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From the cradle to the grave

Seventy years after William Beveridge published the report that established the welfare state in Britain, we ask if its ideas are still fit for purpose.

Britain’s welfare state is broken-backed: the number of claims is soaring and with them the welfare bill. Well over 22 million citizens already depend on means-tested assistance. Means tests paralyse self-help, discourage selfimprovement and tax honesty. Means tests attack the basis of independent citizenship and community cohesion and at the same time incentivise bad behaviour. It was not meant to turn out like this. The Labour government led by Clement Attlee, elected in 1945, aimed for very different results when it implemented the welfare programme set out in Sir William Beveridge’s report Social Insurance and Allied Services, published on 1 December 1942.

Ultimately Beveridge’s scheme failed but not for the reason normally trotted out – that he did not envisage the changed position of women in society. His scheme could easily have been adapted to accommodate changing gender roles if there had been the political will and the imagination in Britain in the postwar period.

 If we are to understand why Attlee’s and Beveridge’s vision of a “New Jerusalem” failed to materialise, we need to look at the main assumptions that underpinned the 1942 report, and at the failure of the great man, who served briefly as a Liberal MP before losing his seat in the 1945 Labour landslide, to make a clear distinction between the principles of national and private insurance.

Beveridge’s welfare state stood on three pillars: the creation of a national health service, full employment and the payment of child benefit. Beveridge insisted that the numbers in his welfare budget would not add up unless the National Health Service proactively prevented short-term injuries from becoming long-term disabilities. Citizens had a duty to get themselves well as quickly as possible and so cease to be a cost to the public purse. To help them achieve this objective, the NHS was not to become an ill-health service.

 Beveridge was similarly discerning about the question of full employment. The welfare budget could not be balanced if unemployment continued with the role it had played in the lives of too many working-class families during the years between the two world wars. Wartime had shown full employment to be an achievable reality, not merely an aspiration.

His third assumption concerned the payment of adequate family allowances (now known as child benefit). Family allowance had to be large enough to ensure that work paid.

On these three basic assumptions, Beveridge built his welfare state. He and Attlee saw the welfare state as teaching values of citizenship and thus as a staging post to perhaps the most audacious reform programme of all. Attlee’s goal was nothing short of the creation of a new type of citizen who would breathe life into the institutions of the “New Jerusalem” that he and his colleagues set about establishing after the Labour victory of 1945. As it turned out, the failure to develop a new citizen who prized, through welfare, the values of work, savings and honesty is responsible for more than just the “failure” of Beveridge’s reforms.

 Beveridge’s vision was for an insurance-based welfare state in which entitlement would be earned largely by the function the citizen undertook, either through work or by assuming caring responsibilities. When Winston Chur - chill finally turned his attention to domestic politics after the Second World War he conjured up the phrase by which Beveridge’s proposals would be described: he envisaged a compulsory national insurance that would afford coverage “from the cradle to the grave”.

By 1948, Britain had insurance-based welfare that offered coverage against all the events that could interrupt a person’s earnings and thereby push them into “want” (one of the five “giants” that Beveridge thought should be attacked on the road to reconstruction; the others were disease, ignorance, squalor and idleness). Benefits included maternity grants, unemployment and sickness benefits, old-age pensions and a death grant.

The central principle of the Beveridge report was a unified contributory insurance scheme that ensured that all qualifying citizens, when prevented from working, would have a subsistence income for themselves and their families as of right, without any form of means testing. He was clear that his definition of subsistence was a political decision. He recognised, however, that in every year from 1948 onwards benefits would become less adequate, as they were fixed in value while the cost of living rose.

It was against this background that social scientists “rediscovered” poverty in the late 1950s and came to define it in relative terms, a development with which Beveridge would have been uncomfortable. Poverty was now defined by the level of the means-tested safety net. This new definition, however, had the ironic effect that each time parliament raised the minimum level of income, it changed the poverty line, too. By acting generously, parliament increased the numbers of the poor.

Against means testing

The challenge for the Labour Party today is to use the 70th anniversary of the Beveridge report to rethink the means-tested social security strategy that dominated the last Labour government. That strategy has imprisoned the party in an approach which threatens to destroy the Attlee vision of the welfare state.

The coalition government’s system of universal credit, which will be introduced gradually from April 2013, will replace the existing system of working-age benefits and tax credits with a single payment for both people looking for work and those on low incomes. It entrenches means testing more firmly in our welfare system. Yet Labour’s line is to support this reform. It does so without any clear thought as to where the strategy will lead us or what our goals should be.

Back in the 1950s, the Conservative MPs Iain Macleod and Enoch Powell were clear about their objective. In a pamphlet entitled The Social Services: Needs and Means (1951), they argued that, at some stage, the important question to ask about welfare provision would cease to be, “Should a means test sometimes be applied to a social service?” Instead, it would be asked whether any service should be provided without first having a test of means.

If we are fast approaching that tipping point today, where should a Labour reform programme go? First, we need to be clear that insurance cover should be based on collective ethics, not governed by private market insurance rules. Second, we must make a distinction between when to save and when to insure. Third, we will need a number of different schemes to offer a comprehensive coverage. Fourth, we must adhere to Beveridge’s three critical assumptions, which are worthy aims in their own right.

It will be a long haul back to full employment but that must be the goal. We must build on the one outstanding success of the last Labour government’s welfare reforms – the Future Jobs Fund – so that, in time, those who choose to remain idle are offered work and no benefit, while those desperate to work have their wishes met.

The NHS has to be reformed to fulfil Beveridge’s ambitions, which will require a new means of financing, as the switch to preventative health comes with a large price tag. And the cost of childcare must be met in a way that pays claimants to work.

We need national schemes to ensure that, whatever the level of benefit they may be receiving, claimants can again begin to build on their own provision without being penalised or having to disguise what they are doing. These schemes must promote work, saving, caring and honesty.

Any new scheme must make the important distinction between when savings and when insurance will provide the best cover against loss of income. Almost all of us will retire, and we need to have saved so that we have an additional claim on future national income. Savings for individuals can be risky, but all of us have an interest in not financing means-tested welfare. The risk in gaining a minimum adequate state pension should be shared. The risks of an additional pension above the state minimum should be shouldered by the individual.

A new national savings scheme, with the current state pension provision, could guarantee a minimum pension linked to earnings, if some of the costs are met by a degree of redistribution. As the vast majority of us cannot buy an index-linked minimum pension in the private market, it is in our interests to pay a little extra so that the poor are included, and we are not presented with their means-tested pension bill.

Which of our needs are suitable for insurance rather than savings? Long-term care is an area where only one in five of us will need to make a claim. Likewise, only a minority of us will become unemployed; again, insuring against unemployment makes sense.

Renewed affection

How will increased National Insurance (NI) contributions go down with the voters? Even though all the political parties use NI as a means of increasing tax revenue on income, surely most voters still believe in the contributory principle and think they cover most of the cost of the NHS – the one aspect of welfare that is loved by so many. So why don’t we turn this affection to our advantage when financing wider welfare reform?

Let’s openly finance the NHS from a new insurance fund with a proper contribution from general taxation to cover those who do not or cannot pay National Insurance. The switch must be matched by cuts in that part of direct taxation that covers current NHS expenditure.

Once the switch is made, we will see that our ceaseless demands for a better NHS come at a price that would have to be met from the new NHS insurance fund.

But few of us would willingly contribute more if we believed that politicians would get their hands on the funds. The governance of these new schemes is crucial to the success of reform. Each fund’s independence must be guaranteed. We have a model of how this might work in the Bank of England’s interest-rate-setting Monetary Policy Committee, which is independent of the central government.

The trustees of the new insurance funds would be directly accountable to the membership and not to the government. Here is the basis for a new tax contract where increased contributions may be forthcoming, and where - by we make the insurance funds powers in their own right.

What chance does Labour have of making a decisive break by reasserting the principle of insurance-based welfare? There is much in our political culture that supports such a change. There has always been a deep longing on the centre left for a virtuous polity, and support for the view that citizenship is more substantial if it is tied to certain public functions, such as work, caring and the nurturing of children. Likewise, our political culture has stressed contractual rights, which are thought to take precedence over poverty relief.

The reforms proposed here would return welfare to being earned rather than awarded after proving need. Re-emphasising this part of our tradition frees politicians from the present futile debate, in which they defend a definition of poverty that most of us do not recognise.

The idea of solidarity has wide appeal, and that appeal becomes even more relevant as we try to counter global market forces over which we have little or no control. There could not be a better time for Labour to set out a new, nonstate, collective approach to welfare reform.

Frank Field is the MP for Birkenhead (Labour). He is the author most recently of “Saints and Heroes: Inspiring Politics” (SPCK, £12.99)

Frank Field has been Labour MP for Birkenhead since 1979. From 1997 to 1998 he was Minister for Welfare Reform

This article first appeared in the 03 December 2012 issue of the New Statesman, The family in peril

David Young
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The Tories are the zombie party: with an ageing, falling membership, still they stagger on to victory

One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.”

All football clubs have “ultras” – and, increasingly, political parties do, too: although, in the case of political parties, their loudest and angriest supporters are mostly found on the internet. The SNP got there first: in the early days of email, journalists at the Scotsman used to receive bilious missives complaining about its coverage – or, on occasion, lack of coverage – of what the Scottish National Party was up to. The rest soon followed, with Ukip, the Labour Party and even the crushed Liberal Democrats now boasting a furious electronic horde.

The exception is the Conservative Party. Britain’s table-topping team might have its first majority in 18 years and is widely expected in Westminster to remain in power for another decade. But it doesn’t have any fans. The party’s conference in Manchester, like Labour’s in Brighton, will be full to bursting. But where the Labour shindig is chock-full of members, trade unionists and hangers-on from the charitable sector, the Conservative gathering is a more corporate affair: at the fringes I attended last year, lobbyists outnumbered members by four to one. At one, the journalist Peter Oborne demanded to know how many people in the room were party members. It was standing room only – but just four people put their hands up.

During Grant Shapps’s stint at Conservative headquarters, serious attempts were made to revive membership. Shapps, a figure who is underrated because of his online blunders, and his co-chair Andrew Feldman were able to reverse some of the decline, but they were running just to stand still. Some of the biggest increases in membership came in urban centres where the Tories are not in contention to win a seat.

All this made the 2015 election win the triumph of a husk. A party with a membership in long-term and perhaps irreversible decline, which in many seats had no activists at all, delivered crushing defeats to its opponents across England and Wales.

Like José Mourinho’s sides, which, he once boasted, won “without the ball”, the Conservatives won without members. In Cumbria the party had no ground campaign and two paper candidates. But letters written by the Defence Secretary, Michael Fallon, were posted to every household where someone was employed making Trident submarines, warning that their jobs would be under threat under a Labour government. This helped the Tories come close to taking out both Labour MPs, John Woodcock in Barrow and Furness and Jamie Reed in Copeland. It was no small feat: Labour has held Barrow since 1992 and has won Copeland at every election it has fought.

The Tories have become the zombies of British politics: still moving though dead from the neck down. And not only moving, but thriving. One Labour MP in Brighton spotted a baby in a red Babygro and said to me: “There’s our next [Labour] prime minister.” His Conservative counterparts also believe that their rivals are out of power for at least a decade.

Yet there are more threats to the zombie Tories than commonly believed. The European referendum will cause endless trouble for their whips over the coming years. And for all there’s a spring in the Conservative step at the moment, the party has a majority of only 12 in the Commons. Parliamentary defeats could easily become commonplace. But now that Labour has elected Jeremy Corbyn – either a more consensual or a more chaotic leader than his predecessors, depending on your perspective – division within parties will become a feature, rather than a quirk, at Westminster. There will be “splits” aplenty on both sides of the House.

The bigger threat to Tory hegemony is the spending cuts to come, and the still vulnerable state of the British economy. In the last parliament, George Osborne’s cuts fell predominantly on the poorest and those working in the public sector. They were accompanied by an extravagant outlay to affluent retirees. As my colleague Helen Lewis wrote last week, over the next five years, cuts will fall on the sharp-elbowed middle classes, not just the vulnerable. Reductions in tax credits, so popular among voters in the abstract, may prove just as toxic as the poll tax and the abolition of the 10p bottom income-tax rate – both of which were popular until they were actually implemented.

Added to that, the British economy has what the economist Stephen King calls “the Titanic problem”: a surplus of icebergs, a deficit of lifeboats. Many of the levers used by Gordon Brown and Mervyn King in the last recession are not available to David Cameron and the chief of the Bank of England, Mark Carney: debt-funded fiscal stimulus is off the table because the public finances are already in the red. Interest rates are already at rock bottom.

Yet against that grim backdrop, the Conservatives retain the two trump cards that allowed them to win in May: questions about Labour’s economic competence, and the personal allure of David Cameron. The public is still convinced that the cuts are the result of “the mess” left by Labour, however unfair that charge may be. If a second crisis strikes, it could still be the Tories who feel the benefit, if they can convince voters that the poor state of the finances is still the result of New Labour excess rather than Cameroon failure.

As for Cameron, in 2015 it was his lead over Ed Miliband as Britons’ preferred prime minister that helped the Conservatives over the line. This time, it is his withdrawal from politics which could hand the Tories a victory even if the economy tanks or cuts become widely unpopular. He could absorb the hatred for the failures and the U-turns, and then hand over to a fresher face. Nicky Morgan or a Sajid Javid, say, could yet repeat John Major’s trick in 1992, breathing life into a seemingly doomed Conservative project. For Labour, the Tory zombie remains frustratingly lively. 

Stephen Bush is editor of the Staggers, the New Statesman’s political blog.

This article first appeared in the 01 October 2015 issue of the New Statesman, The Tory tide