Social security and fairness

Social security and fairness

Aims of social security

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.

History of the welfare state

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.

Roles of the welfare state

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 Fair Necessities. 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.

Targeting vs universalism

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.

Reciprocity

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.

Benefits of social security

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”.