Unit 3: Welfare - All you need to know, up to Gordon Brown

Health, Welfare & Education

Click here to be taken to this excellent BBC History Resource

The Beveridge Report

EDEXCEL GOVERNMENT & POLITICS: ROUTE A: UNIT THREE /

THE WELFARE STATE

CONTEXT

Party policies towards the welfare state have changed in a similar way to economic policy. During the post war economic boom, both parties were in favour of the creation of a welfare state.

The  Attlee government

Implementation of Beveridge Report – Welfare State; attack on Beveridge’s 5 giants (want, ignorance, idleness, squalor, disease)

NHS, 1948: free medical care for all; nationalisation of hospitals – 19 health boards; salaries for doctors (resisted, but eventually 90% of GPs join system).

National Insurance Act, 1946: extended to cover all adults: pensions, unemployment, sickness

National Assistance Act, 1948: safety net for those not covered by NI.

Industrial Injuries Act, 1946 – workers and employers contribute to fund to finance compensation claims

Implementing Butler Education Act, 1944 – already facing demands for comprehensivisation

It was agreed that to civic and political rights – that is, the right to own property and the right to vote – social rights should be added.

For example, in the UK social rights such as the National Health Service (NHS) and cash benefits for the unemployed, pensioners and children were introduced and extended.

The consensus on welfare changed in the 1970s when the economic growth required to fund welfare spending could no longer be taken for granted.

Stalling economic performance, rising levels of unemployment and weak public finances meant that high levels of public spending for welfare were no longer sustainable.

In the late 1970s there was a sustained ideological and fiscal attack on the welfare state, and in particular the benefits system.

• The Labour Party, which traditionally prioritises social justice, retained its commitment to unconditional social rights and high levels of welfare spending for a long time.
• Conservative governments sought to radically alter the British welfare state and to prioritise economic efficiency.

Thatcher’s approach

Individualism and Anti-collectivism

“Welfare saps the moral fibre of the nation” – Rhodes Boyson, 1983

“There is no such thing as society, only families and individuals”

Margaret Thatcher, 1978

Thatcher believed that Britain’s poor economic performance and high levels of unemployment were caused by the cushion of the welfare state.

If social rights were removed, or made less generous, then there would be a greater incentive for unemployed people to enter the labour market and a higher likelihood that the economy would perform.

Successive Conservative governments from 1979 onwards sought to dismantle the welfare state and to promote individual rather than state responsibility for welfare. This was done in a number of ways.

The level of social security for the unemployed was cut and a requirement was introduced that only those claimants who could demonstrate that they were actively seeking employment were entitled to benefits.

In other words, social rights became more contingent upon the claimant meeting certain individual responsibilities. Conservative governments reduced spending on social provisions such as social housing.

Marketisation

They ceased to invest in council housing and tried instead to encourage individual home ownership by selling off council houses at a cheap rate to tenants. They also sought to marketise many areas of the welfare state.

For example, an internal market was set up in the NHS and some of its services were contracted out to private firms, under Compulsory Competitive Tendering.

What should be noted, however, is that despite Conservative governments’ attempts to retrench the welfare state, welfare spending actually rose during their 18 years in office. This was largely attributable to an increased tolerance for higher levels of unemployment.

This can also be explained by both the rising demand for welfare services such as health care and the need to mitigate rising levels of poverty.

New Labour

The Labour Party remained committed to the welfare state and high levels of public spending up until the late 1980s. Then a series of electoral defeats and policy reviews led the party to alter its approach.

Rather than advocating high levels of spending and redistribution to compensate the inequality caused by economic failure, it planned to promote education and training and transform the welfare state from a passive safety net to an active ‘springboard’ of opportunity (Annesley, 2001, 204).

By the time the Labour came to power in 1997, many commentators claimed that the party had abandoned its traditional concerns for working people and the poor and had adopted instead the Thatcherite priorities of limited welfare spending and individual responsibility.

New Labour, for example, committed itself to sticking to the Conservatives’ rigid spending plans for the first two years in government and to a welfare-to-work policy – the New Deal – which obliged certain groups of the unemployed to take subsidised work or training in return for their benefits.

On the face of it then, it seems that there has been a convergence of the Conservatives’ and Labour’s welfare policies. This is just superficial convergence, however, for it masks the fact that the parties have quite discrete positions on questions of social rights and equality.

Although the Labour Party is now committed to low level of taxation and welfare spending, it has since 1997 nevertheless used fiscal policy to halt and even slightly reverse the growing inequality that characterised the 18 years of Conservative Government.

Moreover, new kinds of welfare benefit and financial reward such as the Working Families Tax Credit and the Minimum Wage are improving the incentives to entering the labour market and are making the poorest employees better off.

The balance between social rights and individual responsibility appears to be more fairly balanced In New Labour social policy than it does with the Conservatives.

Debate about the inadequacies of the welfare model began shortly after the Labour government implemented the Beveridge report on national insurance and created the NHS on 1 July 1948.

Labour introduced what Professor David Gordon of Bristol University called “truncated universalism” – with a level of contributory benefits too low to take people out of poverty.

In the first 25 years after the welfare state was introduced, the debate concerned how to increase its scope and abolish means-tested benefits.

Then, after the economic crisis in the 1970s, the concern was how to trim it back.

Now, the future of the welfare state itself is the subject of fierce debate.

The right believes excessive spending on the welfare state has weakened economic growth and reduced incentives.

The left argues the traditional welfare state has paid too little attention to important groups like women and ethnic minorities, and to concerns of social justice in the household, workplace, and community.

Policies for welfare reform have gained strength in the UK, but also in continental Europe and the US.

Labour’s welfare reform

Four key parts of new Labour’s inheritance from the Conservatives can be identified:

1. Attempts to control public spending;

2. Privatisation.

3. The growth of means-testing;

4. and the growth of inequality.

Labour has responded to this heritage in 4 main ways:

1. Firstly there was the importance to Labour of shedding its “tax and spend” image leading to tight budget constraints, but with significant reallocation towards health and education;

2. Secondly a strong focus on the promotion of paid work;

3. Thirdly, a series of measures intended to reduce inequality and relative poverty, but with controversy over benefit levels;

4. Fourth the new dominance of the Treasury in making welfare and social policy.

Some of these policies mark clear reversals from those of the Conservatives, but in others they continue an evolution which was already underway, despite the earlier Labour rhetoric about “thinking the unthinkable” on welfare reform.

Taking the period of Conservative Government from 1979 to 1997 as a whole, four themes stand out as central to policies towards the welfare state:

♦  Attempts to control public spending

♦  Privatisation

♦  Targeting

♦  Rising inequality

A. Putting the lid on public spending

For many, the defining feature of Mrs Thatcher’s Government elected in 1979 was its intention to “roll back the state”. Indeed, that Government’s first White Paper on its public spending plans began with the bald statement that,

“Public expenditure is at the heart of Britain’s present economic difficulties”.

Much of the politics of welfare in the 1980s revolved around “cuts” and restrictions in public spending designed to allow tax cuts, particularly reductions in the rates of income tax. Second, the restrictions of public spending began not in 1979,  but in 1976 under the then Labour government. As far as welfare spending is concerned, 1976-77 marked the end of the post war growth in its share of national income. The lid went on spending when the IMF came to visit, not when Mrs Thatcher was elected.

The sharp increases in taxation in the period before the 1997 election are important both in terms of the unpopularity of the Major Government (particularly as there was nothing by way of higher spending to show for the tax increases), and in terms of the Blair Government’s determination not to

increase income tax rates.

At the same time there were ways in which the generosity of welfare provision clearly was cut back under the Conservatives. Most importantly, in the early 1980s the link – in some cases established by statute law, in others simply convention – between the value of social security benefits like the flat rate “basic” state pension and measures of other incomes or earnings was broken.

Other important ways in which the generosity of the welfare system was cut back include sharp reductions in subsidies to social housing in both the early 1980s and early 1990s), a series of dozens of rule changes which reduced entitlements to social insurance benefits for the unemployed, and the cash limit put on the cost of residential and home care for the elderly when responsibilities were transferred from the social security budget to local authorities by 1993.

The reason why such cuts did not succeed in actually reducing welfare spending in relation to GDP lies in two constraints on the Conservatives. First, demand for welfare services increased rapidly. Unemployment an ageing population and the growth in lone parent families account for this increased demand. Secondly rising aspirations have mean that demand for better education, housing and health care have put massive strain on government budgets.

B. Privatisation

The other side of the Conservatives’ attempts to roll back the welfare state were measures intended to increase the role of the private sector. Most notably:

♦ Under the “Right to Buy”, 1.7 million social housing units were sold at discounted prices to their tenants between 1981 and 1995. The provision of new social housing was switched from local authorities to non-profit housing associations and some existing properties were transferred to them

♦ The role of the private sector was encouraged and increased in pensions provision. For each successive cohort retiring, a rising proportion received privately-funded occupational pensions, reducing the importance of state pensions in retirement incomes

♦ Provision of residential care for the elderly is increasingly by the private sector, even where the public sector is the source of funding. Some limited concessions were given to private medical insurance. Including dependants, just over 10 per cent of the population is now covered by such insurance.

In these sectors what emerged as far more important were a series of reforms in the late-1980s designed to bring market principles into public sector provision, to establish what became known as “quasi-markets”

A final development – which has been important in New Labour’s agenda – is the development of what Le Grand has described as “legal” or “regulation” welfare. An example of this is the system of Child Support, under which absent parents (usually men) are supposed to contribute towards the costs of their children, substituting for state social security benefits.

C. Targeting

Historically, a crucial political divide across the British political spectrum has been over the fundamental aims of the welfare state, with those on the Right -particularly the “New Right” – seeing its role as predominantly that of poverty relief, while the Left has pushed towards provision of welfare services on a universal basis, not just to the poor. The protection – at least relatively speaking – of the NHS in the Conservative years goes against this. However, as far as cash benefits and social housing are concerned, the pressure to move towards means-testing and targeting did move spending this way.

D. Inequality

The final factor both shaping and reflecting Conservative welfare policies was the growth in income inequality over their period of government. In complete contrast to the rest of the post-war period, when economic growth had benefited all income groups, incomes at the bottom rose very slowly, or not at all depending on the income definition used.

Putting this together, the key parts of Labour’s inheritance on the welfare state can be summarised as follows:

1. A quarter of national income is spent on the welfare state, neither a high figure in European terms, nor one which has grown over the last two decades.

2. The role of the private sector within welfare did increase over the Conservative years, reflecting deliberate policies. The overall picture is one of gradual, rather than rapid, privatisation of welfare activity.

3. Means-testing became much more important under the Conservatives as far as housing and cash benefits were concerned. The most dramatic change was in the polarisation of social housing, which increasingly houses only the poorest. Given that much social housing is built as estates, this has increased pressures towards geographical polarisation, in turn leading into some of the Labour Government’s priorities in tackling social exclusion.

4. Inequality increased dramatically in the 1980s, reflecting both underlying factors, such as technological change and the skills of the workforce, and government policies, for instance towards social security, taxation, unions and

minimum wage protection.

What’s New About “New Labour”?

1. First, the Manifesto on which it fought the 1997 election pledged not to increase rates of income tax, and to hold public spending totals for the first two years in office to those planned by its predecessor. The exception to this was to be spending on “the New Deal” programme to reduce unemployment, financed by a £5.2 billion “windfall tax” on some of the public utilities privatised

under favourable terms by the Conservatives.

2. Second, the July 1997 Budget brought in the New Deal, concentrating in particular on the young unemployed

3. The Government accepted (with modifications) the recommendations of theDearing Committee on higher education. This had been set up by the Conservatives, but carefully timed (with tacit Labour agreement) to report after the election. The key changes involve introduction from October 1998 of a standard annual fee for (previously free) university education

4. Early in its life, the new Labour government established a large number ofreview groups and committees covering most aspects of the welfare state.

These included: a Minimum Wage Commission to recommend the level of minimum wage, the principle of which was in the election manifesto; a series of Comprehensive Spending Reviews looking across the whole of public spending; the appointment of the independently-minded Frank Field MP as a special Minister for Welfare Reform; an internal review of the pensions system; appointment of an (independent) Royal Commission on Long Term Care; establishment of a small Social Exclusion Unit within the Cabinet Office, initially concentrating on school exclusions and truancy, street homelessness, and the most difficult social housing estates; a review of “welfare-to-work” policies; and another of interactions between the tax and benefit systems.

5. In the Autumn of 1997 it implemented a cut built into the Conservative’s spending plans (to which Labour had committed itself) to remove special additional social security benefits to lone parents. This led to the most serious internal row within the Labour Party since the election, with a substantial back-bench revolt in Parliament.

6. In an attempt to regain the initiative after the lone parents benefit debacle, the government launched a “welfare reform roadshow” in February 1998, with a series of meetings andspeeches launched by Tony Blair, as well as a document setting out “the case for welfare reform”. As the reviews described above were still in progress, this could do little to set out positive policies, concentrating instead on the failings and cost of the existing system, further feeding concerns that more cuts in benefits were planned, particularly in disability benefits.

7. It has set up a new series of area-based policies such as Health Action Zones, Education Action Zones, and Employment Zones, where innovative policies can be tried out (with limited additional resources) in low income neighbourhoods and areas, with significant new resources for an integrated “New Deal for Communities” covering a number of the country’s poorest areas.

8. The March 1998 Budget announced the implementation of recommendations from the review into tax-benefit interactions. These included transformation of the existing cash benefit for low paid workers with children, Family Credit, into a “Working Families Tax Credit” (WFTC) to be paid (usually) via the wage packet, combined with increases in its generosity (including very favourable treatment of childcare costs) and a reduced withdrawal rate as income rises.

9. It also included reforms to the National Insurance Contribution system to align it more closely with income tax. It included the announcement of an increase in the universal Child Benefit going to all parents from 1999, and in the rates of Income Support for the poorest families with children aged under 11. The amounts involved meant that, combined with the new WFTC, virtually all lone parents with younger children would be no worse off than they had been before the withdrawal of special lone parent benefits, despite the equalisation in support across family types.

A week later it published its welfare reform Green Paper, New ambitions for our country: A new contract for welfare, setting out the Government’s broad principles in approaching welfare reform, but containing little or nothing by way of specific proposals which had not already been announced. At the end of July 1998 the Minister originally responsible for this paper, Frank Field, resigned rather than accept a move to an alternative post still outside the Cabinet. In acrimonious exchanges Field said that his plans for radical reform to reduce the role of means-testing had been blocked, particularly by his boss, Harriet Harman (who also lost her job as Social Security Secretary in the reshuffle) and the Chancellor Gordon Brown. Unnamed government sources told the media that Field’s plans had been impractical and had never been worked out in detail.

A. Public spending and taxation: Is New Labour different?

Public spending and taxation is one of the areas where “New Labour” under Tony Blair was most clearly different from “Old Labour”, even including earlier modernisations under Neil Kinnock and John Smith. The new Labour Government produced significant extra spending in popular areas without the

kind of politically damaging tax increases which might have been expected as the way of paying for them under “Old Labour”. It has been able to do this for two reasons. The first is that other forms of taxation – for instance on petrol and tobacco, and on the investment income of pension funds – have been increased. The second is that other areas of spending have been squeezed.

B. New Labour and work

If one is searching for a linking theme across Labour’s welfare policies within its first year it might be found in its promotion of work and the work ethic. Tony Blair’s famous three priorities of “education, education and education” flow explicitly from an analysis that both low productivity and growing inequality have roots in a workforce which is ill-equipped for the contemporary global economy. The major new programme, the New Deal, is all about moving people from social security benefits into work, as were many of the measures in the 1998 Budget.

As another example, the then Social Security Secretary Harriet Harman originally defended the controversial cuts to cash benefits for lone parents on the grounds that the assistance for finding work under the “New Deal for Lone Parents” represented similar resources used in a way which would be more productive for them in the long run.

“The new welfare state should help and encourage people of working age to work where they are capable of doing so”, and

“The Government’s aim is to rebuild the welfare state around work”.

C. New Labour and inequality

In terms of rhetoric, the new government has been clear about its intention to reverse some of the growth of inequality seen in the 1980s. Interviewed in 1996, Tony Blair had stated that,

“I believe in greater equality. If the next Labour Government has not raised the living standards of the poorest by the end of its term in office, it will have failed.”

It can also point to an increasingly comprehensive list of measures as being intended to reduce inequality and relative poverty:

♦ The priority (including extra spending) given to education in general and training for the unemployed in particular as measures intended to address fundamental reasons for unemployment and low pay.

♦ Introduction of a national minimum wage.

♦ Subsidies to employers to take on the young and long-term unemployed, and other elements of the New Deal.

♦ The Working Families Tax Credit, which will be more generous to low paid workers with children than the existing Family Credit.

♦ Increases in the universal Child Benefit and in the allowances for younger children in Income Support.

♦ Proposed reforms to the Child Support Agency which will allow lone parents on benefit to keep some of the maintenance paid to them.

♦ A new campaign to try to ensure that more of the poorest pensioners claim the benefits to which they are entitled, and a real increase in the level of Income Support for pensioners

♦ Special help for low income neighbourhoods through health, education and employment action zones, and the “New Deal for Communities”.

♦ Particular measures recommended by the Social Exclusion Unit to tackle school exclusions and truancy, street homelessness and the poorest areas of social housing.

. Welfare Reform and the “Third Way”

♦ As far as public spending is concerned, it has made great efforts to shed Labour’s “tax and spend” image, and embraced tight public spending limits for its first two years, as set by its Conservative predecessor. In this sense its

policies mark little change from before. However, there is some additional tax-financed spending under the “New Deal”, and spending priorities for the next three years were changed significantly as a result of the Comprehensive

Spending Review, allowing significant real increases in health and education spending.

♦ A major new theme has been the importance of promoting work, both for economic reasons and as part of its vision of an inclusive society. This theme links most of the practical measures which have been taken so far.

♦ In principle, the new government is more clearly committed to reducing inequality than its predecessor, and many of its measures (and others under review) are consistent with this aim. On the other hand, its intention that social security spending should fall in relation to national income constrains what it is likely to do for most benefit levels, determining the living standards of many of the poorest.

In trying to emphasise simultaneously its break with “Old Labour” and its distinctiveness from Thatcherism, the new Government has encouraged talk that it is following what it describes as a “third way”. In its welfare reform Green Paper this is explicit:

“The welfare state now faces a choice of futures. A privatised future, with the welfare state becoming a residual safety net for the poorest and most marginalised; the status quo, but with more generous benefits; or the Government’s third way – promoting opportunity instead of dependence, with a welfare state providing for the mass of the people, but in new

ways to fit the modern world.”

Conclusions

• Tony Blair came to power in 1997 determined to make a clean break with Labour’s past record as the party of “tax and spend”.
• A key part of his New Labour agenda was welfare reform.
• He wanted benefits recipients to pull their weight, with his “rights and responsibilities” approach.
• Certain benefit recipients – such as single parents, the disabled, and older workers – were to be encouraged into work and retrain rather than remain on the dole.
• A strong economy creating plenty of jobs helped Labour here, although the labour force participation rate among single parents and the disabled is still below European averages.
• Another part of the New Labour agenda was to tackle “social exclusion”, groups of the poor who lacked not just income but access to social institutions.
• These included the homeless, young single mothers, and older workers.
• A special cabinet unit was set up to develop initiatives in these areas.
• And finally, Gordon Brown decided to introduce “redistribution by stealth” by sharply increasing benefits to poor families in work paid through a system of tax credits.
• He hoped to radically reduce the amount of child and pensioner poverty – and end the UK’s poor record relative to Europe.
• There has been some progress in this area, although poverty rates have not fallen as fast as the government hoped.
• However, Labour’s plans have had their own problems and echo many previous debates.
• The first minister of welfare reform, Frank Field, clashed with the chancellor over the extension of means tested benefits.
• He wanted a return to Beveridge-style universalism – giving everyone a right to a generous citizen’s pension based on their contribution to society.
• Gordon Brown said this approach was too expensive.
• However, his own means-tested tax benefits are proving difficult to implement, with many either not taking them up or getting incorrect amounts.
• More broadly, Labour’s emphasis on people’s responsibility to seek work harks back to the principles of the liberal welfare state that were only partially obscured by the Beveridge report.
• The means-tested (or tax credit) benefit system – which the chancellor judges is all Britain can afford – is the latest attempt to reconcile a desire for the state to ensure that everyone has a “national minimum” income with the lack of resources to pay for a universal benefit.