Our discussions

Fran Bennett  of the Social Policy Digest spoke at the inaugural meeting of EconomistsAgainstAusterity on the issue of ‘welfare’ and what it means to have a progressive system of social protection.

In particular Fran examined what is the framework fora genuinely progreesive system and

“should be not just the limited, function of relieving poverty after the event, but the prevention of poverty as well. It should also include mutual insurance against risks on the basis of reciprocity – not getting out exactly what you put in. It should also  help to reduce inequalities related to gender, ethnicity, disability and other characteristics. It should assist with additional costs (such as those related to disability). It should aim to achieve horizontal redistribution between those with and those without children (through child benefit), and redistribution over the lifecycle between times when resources are higher in relation to needs and those when they are lower.”

The paper is below.

Economists Against Austerity – meeting 15 May 2013 – Fran Bennett[1]

Social security

There is much debate about the regressive impact of the current cuts in benefits and tax credits, and about whether it is possible to carry out ‘welfare reform’ in a progressive way. But we need to start by discussing what might be meant by ‘progressive’, and what might be the aims of ‘welfare reform’ in terms of future directions for the social security system in the UK. This piece aims to start to do so.

The impact of the current cuts is largely regressive in terms of vertical redistribution;[2] but it also affects certain groups disproportionately. Families with children[3] were one of the first groups to be affected from 2010, with cuts in benefits and tax credits that had had a significant impact on child poverty levels under the previous government. But it is not only families on low incomes who are affected; all those with children lose out from the three-year freeze in child benefit, followed by the decision to uprate it (and other benefits/tax credits) by only 1% for three years. And there is also the high income child benefit tax charge – which taxes someone on a high income more if they or someone in their household receives child benefit; this has led to an incoherent pattern of support for families with children, and in turn also to pressure for policy changes in the wrong direction (to institute tax free child care, and to introduce transferable tax allowances for marriage). Families with children will also be affected by many of the generic reductions in benefits and tax credits, of course. The Child Poverty Action Group[4] has estimated that families will be losing £2.3bn between 2012/13 and 2013/14 as a result of the various benefits and tax credits measures affecting them.

The House of Commons library has calculated the disproportionate impact of the benefits/tax credits cuts on women, which comes about in part because women often receive benefits as the ‘main carer’/mother; when statistics on individual incomes were produced by the government, they showed that benefits and tax credits made up about double the proportion of women’s incomes compared to men’s on average.[5] The Fawcett Society has pointed to the ‘triple jeopardy’ for women created by public sector job cuts and reductions in public services as well as benefit/tax credit cuts.

Demos[6] has estimated that disabled people will suffer a total of more than £28bn of benefits/tax credits cuts by 2018, with 3.7 million people affected by up to 13 measures (specific and/or generic), nearly 100,000 people affected by 4 cuts simultaneously, and some losing over £20,000 by 2017.

The impact will also vary by local authority area. Researchers from Sheffield Hallam University, in a study for the Financial Times (11 and 12 April 2013),[7] examine the impact of an estimated £19bn per year loss by 2015 for working age households, which works out at an average £470 per year per working age adult, by local authority area, which ranges in their estimates from some £177 for the City of London to £914 in Blackpool. The same local authority areas hit hardest by spending cuts are also those most affected by cuts in benefits and tax credits.

It is important to look at the justifications for the cutbacks given by the current government, in part because these may be relevant to the development of alternatives. The main rationale put forward is deficit reduction; but the division of such action between spending cuts and tax increases, and the speed of the reduction, are clearly political choices even if deficit reduction is seen as the priority. The other major justification is the need to bring about a cultural change in society because of the spread of welfare ‘dependency’.[8] In its suggestion of addiction, the word ‘dependency’ manages to convey both passivity and blame at the same time, and so is particularly powerful in its negative connotations. The rhetoric of ‘strivers’ versus ‘skivers’, which has also been employed in the media, ignores the fact that many of those receiving benefits/tax credits and affected by the cuts are in employment;[9] and that, as the Joseph Rowntree Foundation (JRF) has shown, many of those on low incomes go in and out of paid work.[10] In addition, identifying going out to work with ‘striving’ fails to recognise caring at home as a valuable activity. Researchers for another JRF study were unable to find any three-generation families none of whose adult members had ever been in employment.[11]

The coalition government is also introducing ‘welfare reform’. Universal credit is the government’s most significant change to the social security system and its primary goal is not to achieve cuts (apart from savings from administration and fraud/error reduction in the longer term).[12] It is part of the mission to achieve cultural change described above, however. Benefit claimants are from now on to be seen as employed when they are out of work – but employed by the state in preparing to enter paid employment, by (amongst other things) having their universal credit paid to them monthly and having their housing benefit paid direct to them rather than to their landlord.

Universal credit ushers in a different policy stance towards employment. Previously we have not been prepared to subsidise claimants in very low-paid/part-time work by using the benefits system, especially over the longer term;[13] but this will now be possible under universal credit. The potential problem of a permanently subsidised existence in ‘mini-jobs’ will instead be tackled through the extension of conditionality to those in employment, to move them towards more hours and/or earnings, and with more severe sanctions. In the longer term, the aim is for people to move beyond state help altogether, because ‘welfare dependency’ is increasingly being identified as including those in employment as well as out, if they claim some form of benefit.

Universal credit can be seen as an example of a ‘single working age benefit’ scheme, which – in versions developed by Left and Right in the run-up to the last election – played down the importance of how people qualify for benefit (via citizenship, contributions or means test) and the unit of benefit (individual or couple), focusing instead largely on administrative imperatives for change.[14] It can also be seen as in part a reaction to the nature of the labour market today – though some commentators argue that it could exacerbate this,[15] and others that it does not go far enough to promote progression in such a labour market.[16] And it can be seen in part as a reaction to the tax credits system, trying to avoid some of the problems that encountered. But there is also a strong push in universal credit to bring people on low incomes into the mainstream, and to set up systems for the majority, and then to create exceptions for those seen as not being able to cope,[17] rather than starting from where low income people are themselves. (For example, the widespread need for security of income, and the common use of budgeting over short periods and using different income sources to manage money, could have been recognised and built on; but this is not being done.)

Before considering alternatives to the current developments, however, it is necessary to examine the underlying issue of public attitudes to social security, which have hardened in recent years. A recent study for the JRF using British Social Attitudes survey evidence[18] found that public attitudes to poverty have been consistent in the recent recession (though in the longer term they have become more individualistic in terms of views about causation);[19] but attitudes to benefits have changed more. Over half of respondents now (compared with a third in 1987) believe that if ‘welfare benefits’ were not so generous, people would learn to stand on their own feet (and there is other, similar, evidence). This is so at a time when the benefit for a single unemployed person over 25 is £71.70 per week (excluding housing costs elements), and when its value has declined over many years in relation to average earnings – except for during the current recession, when earnings increases have lagged behind benefits (which claimants are now paying for through the three-year 1% uprating).

Hardening public attitudes have had some influence over social security debates in recent years. For example, the Labour governments introduced tax credits in part to try to identify benefit recipients with taxpayers and workers, and kept very quiet about their redistribution to those out of work with children, which tax credits also brought about. But employing this tactic meant that they did not engage the public in this debate, or carry it with them in the longer term. The Labour governments also ratcheted up conditionality in order to convince the public that benefit recipients were deserving, and to improve their image – to demonstrate ‘something for something’. But, as the experience of ‘welfare reform’ in the US demonstrates, ratchets usually only go in one direction.

More recently, two major elements have featured in progressive thinking about ‘welfare reform’. One has been the theme of reciprocity, leading towards more focus on the contributory benefits system, or the idea of contribution more generally;[20] and the other has been an emphasis on ‘predistribution’ – focusing on payments from employers, rather than the state.[21] There are several observations that can be made about these directions of thinking.

First, if one influence is the desire to take account of the state of public opinion in some way, there is a need to be as clearheaded as possible about what is driving any changes. Otherwise, as Ruth Lister has argued, the danger is that politicians woo rather than lead public opinion[22] – as has happened previously. So what might be the reasons for the trend in public attitudes towards those on benefits? It is important not to exaggerate, and to differentiate between attitudes to different groups of beneficiaries.[23] But several possibilities have been put forward as factors in the public’s increasingly negative views. First, this could partly be due to a lack of knowledge; as the TUC has shown, people often know very little about benefits when they support cuts in their value. It has been suggested in addition (e.g. by Peter Taylor-Gooby) that increasing inequality and individualisation are implicated, because of the resulting lack of knowledge about how others live.[24] It is possible that changes to benefits themselves can have an effect, in that people who expected to be able to draw on the system when things went wrong feel they are getting ‘nothing for something’.[25] The UK social security system has moved away increasingly from the International Labour Office definition (1984) of its purpose: ‘to give individuals and families the confidence that their level of living and quality of life will not, insofar as is possible, be greatly eroded by any social or economic eventuality’, and there is much more emphasis on self-provisioning for most people today.

And finally there is the influence of the rhetoric of politicians and the media, which may contribute to a vicious circle in terms of public attitudes. This is exemplified by the use of ‘welfare’, which (unlike ‘social security’)[26] has connotations of a one-way street, with ‘us’ giving to ‘them’, in a residual means-tested system – whereas a social security system brings people together, as the national insurance system and child benefit do, for example. This network of connections resembles the public finances more generally, which, as Richard Titmuss said (in the Seth lecture in 1955), are like Crewe junction, with criss-crossing redistribution going in many different directions between different groups of people.

This brings us back to what we might want the social security system to achieve – and in particular to a realisation that this is not about a fixed sum of money to be redistributed in one way or another, but about the willingness to pay being influenced by the shape and extent of the provision itself. In addition, the definition of ‘progressive’ is therefore not solely about the position of households in the distribution at one point in time, or only about vertical redistribution between rich and poor, but also about the balance between those with children and those without, gender issues and other forms of cross-subsidy. And this is one reason why it does not make sense to see services as an alternative to cash transfers (as in the proposal to freeze child benefit for ten years to fund an expansion of universal child care);[27] this would mean only families with children paying for better services for families.[28]

So it is important to focus on the range of functions that a social security system should perform (in conjunction with rather than as against services, and of course pay and jobs).[29] This should be not just the, inherently limited, function of relieving poverty after the event, but the prevention of poverty as well. It should also include mutual insurance against risks; reciprocity or contribution is not about getting out exactly what you put in. It should help to reduce inequalities related to gender, ethnicity, disability and other characteristics. It should assist with additional costs (such as those related to disability). It should aim to achieve horizontal redistribution between those with and those without children (through child benefit), and redistribution over the lifecycle between times when resources are higher in relation to needs and those when they are lower.[30] It should be flexible in relation to family change, enabling people to exit exploitative relationships. It should support saving in a cost-effective way. It should also act as an automatic stabiliser for the economy, in the way described by Tony Atkinson[31] – and as developed by the US in extending the period of unemployment benefit, and Germany in supporting short-time working, in the current crisis. And it should give a sense of security, which can make people more willing to take risks or retrain for a changing labour market etc. – a sense of security which, as noted above, has been steadily eroded in the UK by cuts in contributory benefits in particular, beginning in 1980.

Yet today the social security bill can be seen, even by some progressives, as representing the cost of economic failure, with alternatives being proposed such as capital investment on infrastructure. This is not to say that such investment is not needed; indeed, it could be added to with investment in caring (i.e. human capital investment), which could have a positive redistributive effect in terms of gender through both income and jobs.[32] But the logic of the argument so far is that spending on services should be seen as complementary rather than an alternative to social security spending.

However, the other issue to be investigated is that social security cannot do all the heavy lifting by itself, especially in terms of improving the living standards of people in work, and that ‘predistribution’ therefore needs to be a significant element of any alternative strategy. This is clearly an attractive idea, especially in the context of an increasingly unequal labour market and stagnating real wages, with capital taking a larger share of profits. The idea of a ‘living wage’ has therefore been put forward,[33] in part to reduce spending on in work benefits and tax credits. It is clear that higher pay for low-paid people needs to be part of any redistributive project. Whether this should be conceptualised as a ‘living wage’ is another issue, as this can be seen as confusing low pay and in work poverty which, though related, are different.[34] And even if a ‘living wage’ were to be paid much more widely, because of the characteristics of low-paid workers the reduction in spending on in work benefits and tax credits is not as large as might be thought.[35] This is not a direct trade-off, because the gross hourly pay rate for an individual is very different from the disposable weekly income of a household, whereas the idea of a ‘living wage’ tends to confuse these. Higher pay for low-paid people is therefore better introduced for its own sake, because the work that they (often women) do is under-valued in the labour market overall. If there is concern about in work poverty, this should also involve considering other solutions, including reducing costs by increasing market regulation and/or switching the emphasis from demand side to supply side subsidies (in, for example, housing and child care) – contrary to the current direction of policy. And the employment of both lone parents and ‘second earners’ in couples (especially those with children) is crucial here as well[36] – another reason why a gender perspective is key.

So ‘welfare reform’ needs to aim to make a generous social security system not only economically but also politically sustainable; and the direction we have been travelling in recently, under governments of different political persuasions, does not appear to have been helpful to this enterprise. If this is accepted, the priority must be to think about the financing mechanisms – the tax system – as the other side of the coin. The report of the Commission on Taxation and Citizenship[37] had some useful messages on this, including the emphasis it put on the attempt to create more public ‘ownership’ of, and involvement in, the financing mechanisms for public spending. We have a substantial advantage here in terms of social security, because national insurance contributions already exist and, despite recent developments, still reflect more of these characteristics than (e.g.) the income tax system.[38] This is partly why it has been so politically damaging in terms of public trust to, for example, terminate contributory employment and support allowance after a year just because it is thought that someone may return to the labour market at some point in the future.

It is important not to focus too much on institutional frameworks. But Wim van Oorschot argues that debates about social security in AngloSaxon countries (where means-tested benefits predominate) tend to focus on only one side of the equation, i.e. whether benefits are being allocated to the ‘right’ people – whether they are deserving enough, in other words. But in continental Europe, there is more focus on the inputs – enquiring about the motivation of those who contribute to financing the social security system. This may include moral duty and/or pity towards those in poverty; but it must also include enlightened self-interest, which is not the enemy of the social security system but an underlying driver of its success.[39] So inputs, and the motivation of those who make them, not just outputs and the motives of those receiving them, should be prioritised in debates about the future. Only in this way can we create a social security system which embodies a sense of social solidarity and which can be celebrated now and sustained in the longer term.

 

 


[1] Written in a personal capacity

[2] See, for example, Browne, J., Hood, A. and Joyce, R. (2013) Child and Working-age Poverty in Northern Ireland from 2010 to 2020, IFS Report R78, London: Institute for Fiscal Studies

[3] British Medical Association (2013) Growing up in the UK: Ensuring a healthy future for our children

[5] See Women and Equality Unit’s analyses of individual income for men and women under Labour government

[6] Demos (2013) Destination Unknown: April 2013, London: Demos

[7] Beatty, C. and Fothergill, S. (2013), Hitting the Poorest Places Hardest: The local and regional impact of welfare reform, Sheffield: CRESR, Sheffield Hallam University

[8] E.g. speech by Secretary of State for Work and Pensions, 25 October 2012 (in which he also describes big spending by government as a cultural problem)

[9] Kenway, P. (2013) Working Families Receiving Benefits, New Policy Institute

[10] Shildrick, T., MacDonald, R., Webster, C. and Garthwaite, K. (2010)  The Low-pay, No-pay Cycle: Understanding recurrent poverty, York: Joseph Rowntree Foundation

[11]Shildrick, T., MacDonald, R., Furlong, A., Roden, J. and Crow, R. (2012) Are ‘Cultures of Worklessness’ Passed Down Through the Generations?, York: Joseph Rowntree Foundation

[12] Department for Work and Pensions (2010) Universal Credit: Welfare that works, White Paper, Cm 7957, London: The Stationery Office

[13] Millar, J., Ridge, T. and Bennett, F. (2006) Part-time Work and Social Security: Increasing the options?, Department for Work and Pensions Research Report 351, Leeds: Corporate Document Services

[14]Bennett, F. and Sutherland, H. (2011), ‘The importance of independent income: understanding the role of non means-tested earnings replacement benefits’, Barnett Papers in Social Research 2011 No. 1, Oxford: Department of Social Policy and Intervention, University of Oxford

[15] Dean, H. (2012) ‘[The ethical deficit of the United Kingdom’s proposed universal credit: pimping the precariat?, The Political Quarterly 83(2): 353-359

[16] Garaud, P. and Oakley, M. (2013) Slow Progress: Improving progression in the UK labour market, London: Policy Exchange

[17] See, for example, oral evidence by ministers to Work and Pensions Committee inquiry into universal credit

[18] Clery, E., Lee, L. and Kunz, S. (2013) Public Attitudes to Poverty and Welfare, 1983–2011: Analysis using British Social Attitudes data, York: Joseph Rowntree Foundation

[19] See also Taylor-Gooby, P. (2013) ‘Why do people stigmatise the poor at a time of rapidly increasing inequality, and what can be done about it?’, The Political Quarterly 84(1): 31-42

[20] E.g. Cooke, G. (2012) ‘Contributory welfare’, Soundings 52: 45-54; Bell, D. and Gaffney, D. (2012) ‘The contributory welfare debate’, Soundings 52: 55-62; Horton, T. and Gregory, J. (2008) The Solidarity Society, London: Fabian Society

[21] See, for example, Brady, D. (2009) in Rich Democracies, Poor People: How politics explain poverty, Oxford: Oxford University Press

[22] See, for example, citation by Bamfield, L. (2005) in ‘Making the public case for tackling poverty and inequality’, Poverty 121, Child Poverty Action Group

[23] Baumberg, B. (2013) ‘Public attitudes to social security’, in Child Poverty Action Group, The Double Lockout: How low income families will be locked out of fair living standards, London: CPAG: 31-37

[24] But see Bailey, N., Gannon, M., Kearns, A., Livingston, M. and Leyland, A. (2013) ‘Living apart, losing sympathy? How neighbourhood context affects attitudes to redistribution and to welfare recipients’, Environment and Planning A, Online first

[25] Bell, K. and Gaffney, D. (2012) Making a Contribution: Social security for the future, London: Trades Union Congress

[26] Compass (2013) Social Security for All: The renewal of the welfare state

[27] Pearce, N. (2013), in The Guardian, 13 May

[29] See Walker, R. (1998) ‘Promoting positive welfare’, New Economy 5(2): 77-82; Commission on Social Justice (1994) Social Justice: Strategies for national renewal, London: Vintage

[30] Hills, J. et al. (1997) The Future of Welfare: A guide to the debate, York: Joseph Rowntree Foundation

[31] Atkinson, A.B. (1999) The Economic Consequences of Rolling Back the Welfare State, Massachusetts: MIT Press

[32] As argued, for example, by the Women’s Budget Group in analyses of Budgets and public expenditure reviews; see www.wbg.org.uk for briefings and responses

[33] See the Living Wage campaign website, the Fair Pay Network, and Citizens UK for more information

[34] Bennett, F. (2012) ‘Reflections on the “living wage”’, Soundings 52: 63-74

[36] Harker, L. (2006) Delivering on Child Poverty: What would it take?, Cm 6951, London: Department for Work and Pensions; see also Plunkett, J. (2011) The Missing Million: The potential for female employment to raise living standards in low to middle income Britain, London: Resolution Foundation

[37] Commission on Taxation and Citizenship (2000) Paying for Progress: A new politics of tax for public spending, London: Fabian Society

[38] Horton, T. and Gregory, J. (2008) The Solidarity Society, London: Fabian Society

[39] In address to Social Policy Association conference, June 2008, in Edinburgh

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