Decent welfare we can afford

Two myths dominate debates about welfare. First, fair social provision is desirable but we can no longer afford it, because an ageing population puts extra pressures on pensions and health and social care. Second, poverty bears most severely on low-paid and unemployed people and single parents, but it’s hard to do much, because most voters think these groups don’t deserve decent benefits.

The politics of austerity and the idea that a credible Labour manifesto would have to include a realistic deficit reduction plan strengthen the first argument. The lack of any public outcry against the harshest benefit cuts since 1931 reinforces the second. Both arguments are misleading.

The first point is typically exaggerated. Both Office for Budgetary Responsibility and EU spending projections suggest that the UK will need to devote about four per cent of GDP more to welfare state spending by 2062, simply in order to sustain services at current levels. But that is over a 50-year time period, and the increase represents a rather slower rate of growth in welfare state spending than we have maintained under a variety of governments during the 40 years since the 1970s oil crisis first challenged state expenditure plans. The UK has succeeded in controlling the rate of spending growth on the NHS, care, education and other big-spending areas by stringent efficiency measures and the use of internal markets. Projected extra spending demands in the near future are very low: in fact the EU model shows no demographic increase in demand at all in the period up to 2020. We don’t have to accept wholesale reform of the NHS to cope with demographic change. It is possible to sustain the main welfare state services without financial disaster.

Poverty involves much less money (perhaps 2 per cent of GDP to hit the target of abolishing child poverty) but is a bigger challenge because electoral support for more spending on benefits is so weak. Here new policy directions are needed. The evidence across a range of social sciences from anthropology to social psychology is that reciprocity is a powerful social glue. Most people accept the fairness of ‘something for something’: there is a strong belief that making a real contribution earns a right. The contribution element in the benefit system could be reinstated and substantially strengthened by more generous recognition of the contribution made during time out of paid work in child or elder care or in study and training. At the same time, the link between contribution and entitlement could be stretched through shorter minimum contribution periods and better minimum levels to make benefits more effective.

Contributory welfare can only be part of the story. One of the big changes that lies behind the intensity of concern about benefits is the growing inequality of market incomes. In a more open international market the highly skilled can bid up wages. Those at the bottom, whose jobs are increasingly threatened by technological change, now face extra pressures from competition in lower-income countries.

The UK has a more open, less regulated economy than any other European country of comparable size. It is not surprising that it has seen the most rapid ‘fanning out’ in incomes, so that inequalities have grown more rapidly than elsewhere in Europe during the past quarter-century and are now close to those in the US. Any left of centre programme has to argue loudly that wages at the bottom are now simply too low and find ways to address this.

One component would be a phased increase in minimum wage towards living wage levels. This would have to be phased in over time, move more slowly in sectors, such as catering and tourism, where the viability of businesses depends crucially on wage-levels. The success of minimum wages in raising living standards without destroying jobs demonstrates that such a strategy would be feasible.

Another would be measures to contain living costs, most importantly a major childcare/day-nursery scheme to help more women into paid work. Greater involvement of workers in remuneration committees and works councils would also help improve living standards at the bottom. Reforms could also include taxation and a longer-term programme to promote fairer education and training opportunities.

The welfare state is undoubtedly under pressure. Economic stagnation and the austerity programme don’t help. But it is not necessary for the left to abandon its commitment to a fairer society and a decent welfare state, if we abandon the myths that this is unaffordable and electorally impossible.