Whose welfare state now?

Adrian Sinfield

School of Social & Political Science

University of Edinburgh

adrian.sinfield@ed.ac.uk

‘Whose welfare state?’ 1958

‘The middle classes feel that too much isbeing given to too many at too high astandard, and they are being forced tofoot the whole bill.’

Brian Abel-Smith,

in Norman Mackenzie ed., Conviction,MacGibbon and Kee, 1958, p 55

By no means a new complaint‘We the people’ and ‘they the poor’The ‘givers’ vs the ‘takers’

‘We the taxpayers’ vs ‘those languishing/resting onbenefits’

Virtually all of us give and receive - how fairly?And how and when?

Need to focus on processes, not individuals, first -the institutional structures determine countries’overall level of poverty, not personal failingshowever bad.Avoid the harm of ‘blaming the victim’

Who contributes and howas well as who benefits and how

All UK Taxes % Gross Income, 2008-2009

Incometax & NIcontri %

Council

tax %

Indirect

tax %

All Taxes%

All 17.3 2.9 13.3 33.5

Top fifth 22.2 1.9 9.7 33.9

Bottom 5.0 6.2 25.1 36.2fifth

How do we compare?

Out of 24 EU countries, poverty risk in 2007for those aged 18-64 in the UK

for unemployed only 1 worsefor all not employed only 1 worsefor those in work only 7 worsefor all 18-64 only 6 worse

(Eurostat 2010 report, Table 1)

But still we are told to increase the incentives towork, flying in the face of the evidence

Job loss into poverty

‘Loss of employment is the single mostsignificant cause of entry to poverty’

(Smith & Middleton, JRF, 2007)

Especially when JSA benefit only £65.45 -under 25£51.85 - 11% average

earnings - back to May 1979 relative toearnings needs an increase of over80% to £117.But unemployment-poverty link by nomeans inevitable - cf Denmark in 1980s

Neglect of demand-side

Long-term as % labour force, not ofunemployed - David Webster, 2005

Pattern over 55 years reveals greaterimportance of demand in accounting forlevels of long-term unemploymentrather than the individual behaviour ofthose out of work

Confirmed by comparative, small-area &evaluation analyses (but need more)

While ‘in cold storage things areliable to happen to them’ (1938)

‘Unemployment heightens the risk of peoplefalling into poverty and poverty in turnmakes it more difficult for people toreturn to work. This process appears tooperate in a similar way across the differentcountries of the EU’ (Gallie et al, 2002).

Value of a good benefits system - as OECDhas at last recognised.

Poor benefits far from ‘passive’Inadequate benefit rates of £65.45 - undermine anddamage individual and family resilience and health,resulting in longterm costs and lost productivityPoor wages in work sustained by the stick of inadequate,over-policed benefits and lack of jobs - leads todemoralising in-and-out of work - undervalues parentingand other caring unpaid workFull employment for Beveridge: ‘decent jobs, fair wages,of such a kind, and so located that the unemployed canreasonably be expected to take them’ (Full Employment ina Free Society, 1944).21st Century Welfare will lift 300,000 into work (Clegg) -‘at the astrology end of the validity spectrum’.

PERCENTAGE CHANGE 1970-2010(a) average earnings

(b) NI Unemployment Benefit/Jobseeker’s Allowance

(a)

(b) down 50%

1970 2010

Note: only end points plotted

(c) up 1,000%

PERCENTAGE CHANGE 1970 - 2010(a) average earnings of

(b) NI Unemployment Benefit/Jobseeker’s Allowance

(c) FTSE 100 CEO remuneration

Note: only end points plotted

(a)

1970 (b) down 50%

Freedom in the market

One investment banker’s own account of working in theCity in the mid-1990s raises questions about the links

between financial power and social policy. As they decidedon team bonuses, he told a colleague:

‘If the rest of the country knew what we were beingpaid, there would be tumbrels in the street andheads carried round on pikes’

Who? in the City, 2008.

Ex-banker ‘Welfare Expert’,now Minister for Welfare Reform

‘If the rest of the country knew what we were being paid,there would be tumbrels in the street and heads carriedround on pikes (Freud in the City, 2008, planning histeam’s bonuses).

Lord (David) Freud, since better known, and ennobled, asthe last government’s adviser, Reducing Dependency,Increasing Opportunity: Options for the Future of Welfare toWork (2007), and now coalition Minister for Welfare Reformwho is arguing definitions of homelessness are too wideand need to be made more ‘realistic’.

Not the only banker to shape our welfare state.

Greater inequality now

‘Inequalities in earnings and incomes are high inBritain, both compared with other industrialisedcountries, and compared with thirty years ago.

‘Over the most recent decade, earnings inequalityhas narrowed a little and income inequality hasstabilised on some measures, but the largeinequality growth of the 1980s has not beenreversed.’

UK National Equality Panel, Jan 2010

Share of total after-tax personal income of topO.5%, 0.1% and 0.05%, 1937-2000 - from National

Equality Panel , January 2010

QuickTime™ and aTIFF (LZW) decompressor

are needed to see this picture.

If you are paid more than average, youare very likely to receive company

benefits too plus a tax subsidy from therest of us

Cash Package - Base Salary £60,000; Bonus £30,000;Incentive Awards £7,500; Location Allowance £3,100;Share Scheme estimated Value £25,000

Benefits - Pension £9,000; Company Car £8,000; MedicalInsurance £900; Life Assurance £800; Holiday £1,200

Combined annual value of pay & benefits & estimatedvalue of your share schemes £145,500 + other benefits

Hay 2004 example of appropriate valuation for middle management

Redistributing ‘upside-down’ benefitsthrough tax welfare

We need more study of institutional powerdevoted to reducing individual andcorporate‘tax wastage’ paid to ‘enjoy theprotection of the state’, Adam Smith, 1776.

Racing away? accelerated by tax reliefsRichest 0.1% have pre-tax income 31 timesaverage but tax reliefs of £49,000, 86 timesaverage (IFS, 2008).

Why not limit to £5,000 over personalallowances? Or a minimum tax bill for all over£100,000?

‘The art of taxation’‘consists in so plucking the gooseas to obtain the largest amount

of featherswith the least amount of hissing’

Jean Baptiste Colbert,Finance Minister to Louis XIV of France,

1665-1683

‘Who has a Welfare State?’

‘The middle classes get the lion’s share ofthe public social services, the elephant’sshare of occupational welfare privileges,and in addition can claim generous [tax]allowances to reduce their tax liability.Who has a Welfare State?’

Brian Abel-Smith, 1958

A wealthy but unequal countryIn 2005 mean financial wealth holding £21,617.

But the median is only £1,091 - 1/20th

We know too little about this inequality,but it matters:

‘Mortality closely relates to wealth: more thantwice as many men, and nearly four times as

many women, from the least wealthy fifth of over-50s die within a six-year period as of those fromthe wealthiest fifth.’ (NEP, Jan, 2010)

The Spirit Level: Why More EqualSocieties Almost Always Do Better

By Richard Wilkinson and Kate Pickett,2009 - and now in paperback

‘because more equal societies workbetter for everyone’

www.equalitytrust.org.uk

‘Great inequality is the scourge ofmodern societies’

‘We provide the evidence on each of elevendifferent health and social problems:physical health - mental health - drug abuse

-education - imprisonment - obesity -social mobility - trust and community life -violence - teenage births - child well-being.‘For all eleven, outcomes are verysubstantially worse in more unequalsocieties’Backed up by much more research

The high costs of ‘the evil ofinequality’, William Beveridge, 1944

‘Our report shows the way economic advantagereinforces itself across the life cycle, and on tothe next generation. It matters more in Britainwho your parents are than in many othercountries.

‘Intergenerational mobility appears lower inmore unequal societies - moving up a ladder isharder if its rungs are further apart, and thosewho start higher up fight harder to ensure theirchildren do not slip down.’

UK National Equality Panel, Jan 2010

Structural & societal problem

‘The Welfare State is only a way ofredistributing some income

without interfering with the causes

of its maldistribution’

G. D. H. Cole,

July 1955, emphasis added.

So changes need to be structural.

More inequality meansmore poverty & social exclusion

‘Inequality has a dynamic of its own’ in TheIrresponsible Society (Richard Titmuss,1959)

‘What thoughtful rich people call the problemof poverty, thoughtful poor people call, withequal justice, the problem of riches’ - RichardTawney, 1913, emphasis added.

Upstream policies needed to tackle the‘inequality [that] lies at the heart of the modernfree market’, Philip Augar, The GreedMerchants, 2006.

‘A society for people’Peter Townsend, 1958

We need to prevent the ‘preservation andreinforcement of a class-fractured society’.

‘If that overdone phrase “a classless society”means anything, it is a society where

differences in reward are much narrower than inBritain today and where people of differentbackground and accomplishment can mix easilyand without guilt; and also a society where arespect for people is valued most of all. Forthat brings a real equality’ (1958, p. 530).

‘First things first’ Beveridge, 1948

The 1942 Beveridge Report ‘set out a practicalprogramme for putting first things first.There was to be bread and health for all at alltimes before cake and circuses for anybody atany time, so far as this order of priority could beenforced by redistribution of money.’

William Beveridge, ending Voluntary Action.

Long-term strategies neededRebalance to achieve better jobs & more helpfor caring - more social inclusion, less inequality

More work ‘upstream’ on demand-side andsustainable strategies

Increase benefit levels, coverage & take-up

Tackle problems of poor wages, poor jobs

Engage the whole society in the objectiveThen we can gain ‘A Society for People’

where the welfare state prevents poverty andreduces inequality.

Keynes on Capitalism'Capitalism, wisely managed, can probably be mademore efficient for attaining economic ends than anyalternative system yet in sight.

In itself, it is in many ways thoroughly objectionable’

J.M. Keynes, 1927, emphasis added.

And apparently more objectionable in UK, US &NZ than many similar countries. Why? Andwhy do we put up with it?

In The Irresponsible Society today

Some deprived, many more made insecure whileothers better insulated both from sharing commonrisks and from contributing to public resourcesneeded to protect quality of life for all.

In downward-looking UK government discourse,they exploit their ‘rights’ and evade their‘responsibilities’. Their erosion of the overall taxbase reduces the common wealth.

Upstream policies needed to tackle the ‘inequality[that] lies at the heart of the modern free market’,Philip Augar, The Greed Merchants, 2006.

To view all the papers in the Whose Economy series click here

To view all the videos and presentations

from the seminars click here