Age-old lessons

If the polls are to be believed, cutting welfare is very popular.

YouGov reports that fewer than a third of Labour voters and just 3 per cent of Conservatives oppose it. This places the left in a terrible bind, not least because the public offers no consistent message when it comes to what should be cut. People seem to resent money being paid to both rich and poor: a large majority support stripping child benefit from top-rate tax payers, but people most want benefit cuts for the unemployed and lone parents.

The public tell pollsters they want welfare cut because it creates dependency. But the logic of cuts is a more tightly-targeted system, available to ever less numerous and less popular groups of ‘outsiders’, with stricter entitlement rules which in turn create greater disincentives to work and save. On the other hand, a more universal system that removes disincentives and gives everyone a stake would almost certainly be more expensive.

Perhaps some of the lessons from old-age welfare can be applied to the rest of social security. Pensioners are the most popular group of welfare recipients – as George Osborne found out to his political cost when he delivered his recent Budget – and the state pension system now combines a careful blend of means-testing and universalism. Half of all British welfare spending goes on non means-tested benefits for pensioners (of which the much-castigated winter fuel payment and free bus pass make up just a tiny fraction). On top there is a generous means-tested system which has done much to reduce pensioner poverty.

Our pension system has strong public support because it enshrines what in the Fabian office we term ‘lifecycle welfare’: contributions ‘from us, to us’ over time, rather than ‘from us, to them’ today. The whole system is sustained by automatic indexation policies, which mean that pensioner living standards rise in line with the rest of the population’s.

The left needs to draw on this in framing a response to its welfare impasse. We need ideas that breathe new life into contributory ‘lifecycle’ welfare by making an updated offer of social insurance for when people need it most. This could include support for the costs of childcare and eldercare or an adequate salary replacement when first unemployed.

Next we must blur the boundaries between universal and ‘safety net’ welfare, just as has been achieved with state pensions. Labour should develop plans to turn Iain Duncan Smith’s ‘universal credit’ into an entitlement that binds in the vast majority, for example by absorbing child benefit and childcare tax relief within it. The effect would be to realise Gordon Brown’s original concept of ‘progressive universalism’ – where everyone gets something but the poorest get more – which the coalition is busy unpicking though its tax credit cuts.

A shared system, where every family is a recipient, could open the way for improved provision for the poorest in a way the public might tolerate. With everyone in receipt it would become possible to introduce automatic earnings indexation without great controversy, just as Labour did with pensions. In today’s climate of opinion, this is surely the only route to preventing the living standards of the poor families slipping further away from the mainstream.

Is any of this affordable? Well, we can agree on design principles, without specifying the price-tag. In tough times new welfare entitlements might need to be substitutes not supplements.

However, substantial savings on welfare are possible if there is radical change more widely. Big savings can come if we reduce the number of workless families by creating jobs; if we raise low pay to scale back in-work welfare; if we tackle our public health crisis so people can work longer and retire later; and if we restructure the housing market to reduce the costs of rents.

All that is possible, but it will mean the left must embrace a radical state activism aimed at building a different economy. Without economic reform, welfare will always just be sticking plaster. Little wonder the public say they hate it.