Welfare debate marks opportunity to renew Beveridge’s legacy

Why has Britain's welfare state lost the popularity it once enjoyed? How can it regain this role and where does Labour fit in?

It wasn’t always like this. Social security was once a strategic political asset for the centre-left in Britain. State pensions, unemployment and sickness insurance, social housing and child allowances all commanded considerable popular support. The extension of the welfare state took place because working people mobilised and voted for it, and they could draw on middle class support at critical moments, such as in the 1940s when the Beveridge report was implemented. Social security was a majoritarian concern that was underpinned by real socioeconomic forces: the muscle of the organised working class allied to widespread desire to pool risks for growing old or falling sick.

Today, the welfare state continues to command support where it clearly meets underlying, broadly shared social needs: decent pensions for old age in a society that is getting older, for example. But other socioeconomic trends have undermined its moorings in popular sentiment. The risk of prolonged unemployment now falls most heavily on the unskilled, not the university educated middle class; social housing is no longer a mainstream form of tenure and is rationed to those in greatest need; and changes in family structures have created new forms of vulnerability that were once met within the household, without requiring state income transfers. Opponents of the post-war welfare state have used these changes to retrench or even abolish it in key areas.

Conversely, the reach of the welfare state has been expanded to make work pay and not just to insure people against earnings loss or protect people against shocks. Changes in the labour market and the structure of the economy have made it necessary to supplement wages with tax credits and other in-work benefits. Indeed, the Labour government made it a deliberate goal of policy to widen the gap between out-of-work benefits and what someone could expect to live on from wages plus tax credits (the only big increases in unconditional cash transfers not tied to work were for families with children and pensioners, who accordingly saw substantial improvements in the value of their social security payments). The UK is not unique in this, however. Most OECD countries now have tax credit or in-work benefits to top up low wages, including prosperous, high-skill economies like Sweden and Germany. Wage supplements are not simply a feature of Anglo-Saxon economies.

This is why the Conservatives’ attempt to draw a stark contrast between those in and out of work have proved harder to stick than they hoped, since the bulk of the cuts are falling on working people, as the Institute for Fiscal Studies and Resolution Foundation have pointed out. It has given Labour an opening into the political framing of the debate that otherwise would not have been available to them. (And it is one reason why Iain Duncan Smith struggles with the binary distinction between so-called strivers and skivers, since his universal credit dissolves the in/out work boundary.)

But Labour is still in defensive mode. It has yet to work out a path to a position in which social security works for it politically as much as, say, the National Health Service does. David Miliband’s powerful speech in the Commons last week was not just interesting for the fierceness of its attack on the government but for what it said about the steps Labour might take on that path. He posed some clear choices. Childcare or higher child benefit? Investment in bricks-and-mortar housebuilding or more increases in housing benefit? Measures to meet big social needs or small pots of money for marginal goods?

What might all this mean? First, welfare reform should be once again aligned to deeper underlying drivers of social change, as it was for much of the 20th century. Primarily, that means giving priority to caring services, particularly childcare and care of the elderly. Society has rising care needs, which is why demands for new solutions to the cost, quality and accessibility of childcare and social care have become big political issues. Unsurprisingly, therefore, both childcare and social care feature in the Coalition’s mid-term agenda, even if the actual policies we can expect in those areas are likely to be partial and inadequate. These are areas in which collective policies can be both more cost-effective and progressive than the alternatives, so they should be natural territory for social democratic parties (indeed one of the reasons why the Nordic left has been so successful is that it responded to feminist demands for the extension of care services in the 1970s and 1980s). In that context, Labour’s relative silence on childcare reform is baffling.

Second, the most enduring reforms are those that have institutional life. If the NHS were simply an insurance scheme, it would not command anything like the reverence – indeed, intense veneration – that it enjoys. Institutions embody values and give life to human relationships in ways that cash transfers cannot. They are much harder to cut or abolish. There will always be a place for income transfers and tax credits in the welfare state, but services like childcare are best delivered by institutions funded for the task, rather than by demand subsidies. The childcare element of the universal credit should be replaced by institutional funding of free or heavily subsidised early-years places. The Coalition is about to go down the wrong path on this score with its tax reliefs for childcare.

Third, work and full employment must be at the core of any new welfare settlement, as they were for Beveridge. A high employment rate, particularly for women, not only helps secure the fiscal sustainability of the welfare state but provides a means by which it is fair and reasonable to ask people who can work to make their contribution. A compulsory job guarantee for the long-term unemployed is fair if the state acts as a guarantor of employment in the last resort. Full employment must be restored as a central goal of macroeconomic policy.

Finally, the welfare state needs to be brought back into closer touch with those it serves. A double move is required here: first, to rescue social security from residualisation to a so-called ‘underclass’ and to restore its majoritarianism; and second, to devolve more power, responsibility and opportunities for participation in social security to communities themselves. This is where relational state thinking, inspired in part by Blue Labour insights, can play a transformative role in the statecraft of the centre-left. If the big society is dead then the centre-left needs to put an alternative in its place, not gloat at the funeral.

Today’s welfare debate has led some to write an obituary for Beveridge’s work on its 70th birthday. I beg to differ. This ‘rancid Bill’ might just be the catalyst for its renewal.

Originally published here on Nick Pearce's IPPR blog. 

About the author

Nick Pearce is Director of the Institute for Public Policy Research.