Cuts and reforms
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.
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.
Philip Alston, United Nations Special Rapporteur on extreme poverty and human rights, 2018 statement on his visit to the UK
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 working as 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 data suggests 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.
Universal credit uplift
The government increased universal credit by £20 per week, or £1,000 per year, at the start of the pandemic. Despite warnings from charities, think tanks, opposition parties and six former Conservative welfare secretaries, the Chancellor withdrew the £20 weekly uplift in October 2021. The government’s research pointed to “catastrophic” consequences from this decision, which reduced the incomes of around a million households by 10% (in 400 constituencies, more than one-third of families with 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, according to 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 need are 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 benefits 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 2021 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 in 2021 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 welfare revealed 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.