Social security should act as a collective insurance system that intervenes to prevent people from falling into poverty because they are unable to work for any reason (whether due to illness, disability, caring commitments, loss of employment, old age or so on), or because they need additional support to make ends meet because their incomes do not cover their basic living costs.
Fairness and social security
A fair and effective social security system increases productivity and economic growth, rather than acting as a drag on growth by increasing the size of the state or incentivising idleness. People want to work, and a social security system that supports people when they are unable to work is more effective at helping them back into work than one that penalises them on the assumption that they are trying to avoid work.
Social security plays a key role in ensuring that people are protected from unearned bad luck that would otherwise prevent them from enjoying equal opportunities to make the most of their potential, helping those who are able to get back to work, while supporting those who are not.
Two essential roles of social security are to handle inequalities created in markets and to provide insurance for risks faced by individuals. Its sustainability depends on its ability to fulfil these roles and to handle the potential trade-off between fairness and efficiency. When is it seen as legitimate to compensate unlucky risk takers? Do attitudes to social insurance take account of what alternatives people are facing when they make risky decisions?
A fair social security system is universal and reciprocal. This means that it is there to support everyone, not just ‘people on benefits’. It should be like a ‘piggy bank’ that people pay into during their working lives, and in return it helps them when they need support. Social security systems in many other countries operate on this basis, and enjoy broad public support as a result. We need to move away from a ‘them and us’ view in which the majority of the public do not support a generous social security system because of a perception that the main beneficiaries are ‘scroungers’ of one form or another.
A system under strain
While our social security system has never been perfect, a combination of reforms and spending cuts in recent years has led to huge suffering for many disadvantaged people and pushed millions more into poverty. The COVID pandemic has both exacerbated and highlighted the impact of these changes. Increasingly, poverty is affecting people in work as well as those out of work, with many dependent on benefits that the government is paying to compensate for low wages paid by some employers. Meanwhile, benefit fraud is at record levels, partially driven by organised criminal gangs taking advantage of flaws in the design of universal credit that were exacerbated by the COVID pandemic.
The basic message, delivered in the language of managerial efficiency and automation, is that almost any alternative will be more tolerable than seeking to obtain government benefits. This is a very far cry from any notion of a social contract, Beveridge model or otherwise, let alone of social human rights.
Philip Alston, former United Nations Special Rapporteur on extreme poverty and human rights
Attempts in the UK to talk about Scandinavian countries as role models for social security tend to fall flat because it is easy to argue that those systems rely on much higher taxes. However, the evidence from countries such as Denmark is that people are much more willing to pay higher taxes when the benefits that they receive in return (such as childcare, sick pay, a state pension and social care) are generous and universal. Social security provision in Britain could also be improved significantly without requiring huge tax increases, by improving efficiencies, reducing tax avoidance and investing more now to reduce unnecessary long-term spending (for example, building more social housing, thereby reducing demand for private rented accommodation, cutting rental costs and reducing the huge annual housing benefit bill).
What needs to change
There is an urgent need to provide additional support to particularly vulnerable groups and to increase the generosity of the system as a whole, making it more supportive and less punitive. We also need to tackle some of the broader issues outside of the social security system that are undermining living standards and pushing people into poverty, such as ever-rising housing costs. Beyond these urgent changes, we need to refocus our social security system to act more like the NHS, as a collective insurance system that supports all of us when we need it. It needs to work better alongside the other sectors that together ensure that everyone has equal opportunities to make the most of their talents, including education, health and housing. It needs to do more to help people affected by ‘compound unfairness’, whose life chances are undermined by a lack of support and opportunities at every stage of their lives, from their early childhood onwards.
There is a strong economic case for action, but more fundamentally, the government has a moral responsibility to ensure that people have decent life chances and to intervene to address hunger and extreme poverty, and it has both the ability and the means to tackle these problems for good.
At the level of principles, we need to refocus the welfare system onto helping people to cope with shocks in life and to prevent those shocks from pushing people into poverty. We need to re-establish the idea of a social contract and a universal welfare system based on reciprocity and contributions, whereby people pay into the system during their working lives and are then entitled to receive support at an adequate level when they need it, and to move away from the ‘them and us’ view in which the majority of the public do not support a generous welfare system because of a perception that the main beneficiaries are ‘scroungers’ of one form or another, while the recipients of benefits are stigmatised, which undermines citizenship and the belief that anyone could be the victim of unearned bad luck. According to this view, the poor deserve their plight and only a small number of deserving cases are worthy of public support; the rest should be treated more harshly. A universal system could replace this vicious circle of declining public support, and an increasingly punitive welfare system creating a two-tier society, with a virtuous circle of strong support from across the political divide for a collective and universal system based on the idea that we are all in it together. There are some specific calls for policy changes that would support this transformation, for example a recent Fabian Society study suggesting public support for increasing the use of non-means-tested benefits.
In the short term, however, the ‘them and us’ view remains dominant, and so there is only limited public appetite for increasing welfare spending, even if the pandemic has increased it slightly. The Fabian polling above suggests that there will be least resistance to prioritising five groups who are judged to be more ‘deserving’ of extra help (disabled people, young adults, lone parents in work, lone parents without work who are caring for babies and toddlers, and carers of disabled people). Key short-term proposals made by organisations such as the Fabians, IPPR and JRF include:
- Cancelling the withdrawal of the £20 weekly uplift to universal credit introduced last year
- Extending the same uplift to legacy benefits, such as Jobseeker's Allowance and Employment and Support Allowance
- Removing the two-child limit on universal credit
- Providing a universal entitlement to free, year-round care for all children aged between one and four, combined with wraparound childcare for school-age children, and in the meantime providing childcare support claimed through universal credit upfront rather than in arrears
- Increasing income support (many of the income top ups available for particular groups have been lost in the transition to universal credit)
- Raising local housing allowance to the 50th percentile to help meet the shortfalls faced by those on low incomes with unaffordable private rents
- Restoring the lone parent premium for working single parents and raising allowances for them
- Reintroducing a top-up payment for those with a limited capability for work on universal credit
- Giving an extra £10 per week to carers and severely disabled people
Labour has recently announced plans to allow low-income workers on universal credit to keep more of their pay by reducing the taper rate, which currently means that for every £1 earned over the work allowance, the payment is reduced by 63p. Other proposals have been made for reforming universal credit in various ways, including on the centre-right by Bright Blue.
Recent reports on increasing social mobility and transforming the lives of young children have echoed some of these calls for welfare reform. The government’s Social Mobility Commission has called for scrapping the two-child limit for universal credit, increasing UC child payments and child benefit by at least £10 per week per child, and expanding eligibility for the entitlement for 30 hours of free childcare per week to all families, as well as extra investment in education and housing. Meanwhile, the Early Years Commission, jointly run by the Centre for Social Justiceand the Fabian Society and co-chaired by Labour MP Sharon Hodgson MP and Conservative MP Edward Timpson, has called for the scaling up of ‘family hubs’ to provide “integrated support to all children, especially to those in greatest need”.
Health experts have also made the link between welfare reform and better health outcomes. The Marmot Review 10 Years On called for everyone to have “a minimum income for healthy living through increases to the National Living Wage and redesign of Universal Credit, and remov[ing] sanctions and reduc[ing] conditionalities in welfare payments”.
The Resolution Foundation has identified some of the lessons from the pandemic and suggested three areas of reform (providing a greater degree of earnings-replacement; ensuring a more generous system overall; and doing more to support those with additional costs):
- Earnings replacement is a fundamental role of the social security system
- Inadequate sick pay leaves workers with too much of a financial imperative to carry on working
- Treating employees and self-employed differently is hard both to justify and to implement
- The level of support provided is insufficient to meet the needs of low-income families
- The safety net needs to reflect the variation in costs faced by different households
- Delivering real-time, multi-billion-pound programmes inevitably results in design flaws
- Our system to support long-term health conditions will be under huge strain due to long COVID
IPPR has identified a range of “major disruptive forces will transform life in the UK and globally in the 2020s and beyond, creating a new set of social risks”, to which the welfare system must respond.
An independent review has called for major reform to and investment in children’s services, including a serious policy effort to tackle poverty and deep-rooted child welfare inequalities across England that mean that children living in the 10% most deprived neighbourhoods are 10 times more likely to be on a child protection plan than children in the least deprived areas.
Many campaigners are calling for more fundamental reforms to social care than have been proposed by the government recently, such as the introduction of a universal care service along the lines of the NHS, which would make social care universally free at the point of need by abolishing the means test, widen the availability of social care by ensuring the universal application of the national eligibility criteria set out in the Care Act, and improve working conditions by introducing a care living wage.
Disability rights groups are calling for reforms to disability benefits. Disability Rights UK proposes that payment levels should meet the costs of disability and that processes should support wellbeing, respect and dignity, while there should be more support for families with disabled children and for disabled parents so that they can play a full parenting role, as well as targeted impairment-specific employment programmes to support disabled people into work.
The negative impacts of the ‘no recourse to public funds’ policy should be minimised through reforms including redefining the definition of ‘public funds’, making it easier for the condition to be lifted when people apply for this, and helping local governments to support people affected by the policy.
The Equality and Human Rights Commission has called on the government to “carry out a comprehensive review of the application of sanctions and conditionality on claimants sharing different protected characteristics and take action to address any disparities”.
The Resolution Foundation has laid out plans for a Living Pension benchmark to improve pension outcomes, in collaboration with the Living Wage Foundation and Aviva.
There are competing proposals for various minimum income schemes, including a minimum income guarantee, a universal basic income and a universal minimum inheritance:
- A minimum income guarantee is based on the idea of providing everyone with a decent standard of living, regardless of their circumstances. There are a few different variations. Proposals for a guaranteed income floor would sit below the existing benefits system, whereas NEF’s proposal of a weekly national allowance would change universal credit more radically. The so-called ‘minimum income standard’ (an estimated budget deemed adequate to meet material needs and participate in society) was £210 per week for a single adult in 2020, compared to the absolute poverty threshold of £150, and basic benefit levels of £94.
- A universal basic income also has several variants, but most are based on the idea of providing a set level of income to all citizens, regardless of need. This is a harder sell because of the expense and because of objections that it would disincentivise work and unnecessarily support those who didn’t need it, although it does have various advantages, and there is an increasing body of evidence from various countries (such as the US) that recipients of guaranteed incomes are more likely to be in employment as a result than non-recipients as well as being more resilient to shocks and less likely to be pulled into poverty by them.
- IPPR’s Commission for Economic Justice proposed a Citizens’ Wealth Fund, a sovereign wealth fund owned by and run in the interests of the whole UK population, and capitalised over a 10-year period from a variety of sources to provide all citizens with a small annual dividend, or a £10,000 ‘universal minimum inheritance’ to all young people at the age of 25.
At a time of growing economic insecurity, socioeconomic division and widespread poverty we urgently need a social security system that provides genuine security, ensures an adequate standard of living sufficient to enable people to live with dignity, and guarantees genuine welfare.
Baroness Ruth Lister, Loughborough University, August 2011
Social security and fairness
An effective welfare system is the state’s mechanism for providing a safety net or collective insurance schemes that intervenes when people are at risk of falling into poverty because they are unable to work or for any other reason. As such, it plays a key role in ensuring that people are protected from unearned bad luck that would otherwise prevent them from enjoying equal opportunities to make the most of their potential. It does not, however, aim to ensure equal outcomes (since it is generally accepted that people who receive welfare-related benefits will be on lower incomes that most people who are working). Neither does it aim to treat everyone equally, since benefits are generally provided based on need, although there is an argument that some benefits should be provided universally and on the basis of reciprocity (contributions) rather than purely on the basis of need, as explored below.
Queen Elizabeth I’s highly innovative universal Poor Law of 1601, which offered support to people unable to work, facilitated the country’s rise from economic obscurity to European and then global pre-eminence. This was the first example of a welfare state in Britain.
The welfare state was cut back in 1834, when the Poor Law was replaced by the notorious workhouses depicted by Dickens in Oliver Twist. However, late nineteenth-century social reformers called for a "minimum income" for all citizens, and in the 1909 Minority Report of the Royal Commission on the Poor Laws, dissenting members, led by Beatrice Webb, rejected the Majority Report's emphasis on self-help and limited state support. Instead, they called for a radical, state-backed plan for comprehensive welfare provision as part of our common citizenship. At its heart was the idea of an entitlement to a "national minimum of civilized life".
The second world war provided the impetus for large-scale reform. Beveridge and Attlee, the architects of the modern post-war welfare state, recognised that market failures could have devastating effects on people’s lives and well‐being, and that markets were not providing insurance against many important risks that individuals faced, such as unemployment and retirement, which was undermining both economic efficiency and individual wellbeing. More broadly, high levels of poverty and inequality meant that many people lived in substandard housing, suffered from hunger, and had inadequate access to medicine. Access to these basic necessities was declared a basic human right under the UN’s 1948 Universal Declaration of Human Rights. There was particular concern about the plight of poor children, which was in no way a result of their own choices, based on an understanding that child poverty was both a social injustice and a drag on economic growth, since it was preventing many people from living up to their potential.
Beveridge’s vision for the welfare state was that it would tackle the ‘five giants’ - want, ignorance, idleness, squalor and disease. His hypothesis, which proved to be correct, was that taking the burden of healthcare and pension costs away from corporations and individuals and giving them to the government would increase the competitiveness of British industry while producing healthier, wealthier, more motivated and more productive workers who were keen to buy British goods.
Two essential roles of the welfare state, therefore, are to handle inequalities created in markets and to provide insurance for risks faced by individuals. The sustainability of the welfare state depends on its ability to fulfil these roles and to handle the potential trade-off between fairness and efficiency. When is it seen as legitimate to compensate unlucky risk takers? Do attitudes to social insurance take account of what alternatives people are facing when they make risky decisions?
A fair society rewards people for their hard work, but this mechanism can only operate effectively if society also has a collective insurance mechanism to protect people against (or compensate them for) ‘unearned’ bad luck, such as falling ill and not being able to work (or being born with a disability, or simply growing old). For a discussion of the role of luck (including ‘earned’ as well as ‘unearned’ bad luck), see the Fairness Manifesto. The welfare state therefore plays a key role in a fair society, by helping people who need support because, for example, they cannot work, lose their job, require care, or do not have parents who can raise them. Part of this support mechanism, of course, is the National Health Service, but this sits outside what is normally thought of as the welfare system itself.
There are continual debates about how narrowly welfare support should be targeted to those most in need, or provided universally, and how far it should be based on the principle of ‘reciprocity’, whereby there is some link between what a person has put into the system and what they get out of it (like a collective insurance scheme that people pay into over the course of their working lives), as opposed to a system where entitlement is assessed based on need, regardless of contributions made. There is broad support from across the political spectrum for the principles of proportionality and reciprocity. Many people see it as unfair when people are asked to contribute more than they receive in return, or when people receive more than they contribute. This explains the overwhelming popularity of the NHS; rather than a socialist project, it is a collective insurance programme to which people contribute through the tax system, and which supports them when they suffer the ‘brute bad luck’ of ill health. The welfare state is about the pooling and redistribution of social risks, particularly the risk of income loss, and is not necessarily about income redistribution. A good metaphor is the piggy bank: a device to help people insure against social risks and to assist in redistributing resources over the life cycle.
Arguably, other public services could enjoy similar popularity to the NHS if they were designed on similar universal principles. The Fabians argue in The Solidarity Society that the lessons from the successes and failures of welfare institutions over the last century are clear: we need to provide more universal benefits and services, and to design a new welfare contract that rewards all who contribute to society. They point out that public services, including welfare programmes, are paradoxically more effective at tackling entrenched social problems when they are made available to everyone (or at least to many people), rather than being targeted at those most in need, in part because they enjoy much more public support as a result.
Across Europe, welfare states are faced with important challenges, in particular related to financial strains on the welfare system, changing migration flows and increasing inequality. Partly as a response to these challenges, there is an increasing focus on personal responsibility. Concerns for personal responsibility can be integrated in the design of welfare schemes in a way that is perceived as fair.
Universal services that are based on contributory principles are less divisive than means-tested services targeted at the most disadvantaged, because they don’t create a ‘them and us’ dynamic that undermines ongoing public support for the necessary levels of government spending. For example, a universal and contributory social security system would not, as some fear, act as a disincentive to work or create a dependency culture; everyone wants to work and have a purpose in life. Recent research finds that welfare state generosity does not create work disincentives; on the contrary, it increases employment commitment. And a universal system would remove some of the rancour from the debate about the role of personal responsibility, which threatens to take us back to Victorian arguments about the ‘deserving’ and ‘undeserving’ poor.
Society’s institutions should reactively help people to cope with shocks in life, and should proactively identify points in people’s lives when they need more support. This approach will help to prevent problems from becoming more difficult and expensive to solve. People will willingly pay society back at other times in their lives in return for providing this support; reciprocity works and is popular. A majority of people support this idea and are happy to pay taxes as their contribution for public services that will support them when they are in need.
There are particular groups for whom this approach works less well, however. A good example is refugees, who by definition will not have contributed to the system before their arrival (although the evidence strongly suggests that they make a significant contribution once they are able to work). A fair system needs to balance fairness to claimants with fairness to taxpayers, and to attract broad public support. In the case of refugees, it may be that more public education about the contribution to society of refugees is needed so that there is broader public acceptance of both the moral and the economic case for society to ‘pay up front’ by providing them with welfare support. Of course, the argument in respect of economic migrants is somewhat different, and arguably the scale of economic migration from Eastern Europe in particular in the early 21 century has damaged public support despite the undoubtedly huge economic contribution that has been made by that group.
After the financial crisis in 2008, successive governments have pursued a policy of austerity, cutting back on public services (especially welfare) by arguing that it is a burden on the productive economy, it is an unaffordable luxury, and it is ‘unfair’ to hard-working families for the state to spend their tax revenues on subsidising those who are unable or unwilling to work. However, an article in the Lancet argues that history shows that economic growth and welfare provision are not in opposition; rather, as Beveridge saw in 1942, they are interdependent. Our economy saw its strongest growth rates of the last century following the introduction of the new welfare state in the three decades after the second world war. At the European level, the welfare state has been shown to greatly contribute to macroeconomic stability (on the demand-side, through ‘consumption smoothing’) and to stimulate economic development on the supply-side (through investments in human capital, i.e. education and training, and through social services).
A strong social security system also promotes social cohesion. The historian Casper Thomas argues that “the welfare state of the twenty-first century should be one of trust and fairness, which neither starts from an assumption of deliberate misuse nor from an uncritical assumption of self-reliance”.
Learning from other countries
The ‘European Social Model’ of strong welfare states is based on promoting positive-sum solutions to what elsewhere (such as in the US) are considered to be unavoidable trade-offs between sustainable economic growth and social justice (and cohesion).
The budgets allocated to welfare states differ dramatically between countries. While social spending as a share of GDP has generally declined in OECD countries over the past ten years, France remains the country which is most generous in terms of its social benefits. In 2019, the equivalent of almost a third of French GDP was spent on social services by the government. Finland had the next highest rate at 29%, while Denmark, Sweden and Norway spent more than 25%. Spain, Italy, Germany and Belgium were also above average. The UK spent 20.6%, just above the OECD average of 20%.
Welfare states are also qualitatively very different in how they organize and finance their systems of social protection and how they design and how they spend their social budgets. There are broadly three models of welfare state in Europe:
- Liberal (as in the UK), which is market-oriented (other than the NHS), with public provisions for income maintenance and relief mainly catering to the poor; benefits are low and tax-financed, with access restricted by means testing, and private social insurance is encouraged via tax exemptions and allowances, which favour the middle class and the rich.
- Social democratic (as in the Nordic countries), which grounds social rights in citizenship or residence and so largely does away with status differentials; benefits are tax-financed, but are much more generous; access to them is more open and universal, with no strict qualifying conditions, while the role of the market in service and benefit provision is played down.
- Conservative (as in Germany and Austria), which provides social insurance programmes that depend on occupation and status, with qualification for benefits linked to contributions paid by employees to social insurance funds, and the level of benefits related to earnings and contribution period; these systems tend to magnify rather than moderate existing differences in status and income, protecting the employed well while leaving those without a strong attachment to the labour market as outsiders whose social protection depends on their family.
Many welfare systems are not designed to redistribute income (even though they all do to some extent). In conservative welfare states, income redistribution is a secondary goal and a side-effect. It only happens to a large extent in social democratic universalist welfare states, where income is redistributed not only to the poor, but also to the middle class. But all welfare states offer protection against social risks (old age, unemployment, disability and so on) and provide income maintenance. Most income redistribution is horizontal (intrapersonal over the life course and within income groups) rather than vertical (from the rich to the poor). Even in liberal welfare states like that of the UK, where many of the social provisions exclusively cater to the poor, more than half of income redistribution is intrapersonal and over the life course: people put money into the piggy bank during their active working life and smash it when they are in need later in life.
Attempts in the UK to talk about Scandinavian countries as role models for welfare tend to fall flat because it is easy to argue that those systems rely on much higher taxes. However, the evidence from countries such as Denmark is that people are much more willing to pay higher taxes when the benefits that they receive in return are generous and universal. The counter-argument can also be made that welfare provision in Britain could be improved significantly without requiring huge tax increases, for example by improving efficiencies, reducing tax avoidance and removing subsidies to the wealthy that are either already unnecessary (such as many tax reliefs) or could be made so through other reforms (such as housing benefit that subsidises private landlords, which could be hugely reduced by a programme of social housing that lowered demand for private rented accommodation).
Other European welfare systems can also provide useful lessons for the UK. For example, both France and Germany provide unemployment benefits at a level that are much closer to average earnings, thus reducing the shock when someone loses their job, and supporting them to re-enter the labour market much more quickly. These reciprocal systems, based on contributions, enjoy popular support because people understand that they pay in when times are good and will be supported when they need help. They are ‘lumpy’, in that they give rise to temporary differences in the level of support provided to individuals, but in the long term these differences even out, and the systems as a whole are both fairer and more effective, because they prevent people from falling into poverty and having to be supported over a longer period and at greater expense in the long term. By contrast, the obsession in the UK with ensuring that everyone receives the same level of benefits through means-testing might create a ‘smoother’ system, but it is inefficient and fails to protect people from poverty.
The situation today
The reforms introduced by Margaret Thatcher aimed to shrink the welfare state, based on a belief that over-reliance on benefits would remove incentives for hard work and thereby weaken personal responsibility and encourage undeserving ‘scroungers’ to take advantage of hardworking taxpayers, and that an over-reaching state was undermining the capacity of the free market to operate efficiently and to deliver maximum levels of prosperity.
There are many problems with our welfare system, exposed and exacerbated by the COVID pandemic. Millions fall through the inadequate safety net. Benefit levels are below those in other rich countries, and are mostly less generous than in the past. Today’s system depends on a complex system of means-testing, a big shift from Beveridge’s principles of universalism and collectivism. It is not equipped to deal with current levels of uncertainty and turbulence, and is failing to prevent rising poverty.
Many of the most severe cuts have been introduced since 2010 as part of the austerity agenda. The House of Commons Library estimated in 2018 that by 2021, £37bn less will be spent on working-age social security compared with 2010, despite rising prices and living costs, representing a reduction of almost a quarter in spending on welfare benefits for the poorest families. Just under half the total savings were predicted to have come from the freezing of most working-age benefit levels since 2016.
Universal credit was first introduced in 2013, replacing Child Tax Credit, Housing Benefit, Income Support, income-based Jobseeker's Allowance (JSA), income-related Employment and Support Allowance (ESA), and Working Tax Credit. Several benefits still exist in addition to universal credit, namely child benefit, the state pension, council tax reduction, personal independence payment, disability living allowance, contribution-based JSA, and contribution-based ESA. The Resolution Foundation has written a useful overview of the changing size and shape of the British welfare system.
Philip Alston, the former United Nations Special Rapporteur on extreme poverty and human rights, wrote in his 2018 statement on his visit to the UK: “The philosophy underpinning the British welfare system has changed radically since 2010. The initial rationales for reform were to reduce overall expenditures and to promote employment as the principal ‘cure’ for poverty. But when large-scale poverty persisted despite a booming economy and very high levels of employment, the Government chose not to adjust course. Instead, it doubled down on a parallel agenda to reduce benefits by every means available, including constant reductions in benefit levels, ever-more-demanding conditions, harsher penalties, depersonalization, stigmatization, and virtually eliminating the option of using the legal system to vindicate rights. The basic message, delivered in the language of managerial efficiency and automation, is that almost any alternative will be more tolerable than seeking to obtain government benefits. This is a very far cry from any notion of a social contract, Beveridge model or otherwise, let alone of social human rights. As Thomas Hobbes observed long ago, such an approach condemns the least well off to lives that are ‘solitary, poor, nasty, brutish, and short’. As the British social contract slowly evaporates, Hobbes’ prediction risks becoming the new reality.”
The consequences of this shrinkage of the welfare state in the last decade have hit the poorest hard. The New Economics Foundation estimated earlier this year that the poorest 20% of households, both in or out of work, were £750 a year (6%) worse off than in 2010, and that if the system inherited by the coalition government had been maintained, 1.5 million fewer people would be in poverty.
Reciprocity (the principle that benefits are either linked to contributions or come with responsibilities) is important for public support for collective social security, but the principle of entitlement to benefits has been undermined by a combination of inadequate support and coercion. Reciprocity is applied unfairly, in that many at the top of society are renumerated out of proportion to their contribution to society, while the poorest are othered, shamed, and forced to survive on a combination of, at best, inadequate benefits and low-paid and insecure work. The public debate around reciprocity centres on the idea that benefits should be linked to an obligation to look or prepare for employment, rather than on subsidising the lifestyles of ‘scroungers’, but it overlooks the point that reciprocity is the obligation to do one’s bit as part of a fair scheme of economic cooperation.
As Stuart White argues in the IFS Deaton Review: “Where the wider economy lacks fairness in its structures of opportunity and reward, the demand for work as reciprocity requires unfairly disadvantaged workers to work even though other, more advantaged citizens have not made good on their obligations to ensure fair opportunities and rewards. As a matter of fairness, we cannot impose one-sided obligations: there is a failure of reciprocity by the better-off as well. Consider, as an example, the effort to make cash benefits for disabled people more conditional on work-related activity. If the wider society is not making sufficient steps to address the injustices that disabled people face in employment, or legislates conditionality requirements that are not sensitive to the capacities of individual disabled people, then we have a one-sided application of reciprocity.”
The welfare system treats claimants very poorly, causing unnecessary hardship. For example:
- Under the design of universal credit, new claimants must wait five weeks for their first payment. This means at the point when people are most vulnerable, the system fails to support them and adds to the turbulence of their finances. As a result, claimants are falling into poverty and debt, and rising numbers are being referred to food banks.
- Benefits don’t usual cover the costs of renting in the private sector.
- The disability benefits assessment system is a ‘hostile environment’ that is “administered against the interests of some of the most disadvantaged people in the country”. 62% of working-age people referred to food banks in early 2020 were disabled, and 78% of disabled households referred to food banks were not in receipt of disability benefits.
Although benefits for working-age adults have always been conditional on seeking work, requirements are now applied with unprecedented severity. Since 2012 over five million sanctions have been issued, often for minor breaches such as missing or being late for a job centre interview. The film I, Daniel Blake shows the human cost of this approach. At one stage the Department for Work and Pensions was levying more fines than the mainstream justice system. Conditions and sanctions were suspended for a few months during the first pandemic lockdown, but were then reinstated from July 2020.
Fewer than half of universal credit claimants are seeking employment, with 39% already workingas of December 2020, and a further 18% not expected to work due to disability, or because they are a carer or the parent of a young child.
The Equality and Human Rights Commission reported in 2018 that “UK-wide reforms to welfare and tax since 2010 continue to have a disproportionate impact on the poorest in society”, and are “pulling more people into poverty, particularly disabled people, people from some ethnic minorities and women, weakening the safety net provided by social security that is vital to those unable to work, or stuck in low-paid or precarious work”. It concluded: “Despite rising employment levels, work increasingly does not guarantee an adequate standard of living. Homelessness is also on the rise, putting more people in a precarious position and particularly affecting people from ethnic minorities, disabled people and other at-risk groups. Disabled people are also more likely to be in poverty. Those who can't work rely on an increasingly restricted welfare regime that is projected to lower their living standards even further. Benefit sanctions are applied inconsistently and may disproportionately impact disabled people, younger people, men and ethnic minorities.”
The rise of in-work poverty has been particularly sharp in recent years, and demonstrates that the social contract, whereby hard work guarantees a decent standard of living, has broken down. IPPR found earlier this year that, while unemployment has fallen, in-work poverty has been rising since 2004. Levels were highest in London, Wales and the North of England, reaching a new high of 17% of working households before the start of the pandemic, and while single parents and large families were most at risk (with 42% of families with three or more children in poverty, up more than two-thirds in the last decade), even families with one full-time and one part-time earner were at greater risk of poverty (up from 5% to 10% over the same period). The report blamed increasing housing costs in the private rented sector (39% higher for poor households than in 1996/97 in real terms), poverty wages paid by employers, a lack of flexible and affordable childcare, and the failure of the social security system (especially housing support) to keep pace with the impact of rising rents. JRF estimates that there were four million workers in poverty in 2017/18, of which 1.9 million were full-time employees. By paying benefits to compensate for low wages, the government is subsidising employers who should be paying better wages and providing more secure contracts for workers.
Rising childcare costs are a significant issue for many families. Research by the Trades Union Congress found that between 2008 and 2016 the cost of a one-year-old child’s nursery provision grew four times faster than wages in England. In London, it was more than seven times faster. OECD datasuggests that the UK has the third most expensive childcare system in the world, behind only Slovakia and Switzerland, with a full-time place costing £12,376 a year on average. A recent survey of 20,000 working parents found that 97% thought childcare was too expensive, with one in three (and 47% of black respondents) saying they paid more for childcare than their rent or mortgage. It also found that 16% of parents with a household income of under £20,000 said they had used food banks as a result of childcare costs.
The two-child limit on universal credit that was introduced in 2017 has had a devastating impact on larger families, affecting 318,000 families and over a million children, according to government figures. 60% of the families affected only have three children. The policy has had a disproportionate impact on some ethnic groups where larger families are more common. The figures also show that since 2019, there has been a 160% rise in the number of women forced to tell officials that they had become pregnant from a rape in order to escape the cap. The Child Poverty Action Group has argued that removing the two-child limit would only cost £1bn and would immediately lift 200,000 children out of poverty, and 600,000 children out of deep poverty. CPAG argues that the two-child limit fails to take account of the impact on families of unpredictable life events, especially COVID-related joblessness. The Church of England argues that the two-child limit is morally unjustified and should be scrapped.
The government increased universal credit by £20 per week, or £1,000 per year, at the start of the pandemic. Despite warnings from charities, thinktanks, opposition parties and six former Conservative welfare secretaries, the Chancellor is planning to withdraw the £20 weekly uplift in October. The government’s research points to “catastrophic” consequences from this decision, which will reduce the incomes of around a million households by 10% (in 400 constituencies, more than one-third of familieswith children will be affected). The Resolution Foundation says that the government is making the biggest overnight benefit cut in modern history, comparing it to the disastrous shrinking of unemployment support during the Great Depression in 1931. Without the uplift, the Joseph Rowntree Foundation notes, universal credit will not provide a decent standard of life for those experiencing hard times. The current UN rapporteur on extreme poverty, Olivier de Schutter, said in September that the withdrawal of the uplift was “deliberately retrogressive”, incompatible with Britain’s obligation to protect its citizens’ rights to an adequate standard of living, and based on a “very ill-informed understanding” of its impact on claimants. The cut will affect 5.5 million families, pulling 500,000 people including 200,000 children into poverty; 60% of those affected are working families, and 1.7m people who are unable to work will have their incomes cut. 78% of households on universal credit say that it will be harder to afford food after the cut.
Sick pay is inadequate. At £95.85 a week, it is the meanest regime almost anywhere in the industrialised world, lower as a proportion of the average worker’s income than in any other OECD country. In addition, almost two million workers, mainly female carers, earn too little to claim it (£120 a week or below), while another six million are eligible for statutory sick pay, but it is so small that they will not be able to pay their bills. In all, over a quarter of the British workforce face poverty just for falling ill.
Many people in the UK immigration system are subject to the 'no recourse to public funds' condition, which means that they are unable to access mainstream welfare benefits. This includes most benefits, tax credits and housing assistance provided by the government. As a result, many people are at serious risk of becoming destitute, including people on short-term visas, those without legal permission to be in the UK, and those who have been in the UK for some time but are on long routes to settlement.
The COVID pandemic has both exacerbated and highlighted many of the failings of the current welfare system. Analysis by the New Economics Foundation in December 2020 found “the social security system at breaking point, with millions more people struggling for a decent standard of living”. The Joseph Rowntree Foundation’s 2020/21 UK poverty report concluded that “those of us already struggling to keep our heads above water have often been hit the hardest”. Research by the University of Essex discovered that cuts to housing benefits led to over 75,000 more overcrowded households during the pandemic. Bright Blue showed that more than four in 10 households in some London boroughs are now claiming housing support because of COVID. Almost one in eight adults have received support from a charity since the start of the pandemic, accordingto the Covid-19 Support Fund, and demand for food aid has hit a record high, with the Trussell Trust handing out 2.5 million parcels during the pandemic’s first year.
Demand for social care (from short-term needs to long-term support) is rising, and levels of unmet needare soaring (recently exceeding 1.5 million people). Social care needs urgent investment, and successive governments have failed to act. The government recently unveiled plans for a £12 billion-a-year tax rise from April 2022, to fund social care reform in England and to tackle the NHS’s COVID-induced backlog of cases. However, getting back to pre-pandemic levels of NHS service alone is likely to cost almost £17 billion, and critics fear that the new levy will be used up within the NHS with little left to spend on improving social care. Of the £36 billion that will be raised by this levy, only £5.4 billion will go to social care, and half of that will pay for the new care cap rather than address any of the existing strains in the system. The new proposals also do nothing to address low pay for the 1.5 million people working in the care sector. They won’t improve the range, quality or adequacy of social care, a system that many people say is about meeting basic needs rather than enhancing wellbeing or allowing people to flourish. Many are proposing that a universal care service is needed, along the lines of the NHS. In addition, the money is to be raised through a levy linked to national insurance of 2.5% (shared between employees and employers). This solution places the burden primarily on young working people, subsidising many wealthy older people. Fairer options to raise the necessary funding for improving social care provision could include equalising capital gains with income tax, abolishing tax loopholes and ensuring that companies pay their fair share of tax in the first place.
State pensions are hardly generous, at £179.60 per week for those who reached state pension age after April 2016 (although they are by far the biggest expense, at around 40% of all government welfare spending). However, recent increases in average weekly earnings coming out of the pandemic, combined with the ‘triple lock’ (which ties the level of state pensions to the highest out of inflation, the average wage increase or 2.5%), pointed the way towards the biggest cash increase in the state pension since 1991, at the same time as the removal of the £20 per week universal credit uplift would represent the biggest ever overnight benefit cut. In light of this, the government decided to suspend the triple lock, and to raise the level of state pensions by either inflation or 2.5%.
New Labour’s child poverty strategy was very successful in getting single parents into work; the new deal for lone parents doubled their chances of finding a job, the increased number of women joining the labour market over the last 40 years has improved the financial wellbeing of poorer families significantly. Active welfare policies have a huge impact, but these positive impacts are under-reported and under-appreciated.
Levels of benefit fraud have reached new heights in the last year. A record £8.4 billion was lost in 2020 according to official figures, mainly because of overpayments on the universal credit benefit and fraud. The rate of fraud on universal credit payments has risen from 2.7% in 2016 to 12.8% in 2020 (compared to an average fraud rate of 3% across all benefits. The COVID pandemic led to a doubling of the number of people applying for universal credit, from three million in 2019 to six million in 2020. In order to process the claims quickly, some of the rules were relaxed, leading to organised criminal gangs taking advantage of the system. However, benefits fraud still costs the Treasury much less than the estimated £20 billion annual cost of tax fraud, according to our friends at TaxWatch.
Public attitudes to welfare are often contradictory. For example, citizens’ juries often conclude that children should be dealt with generously and should not suffer because of their parents’ behaviour or income, but at the same time many people have been persuaded that the two-child benefits cap, which is a major driver of child poverty, is ‘fair’. Most people do not understand that £36 billion has been removed each year from the welfare budget since 2010, with the consequence that levels of benefits are very low (for example, unemployment benefit only provides 14% of average earnings). There was mixed public support for the furlough scheme, which reinstated Beveridge’s ambition of providing closer to people’s full earnings when they cannot work, thus allowing them to re-enter labour market easily and quickly. However, polling carried out in June by Welfare at a Social Distance found that while the pandemic did not trigger a change in underlying public attitudes towards welfare, there was a clear appetite for a more generous social security system where changes were linked specifically to COVID, such as the £20 increase: “Before the pandemic, attitudes had become more pro-welfare than the UK has seen in 20-30 years, and support for more generous benefits is even higher if this is linked to Covid-19. Public attitudes depend on how politicians talk about welfare, which means that the impact of Covid-19 on welfare attitudes and policies is all to play for.” The Resolution Foundation pointed out earlier this year that “for the first time since 2001, the 2019 British Social Attitudes survey found that more people thought the level of unemployment benefit was too low and causing hardship than thought the benefit was too high and discouraging work”. And the Fabian Society’s year-long study of public attitudes to welfarerevealed a groundswell of support for increasing universal credit for about 4.6m households, at a cost of £17bn a year, based on increasing payments to five groups: disabled people, young adults, lone parents in work, lone parents without work who are caring for babies and toddlers, and carers of disabled people. Meanwhile, recent polling found that a majority of young voters, including 58% of Conservative voters, want to see more investment in welfare.