The austerity decade and the future of the welfare state — who should it be for?
This piece was first published in the Observer.
“Whose welfare state?” That was the pointed question posed 60 years ago by Professor Brian Abel-Smith, LSE economist, when the initial glow of excitement about William Beveridge’s new welfare state was starting to fade. The answer that came back was that it belonged, more than people realised, to Britain’s burgeoning middle class. This was precisely the same group, it was contended, who complained most bitterly about the taxes that they had to pay to fund it.
Now the question has greater urgency than ever, though it arises in a radically different context. Ten years after the crash, amid apparent perma-austerity — which is set to continue for years to come unless this week’s budget delivers a radical shift in direction — the issue is who is most hurt or, indeed, helped by the upheaval in our welfare system.
Look closely and it is apparent that some parts have been cut so brutally that they now barely exist, others have been squeezed but survive roughly intact, while some elements have actually enjoyed growth. Our welfare state is being reshaped as well as resized.
If we look at cash benefits, the overall pattern is clear: spending on working-age, low-income families has been cut while spending on pensioners has steadily risen, generating real gains.
According to a recent analysis for the Equality and Human Rights Commission, the combined effect of the changes to the tax and benefits system between 2010 and 2021 will be average losses for a couple with children of £3,000 a year, rising to more than £5,000 for a lone-parent family — almost a fifth of their income. Families with disabled members, or with three or more children, tend to lose more.
These are life-altering sums. In every corner of Britain, we see the symptoms of these and other cuts as growing numbers fall through the gaping holes in our safety net: the rise in food banks, street-sleeping, temporary accommodation and problem-debt. Tax-credits for those on middle incomes have been steadily chipped away and child benefit for the better off axed altogether — though it’s still the case that the support on offer to middle Britain remains more generous than it was in the mid-1990s, prior to the Labour government. The use of the benefits system has also changed: jobseeker’s allowance, which has withered in value compared to earnings, is claimed by only six out of 10 of today’s unemployed, compared to almost 100% in the early 1990s.
The cold calculus of cash losses is vitally important, of course, but only tells us part of the story. A core idea of the welfare state was that it provided the bedrock of security needed for people to take economic risk. Increasingly, however, it has the opposite psychological effect. Take universal credit for example. It’s not just that 3.2 million working households will be £2.5k worse off than under the old system (though 2.2 million will be better off). Moving today’s benefit claimants on to UC over the next five years will involve several million families knowing they face big losses if their personal circumstances alter — the birth of a new child, separation from a partner, a boost in earnings. An idea conceived in the name of “aspiration” has yielded a policy that will pressure families to stand still.
All is not equal
As with benefits, the dominant concern in public services in the post-crisis era has also been overall spending cuts: a 10% real terms reduction since 2010, rising to 16% if we account for population growth. The gains from public services tend to be spread more evenly across society so, all else being equal, we would expect the pain from austerity to be evenly spread too. But all else is not equal. Take England’s local government and the jaw-dropping 49% real-terms cut in the grant from Whitehall between 2010 and 2018. It’s true that all councils — leafy shires to inner-city boroughs — are hurting and the consequences can be seen in the loss of shared spaces — children’s centres, libraries, youth centres — that give oxygen to community life. But the pain is felt remarkably unevenly.
Almost all the cuts in local services targeted at the most vulnerable families have occurred in the most deprived 20% of councils: austerity is hitting poor people in poor places hardest of all. Even when it comes to a statutory service such as adult social care, which has been more protected than most, spending per person fell by 17% in deprived councils and 3% in affluent counterparts.
The NHS experience has been starkly different. True, it has experienced a painful slowdown in funding growth since 2010. Yet the NHS has also been the big winner, its share of total day-to-day spending on public services surging from 29% in 2010 to 40% by 2020, according to the Resolution Foundation. And there has been a far less marked skew between poor and rich areas, though the spending chill has made it near impossible to realise plans to tilt resources further towards deprived areas without generating absolute cuts elsewhere.
When it comes to education in England, it’s a question of sharply contrasting experiences within different parts of the system. Further Education (FE) — disproportionately made up of working-class students –, has, predictably and depressingly, fared worst. It is now facing 13% cuts per student in the decade up to 2020. Even this understates the overall hit to FE: total spending on adult skills has plummeted by 45% since 2010, reflecting the sharp fall in the number of learners. Schools have had a tough time but, by comparison, they have been treated less harshly. Pupil funding remained broadly flat across the coalition government’s years (though fell once we factor in cuts to councils’ educational services) and it has been falling since 2015, with a 6.5% per pupil reduction expected by 2020. Crucially, however, these cuts are being made to a funding system that has steadily skewed resources towards deprived areas. This was an undernoted feature of the Labour years and has continued steadily since — not least due to coalition measures such as the ‘pupil premium’. The most deprived areas used to only receive 5% more per pupil than the most affluent areas in the mid-1990s; today, that has grown to more than 20%, according to the Institute for Fiscal Studies, taking it back to the position that existed when Mrs Thatcher arrived in power.
Higher education — still heavily dominated by the middle classes despite some broadening of access — has been remarkably austerity-proof. Money has flowed into universities and total resources per student are at record levels. This rise in funding is entirely due, however, to the coalition’s huge hike in student fees to £9,000. Given that roughly half the value of student loans is expected never to be repaid, the choice has been made to fully protect today’s universities and taxpayers (together with tomorrow’s lowest-earning graduates) at the expense of tomorrow’s general taxpayer (and higher-earning graduates). Voodoo accounting practices have permitted this large-scale commitment of public resources to be made without any trace of it showing up in the deficit.
Another comparative winner has been early years provision, particularly in the entitlement to what used to be 15 hours, now 30 hours, of early years education a week. This expansion has happened while targeted spending on Sure Start has been cut by two-thirds, fuelling concerns about what this will mean for social mobility. Research from the London School of Economics shows that the poorest children are 13% less likely to benefit. Add to this that the additional 15-hour entitlement excludes jobless parents, then weigh in the abandonment of plans to boost quality in deprived areas and it seems any pro-poor focus of early years spending is being steadily eroded.
It’s a pattern echoed in parts of housing policy. Housing benefit has been repeatedly cut while the supply of new, affordable social housing has continued at anaemic levels. Yet a scheme such as help to buy has provided £9bn of highly favourable government loans to new home-buyers with typical incomes above £46,000 (or £64,000 in London).
Who, then, is the post-crash welfare state really serving? It’s easier to answer this in the negative. The working-age poor have clearly lost most, with the young and families with children being particularly singled out.It’s not just that those relying on social security to help them get by have been cut off from the fruits of economic growth, they are also being denied any insulation from inflation as their benefits are frozen in cash terms. Having borne the brunt of post-crash austerity, they are now feeling the pain of Brexit-related economic turbulence as declines in the value of the pound generate higher prices. The fact that we’ve seen new policies with a distinct middle-class skew, alongside the targeting of deprived communities for the steepest council cuts, gives some contemporary credence to Abel-Smith’s historic charge of middle-class capture. And let’s not forget that “upper-middle” Britain, as distinct from the rich, has been a winner from post-2010 tax changes.
But this is not the full story of the austerity decade. It is confounded by the pro-poor tilt in school funding and it does not really chime with experience in the NHS (and these are our two biggest services). It’s difficult to divine a guiding governing principle at work here. Paul Johnson, Director of the respected IFS notes:“Spending on schools has gone one way and that on local government the other. Universal benefits for the increasingly well off old have increased while universal child benefit has been means-tested and cut. If there is a clear logic it is hard to discern.” One pattern does emerge, however.
We’ve drifted towards a “grey welfare state” dominated by the interests of the elderly. Over the decade to 2020, the share of benefit spending flowing to pensioners is expected to rise from 52% to 56%, while NHS spending also benefits them more. If the prevailing narrative of the 1990s and 2000s was about a “social investment state” — prioritising families, early education and skills — then today’s equivalent seems to be a “social protection state” for the retired.
Yet even this falls short. Some 1.4 million older people aren’t getting the social care they need. The abject failure of our system to cover largely uninsurable care needs — a quintessential risk that welfare states are supposed to protect us from — is a glaring failing that undermines the idea that the old always get their own way. The austerity decade has given us a welfare system destined to unite disparate groups in disappointment, even if the reality is that some groups have fared dramatically worse than others.
Time to build anew
The fiscal winds that once helped us now blow hard the other way. The postwar era witnessed a historic switch of resources out of defence and into social security and health that can never be repeated. On taxation, too, there were one-off dividends such as the move to a broad-based tax system: at the outset of the second world war, there were fewer income tax payers in total than there are just higher-rate tax payers today. More, our ageing society means that merely preserving today’s entitlements is going to be increasingly expensive. It’s clear that all the choices for funding our welfare state now have jagged edges.
However, against this, there are powerful currents that push the other way. The pensioner bloc is sufficiently potent that no minister will countenance raids. On the NHS, we have already passed the point where continued spending restraint is more politically toxic to a Tory government than the prospect of raising revenue to fund it at a sustainable level (though we still await specific tax proposals). Likewise, cuts to school funding are likely to be self-correcting as they generate a counterblast from parents and professionals that ministers, in time, will bend to. And the politically potent coalition behind more universal childcare — buoyed by rising maternal employment and the gradual erosion of gender earnings imbalances — is likely to see provision expanded.
It is far harder to make the case for the resilience of what’s left of social security, though even here it’s striking that there has been a marked rise in support for higher spending on all working-age benefit groups. At the least, there is a palpable sense of austerity overreach.
How these conflicting pressures play out depends in no small part on politics. When Beveridge wrote his report, he proclaimed it was “time for revolutions, not patching” In the decades since then, the rhetoric of “welfare revolutions” has been severely degraded, while the very idea of resting on a shared sense of social patriotism to forge a new welfare settlement sounds far-fetched given the multinational character of today’s state and our more fragmented, mobile society.
The safest bet is that the decade ahead will be a prolonged exercise in patching-up: bandages applied to UC, bailouts of sinking councils and emergency bungs to social care. Yet if we want our welfare system to endure we need to build the new, not just mend the old. You hardly need Beveridgean vision to see unmet needs: a huge expansion in affordable homes for the insecure young who have little prospect of owning; an ambitious system of support for learning, retraining and career-switching for a workforce adjusting to riskier and longer working lives; and replacing our bankrupt — morally and financially — social care system with one underpinned by genuine collective insurance.
Get them right and each of these has the potential to cultivate large swaths of affection that will be cross-class, pan-generational and, if well crafted, reach across not only the Brexit divide but the party political one, drawing in centre-right and left. An agenda like this would also provide a more auspicious backdrop for the urgent business of repairing and re-legitimising working-age social security.If that sounds fanciful then consider the patient but far-reaching reforms that have revived our pension system over the last decade: designed by Labour, delivered by the Conservatives, now jointly owned by both. For that reason they will endure and benefit not just us but our children too.
Sure, this is easy to say and extremely hard to do, but the real challenge isn’t technical but political. There are plenty of policy designs to be drawn on — what is in short supply is fiscal resolve. Changes such as these wouldn’t come cheap, even if the price tag pales compared to the mounting bill of inaction.They would require a substantial increase in taxation from a nation whose current conversation on long-term revenue-raising is best described as non-serious. Even with the tide of opinion on tax and spending now moving in a progressive direction, it would still take exceptional political leadership to square anything like this with our Brexit-weary, querulous and ill-at-ease nation.
That, however, is the task.
For a welfare state to prosper, a broad swath of the public needs to answer “me and my family” when asked “who does it belong to?” For a long time, we achieved something like that in Britain. Either today’s welfare state becomes a bigger part of the solution to our shared 21st-century challenges or the highly uneven decline that we’ve lived through over the austerity decade will be a taste of what is to come.
