greatly. What would satisfy some people would not satisfy others- for example, many elderly would happily survive on much less than the young who demand much more. Another view put was that by creating unnecessary demands, work which is not needed is created- automation should reduce demands for workers radically.

Taxation and policy One graph shown had indicated that people on average move from being net recipients to being net contributors in Britain at an income level of around £18,000 currently. It was suggested that the turnover level was set by political considerations- giving the poor just enough to prevent revolution. Major economic changes over generations have changed social expectations- for example, with women now going to work there are changing attitudes to family and divorce- which the social security system has to reflect. Product promotion also tends to affect values and expectations. However, in the current economic climate, with tax benefits already quite generous even for those above the poverty level, increased taxation to fund more benefits is probably politically unacceptable. The speaker thinks the only possible policy now for funding reductions in child poverty and increasing lone parent benefits is dependent upon getting more people into work, so that they may be taxed. While much will depend upon full employment, queries were raised about the ‘work ethic’. One person said that ‘it is easier to collect tax than to be fair’- is reliance upon the tax system wholly desirable? The poor pay more through VAT than the rich as a proportion of income, for example. One problem in Britain is that of ‘transparency’- elsewhere, fairness can be more easily judged. As with council contracts, argued the questioner, confidentiality is used in Britain to mask unfairness and inefficiency. The speaker thought that people should feel that they are both contributing and receiving, whatever the rates and amounts, and that the tax system is probably the best regulator, so long as it is simple and clear.

Management The efficiency of the system was also queried. If those employed to means-test were removed, how much would be saved? The speaker said that there are about 100,000 involved, but many are so low paid that some claim benefits themselves. There is no ‘professional’ class to make the system simpler and improve it and governments have reduced management in order to save money. Staff have objected to the removal of security screens, since they have experience of problems with unemployables. Penalisation through removal of benefit exacerbates criminal behaviour, in a vicious circle. It was suggested that a ‘coupon’ or ‘voucher’ system to replace money payments could improve the system.

Comparative models It was questioned whether the American system, through which help is limited in order to stimulate the desire to work is a desirable model, since destitution or overwork results. European systems require higher payments, but they appear to provide better assistance and inequalities appear lower. For any welfare system, the higher the level of employment, the fewer claim benefits, but while the American employment levels are relatively high, there is much low-paid work. Systems in France, Scandinavia and other European countries were discussed. In Australia there was much means-testing and little insurance, it seems. In Britain, unlike elsewhere in Europe, direct welfare through employers is uncommon.

G.Catchpole

References

Alcock, P, Erskine, A and May, M (1998) The student’s companion to social policy, Oxford: Blackwell Publishers

Ditch, J. (editor) (1999) Introduction to Social Security London: Routledge (a collection of chapters on poverty and social security by different authors)

Gregg, P and Wadsworth, J (eds) (1999) The State of Working Britain, Manchester: Manchester University Press

Hills, J (1998) Income and wealth: the latest evidence, York: York Publishing Services

McKay, S. and Rowlingson, K. (1999) Social Security in Britain London: Macmillan (now Palgrave) (a general introduction to the system as a whole)

Millar, J (ed) (2003) Understanding Social Security, Bristol: The Policy Press (a collection of chapters on social security by different authors)

Those wanting to keep up to date should read the journal ‘Benefits’, details on-line at www.bristol.ac.uk/Publications/TPP/benefits.htm.

The Department for Work and Pensions publishes regular research reports, and press releases, at

www.dwp.gov.uk.
Figures on tax credits may be found at

www.inlandrevenue.gov.uk.
The Joseph Rowntree Foundation produces accessible ‘Findings’ from its research on poverty, social security and inequality:

www.jrf.org.uk.
The Institute for Fiscal Studies (www.ifs.org.uk) produces timely commentaries on tax and benefit reform, from an economic perspective.

 

 

 

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http://staff.bath.ac.uk/ssskr