Welfare Reform – are we missing the Big Picture?

The welfare system is a vital part of any modern democracy. The general UK public want people protected from absolute poverty. We invented it – arising from our liberal reformist abhorrence of concurrent poverty and extreme wealth. Unfortunately it became central to big-state socialists’ social engineering policies. It has become a vast industry, with such complexity that its original aims have been all but lost. Amidst the financial crisis it falls to us, its inventors, to overhaul the sprawling system and propose major post-Coalition reforms..

Current Tory reforms aim to reduce complexity and cut the size of the welfare bill – now over 40% of all spending. LibDem ministers have participated in the reforms – to ensure the worst off are protected, and to instil fairness… including the reduction of welfare payments to the affluent.

However the common ground between Labour and the Tories, and the leading ‘public’ aim designed to resonate with the public, relates to moral hazard in the system. Moral hazard was a concern of the welfare system’s original Liberal creators – the potential for some folk just to live off welfare and the general problem of work disincentives. Today’s system however goes way beyond the original social safety net concept. Indeed the last Labour PM was an advocate of welfare benefits way beyond only those in poverty. Coalition reforms have expressed the moral hazard problems in terms of those living completely on welfare not being better off than those in similar circumstances but in work (rather than returning to the original social safety net aims).

The bigger picture, however, is not complete without an appreciation of the more general policy of reducing poverty in the longer term, including inter-generationally – that is, the aim of improving lives so that fewer people are in need of a social safety net.

There are many academic studies of the causes on longer-term and inter-generational poverty. Coherent policy in government however is thin on the ground. Remedies are pan-governmental, multidisciplinary, and stretch beyond the usual political timeframes. There are many policies which contribute to longer term poverty reduction ranging from educational & training to housing policy and SME development, but coordinated policy has been lacking. This is a shame since policies to reduce the need for a social safety net should be the primary counterbalance to moral hazard inevitabilities.

For example, one key difference between the UK’s poor and the UK’s middle classes is ‘assets’ – financial and human capital. Policy towards the poorest however is dominated by welfare policy – a point made by Liberal leader Jo Grimond 40 years ago.

The long-standing Labour Party resistance to long term poverty reduction strategy in this context not only reeks of self-interest (‘keep the poor dependent on the state’), it implies a kind of caste system in the UK….. the middle classes who own assets and vote Tory, and the ‘working class’ who don’t have assets and vote Labour. In much of modern Europe this UK caste system is met with bewilderment.

For the post-2015 period, LibDems have the opportunity to give equal emphasis to longer term poverty reduction, as to welfare reform. I will expand on this point in LDV in the future…

* Paul Reynolds works with multilateral organisations as an independent adviser on international relations, economics, and senior governance. He is an elected member of FIRC and an Executive member of Liberal International (British Group).

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13 Comments

  • Matthew Huntbach 26th Apr '13 - 11:48am

    Paul Reynolds

    Moral hazard was a concern of the welfare system’s original Liberal creators – the potential for some folk just to live off welfare and the general problem of work disincentives.

    The two main factors driving up welfare payments are expanding lifespans, leading to a much longer period of life after retirement age, and the winding down of council housing due to right-to-bye leading to people who would have been housed that way in the past now housed in much more expensive private rented housing, subsidised by housing benefit.

    The idea that it is mainly down to people who are refusing to work is nonsense. There are many people unemployed but DESPERATE to work. When you have found jobs for all of them, THEN start moaning about people who refuse to work. Otherwise, shut up, you are just insulting all those people who want to work but can’t find jobs. Housing benefit is paid to all whose rents are beyond what they can afford, it does not depend on whether they work or not. People who are in private rented property like this mostly don’t want to be. They would far rather be in the cost-price only rented property that used to exist – that is why council house waiting lists are so long. But Margaret Thatcher started the process of selling it off. We have her to thank for these high welfare bills, not the socialists you blame. In a sense it is about people living off welfare without having to work – but those people are actually the private landlords.

    Today’s system however goes way beyond the original social safety net concept.

    How? Unemployment pay is at subsistence level. State pensions are lower as a proportion of average wage than they have ever been.

  • Peter Davies 26th Apr '13 - 1:08pm

    @ Matthew
    Unemployment Pay is not at subsistence level and nor should it be. Once you accept absolute need as the benchmark for benefits, the Tory press has you beaten with the first example they find of someone alive with an income less than benefit levels or the first example of an unemployed smoker.

  • Matthew Huntbach 26th Apr '13 - 4:45pm

    Peter, I am not accepting absolute need as the benchmark. I am simply stating it has already got to that point. Individual circumstances vary, and at that level small things which may or may not need to be paid make a huge difference. Also we do not live in a peasant society where people with no income have plots of land they can grow food on, and cultural knowledge of how to do it. Indeed, part of the plight of poor people here is that cultural knowledge has been lost because of the effects of consumer society. The wealthy elite love to preach down to us about how the welfare state has taken away initiative and led to a dependency, but they won’t admit that big business has done the same in making people reliant on its products. People who have nothing to live on apart from welfare benefits now ARE going without meals because they can’t afford it, not sending their children to school because they can’t afford to clothe them. That IS subsistence level.

  • David Allen 26th Apr '13 - 6:19pm

    Yes indeed, politicians do usually miss the Big Picture. Badly.

    Paul Reynolds points out that if we could get people out of poverty and into well-paid work, we could get rid of a massive welfare bill. This begs the question, what’s stopping us?

    Reynolds argues that it is Labour. Labour, he says, actively want to keep people poor, state-dependent, and safely guaranteed to keep voting Labour. Well, I’m quite happy to accept that Labour politicians can be a cynical bunch of b*stards, and that there is a germ of truth in the accusation. But it just isn’t enough to explain why large-scale unemployment and big welfare bills still exist. After all, Labour did manage to reduce child poverty, if not by as much as they had targeted. If they hadn’t even tried, they would have risked a serious backlash from their traditional supporters. There have to be other things that are truly preventing us from cutting the welfare bill.

    Matthew Huntbach points out two of them – extending lifespans, and the replacement of council housing by housing benefit payments. We should pause here to reflect that, when politicians grumble about the benefit bills which result from either of these two causes, they are just bellyaching. We are not about to stop paying pensions to people just because the silly b*ggers are living longer. Politicians who rant on about how they are going to slash the benefit bill, while ignoring the fact that they can’t deliver, do not deserve to win votes.

    One further fundamental part of the big picture is the massive decline, over the last 50 years, in simple unskilled manual labour. Once upon a time, every village had its village idiot, scratching a living from the hedgerows or casual work. More recently, the mines and the factories needed anyone who could lift a shovel. Now, far more people are marginalised by their inability to learn a skill.

    We could, of course, dragoon some of these people into some sort of work, if we were brutal enough. Osborne’s attack on benefits and disability, Duncan Smith’s reforms to make work pay, and Clegg’s drive to raise tax thresholds while reducing tax credits, are all designed to work together toward that aim. Whether you like that or not is one question. There is also another question. Simply, it still isn’t making a big impact on the benefits bill. Something else is stopping it.

    That something, I suggest, is immigration. Why should an employer want to take on a British worker from the unemployment register, with no skills, and/or with real disability problems which will reduce productivity? Why, especially, when he can instead recruit an immigrant from Poland or elsewhere within the EU who will work hard, learn quickly and help him make money? The Poles also have their village idiots, of course. But those are not the people who take the initiative to come over here.

    I “apologise” for this very non PC post. But we should not hide from the real issues.

    All this is, of course, very embarrassing to the political parties. Pulling up the drawbridge is, of course, the UKIP / BNP “solution”. Well, to be fair, it is probably the only way to make a real dent in the benefits bill. However, what UKIP / BNP would like to ignore is that such a “cure” would be far worse than the disease. A major reduction in immigration would knock our economic competitiveness for six. We might have cut the benefits bill, but we would have a lot less revenue available to pay it. Quite apart (of course) from a lot of social dislocation. Yes, excessive immigration can cause social problems, but so can excessive immigration control.

    It’s also embarrassing to the mainstream parties. They need to tell voters that they are doing something. The truth is that there is not very much that they can do, and that in an odd sort of a way, Mr Farage has a point. Mr Farage’s fantasy island, out in mid Atlantic with no ports, would be better placed to dragoon people off benefits. It would also be far worse placed to survive in a competitive world. The mainstream parties do not like to talk about this, because it sounds like admitting that Mr Farage has a point. I think their tactics are wrong. The great British public have twigged that Mr Farage has a point. The great British public can see the upsides of what Mr Farage is telling them, but they can’t see the downsides. It is time we took Mr Farage on properly, and spelt out the downsides.

    What Paul Reynolds want s to achieve in reducing poverty is entirely laudable. We should try. We will do it better if we also recognise the major problems we are up against, and we don’t kid ourselves that there are any magic bullets.

  • @Matthew Huntbach – well said !

    @Peter Davies – if you don’t think £71.70 pw for over 25yrs is subsistence, try £56.80 for those aged 16 – 24.

    Out of that JSA comes all bills, food, fares to sign on, clothing & now even council tax contributions. I have deliberately not referred to rent because housing benefit will most likely be in payment.

    The only people I know that thinks life on £70 a week are middle – upper class who are comfortably off in their warm mortgaged homes & with a full belly every day of the week.

  • @Matthew and Peter

    Unemployment pay is not at subsistence level – it is a lot less than that.

  • I have to agree with those who have asserted that to say benefits are currently set above subsistence are people who have clearly allowed themselves to be blinded by Tory propaganda. The only way most can survive on benefits is to move in with employed family members; how, if it is not enough for them to live off, can that be considered even subsistence.

    While I agree, the difference between a true Liberal Democrat and a true Labour supporter is that the Lib Dems believe we should give people the means to be able to support themselves, while Labour believes that you should just support them (or put away, give them just enough to live); that does not we mean we should give ourselves into the Tory delusion that being unemployed is some sort of joy ride, it is not.

  • Peter Davies 26th Apr '13 - 10:30pm

    So millions of people are living on far less than it is possible to live on and young people are living on £14.90 less than that?

  • Paul Reynolds 27th Apr '13 - 3:13am

    In my short article I did not support the view that there is a significant problem of the welfare system creating armies of people living off welfare or that welfare payments are generally too high. I was merely describing the arguments of others in relation to moral hazard in order to point out the need for more emphasis on longer term and intergenerational poverty reduction. It is true however that the welfare system’s original creators diid express concern over possible moral hazard problems as one might have expected them too given the culture of the time. Having lived in extreme poverty myself I and mindful of the need for stronger policy to get people out of policy all together as well as improve the welfare system. In addition I don’t think there are many these days who would argue against the view that the system is too complex or that welfare payments to the wealthy are what the system was designed for.

  • Michael Parsons 27th Apr '13 - 11:01am

    Congratulations to Dave Allen on a very intelligent and realistic post.
    I would like to go a step further on his point about living in a “competitive world”. There us such a thing as unfair competition where companies rig prices, or pay bare subsistence wages to undercut domestic clothing costs,, locate production or profit-declaration as part of a tax dodge etc. International Trade in commodities and energy and manufactures is in the hands of half-a-dozen big operators mostly.
    Here is the nub: we are paying benefits to pacify the redundant native poor (and squeezed middle too?)as a means of keeping the oligarchy’s cheap-labour, LIBOR fixing pathological self-entitled friends afloat. Trying to play the game by the competitive rules is pointless when the other party has pocketed all the aces in advance. This is not a whinge! We are ourselves to blame by lack lustre defence of our trading rights. We have many measures available, such as pre-inspection of imported goods and services sale and production conditions, a welfare tax on cheap labour products, aggressive actions against rate-fixing and tax dodging etc. Their are plenty of slackers and cheats reaping rewards from the moral hazard of lax administration, but they are in Mayfair rather than slum housing estates.

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