Nick Clegg has apparently said that he will oppose plans to cut benefits by a further £10 billion. “Who should tighten their belts first? I just start from a very simple principle that when we’re all having to make sacrifices … you ask people at the top and then you work down. You don’t ask people at the bottom and then work up.” He did previously agree, however, to £18 billion in cuts to benefit, at the same time as a reduction in the highest rate of income tax. That does suggest that Clegg’s ‘very simple principle’ is open to negotiation. The Guardian has reported that, according to Conservative sources, the further cuts are already agreed.
Category: Social Policy
This occasional blog discusses issues in Social Policy.
Does social security spending protect the economy?
It was once received wisdom in economic theory that social security had a beneficial effect on the economy, because it increased at times when demand was deficient. This is from a book published in 1960, Richardson’s Economic and Financial Aspects of Social Security (I have it on my bookshelf):
“The two main benefits that fall in prosperity and rise in depression are unemployment insurance and public assistance payments. They put a brake on books and reduce the severity of depressions. … If social security benefits are paid, business will not decline as far as it otherwise would.”
I referred to this argument briefly in a recent interview, and a note from Adrian Sinfield has encouraged me to look at it a little further. A couple of days ago, the IMF conceded that it has got the multipliers wrong – the extent to which changes in government spending stimulate or depress the economy. (The issue is explained on the TUC’s Touchstone website.) The multipliers are probably between 0.9 and 1.7; they were formerly assumed to be 0.5-0.6. If government spending stimulates the economy, it needs to be increased during a depression; cuts lead to economic decline. The multipliers say how big the effects are. And the size of the error means IMF has been underestimating both the benefits of increased spending, and the harm to the economy caused by cuts.
Social security benefits are not, however, quite the same as public spending – treating them as if they were is one of the central confusions of current policy. Most are transfer payments, meaning that someone gets money which otherwise someone else would have had. Transfer payments should be assumed in the first place to be neutral; they stimulate the economy if the people who receive are more likely to spend it than the people who are paying. It’s likely that this condition will be met, because people on very low incomes can’t save, but the effect is not the same as either government spending financed in other ways, or as spending on infrastructure. Spending money on unemployment assistance makes a modest contribution to stabilisation; spending it on public works or job creation stimulates the economy far more.
Interview on Good Morning Scotland
With thanks to the BBC, I have permission to post a copy of my interview about universal benefits, broadcast on 29th September. It is obtainable as an MP3 file here.
The cost of free services in Scotland
Robert Black, who recently retired as Auditor General in Scotland, argues in today’s Scotsman in favour of reviewing the cost of universal services – particularly free personal care and free transport. He acknowledges that the cost of free prescriptions and eye tests is less and that they have a preventive function. His position has been consistent; it was formerly argued in an Audit Scotland report, Scotland’s public finances.
Part of Bob’s case is unarguable – that public expenditure has an opportunity cost, and we should always be prepared to consider what the implications are of one decision relative to another. Some of the figures he uses, however, are contentious. The increase in prescription costs to £1 billion is a general cost of the NHS, not a specific cost of ‘free prescriptions’. They cost nearer to £80m, though I’ve been struggling to find an accurate figure – the rest of the £150m cited in costs is down to eye tests, which have been separately justified in terms of savings elsewhere. We’re told that the cost of the National Concessionary Travel Scheme (bus and travel passes) ‘could rise’ to £500m. Well, it could do anything in theory; much depends on inflation, much on future policy; but the budget for 2012-13, 2013-14 and 2014-15 has been set at a constant £194m. There are certainly pressures on the public finances, but it’s not clear that it’s the universal benefits currently in dispute that are driving them.
Youth unemployment
The trend is clear in much of Europe: young people are much more vulnerable to exclusion from the labour market than older people, and as economies have faltered the differential is growing. The response has often been interpreted in terms of ‘activation’, emphasising the preparation of unemployed people, and at a discussion I was at yesterday, considerable emphasis was put on employability. But employability is not the problem. The preparation of young people for the labour market is not worse than it was ten years ago; in many places it is better. The fundamental problem is that there are not enough jobs. No amount of preparation is going to change that.
Changing young people is not the way; we have to change the job market, or employers, or the economy. There are arguments for all of those, but I’d argue that the core problem rests in the job market. Entry-level jobs are limited; middle-grade opportunities, that make it possible for people to develop their experience and opportunities, are disappearing. This is not going to improve spontaneously; it implies that governments have to act to develop jobs for people to do. That implies some expense, but as Keynes argued, long ago, it is better to waste some money doing something useful than to waste a lot doing nothing.
The arguments for free services
Hard on the heels of the Liberal Democrats, the Scottish Labour Party has announced its opposition to services which are free at the point of delivery, including free prescriptions and personal care. Part of this is in a speech by Johann Lamont, part in comments by Arthur Midwinter.
There are many arguments in favour of universal services – services that are available to all, and free at the point of delivery. Here are some of the main ones.
- Principle
- People have, or should have, a right to welfare. They do not lose that right if they earn more.
- Societies which offer equal rights are better to live in for everyone; societies that are less equal are worse to live in for everyone. (See The Spirit Level.)
- Richer people will not be content to pay for services they cannot benefit from.
- Separating out services for the better-off means there must be at least a two-tier service. “Services for the poor will always be poor services.” See e.g. T Horton, J Gregory, The Solidarity Society.
- If entitlement has to be policed, there has to be a mechanism for doing it. Means tests are intrusive, burdensome and expensive.
- The administration of testing inevitably includes some people who should not be included, and excludes others who should be.
- Multiple means tests are wasteful and unnecessary; there are better ways of controlling the finance.
Politics
Practice
It’s difficult to know at what point a shower becomes a rainstorm, but the Labour Party’s shift may indicate the emergence of a new consensus, where the three main parties are all opposed to the principles of the welfare state.
Universality: a simple point
In reports from today’s Liberal Democratic conference, both Nick Clegg and Don Johnson have queried why the Winter Fuel Payment should be available to rich pensioners. The same argument is frequently heard about other benefits, including Child Benefit, and it could be extended to any non-means-tested benefit – health care, pensions, social care and so forth.
There are several arguments for universality – social inclusion, avoiding deterrents and so forth – but the simplest one is this. At present, everyone is already subject to one test of income: the tax system. The easiest way to manage any benefit is to pay a fixed sum and then to claw it back from tax. If there was to be a separate test for benefits like Winter Fuel Payment, everyone who might qualify would then be subject to a further test of income. Testing people’s income repeatedly is a recipe for unnecessary administration and intrusion. Why would anyone want there to be more tests than we need?
Scottish travellers
Gypsy/travellers are the minority group most discriminated against in Scotland. In a report published today by the Scottish Parliament, the Equalities Committee describes the findings as ‘deeply shocking’ and describes its reaction as ‘horrified’ and ‘appalled’. The work I do doesn’t often bring me into direct contact with travellers, but I did do some work in Aberdeenshire in 2004 which gave me the opportunity to talk directly with travellers about their situation. One of the women said what it’s like: “you’re a floor they can dance on.” The travellers talked about rampant racism, discrimination in services, harassment and lack of protection by the police – “we’re just a puckle of tinkers to them”. It’s good to see some public attention, but depressing to see so little progress.
Asia’s next revolution
The Economist devotes this week’s cover, and its main leader, to a story about the expansion of social protection in Asia. One of the main unsung tales of the last ten years has been the massive development of social protection in developing economies like South Africa, Mexico, India, Indonesia, China and Brazil – Barrientos and Hulme call it a “quiet revolution”. The Economist article focuses mainly on health care, and Asia has come late to the party. The Economist is probably right to argue that “every country that can afford to build a welfare state will come under mounting pressure to do so.” But then, I would say that: I have argued the case in The Welfare State (Sage, 2000) and some other papers.
The Economist’s leader does, however, make a common mistake. They write: “Europe’s welfare states began as basic safety nets. But over time they turned into cushions.” They didn’t begin that way, and they haven’t finished that way either. The origins of many welfare states lie in the development of solidarity and the mutuals; the state became involved much later. See Peter Baldwin’s book, The politics of social solidarity, Cambridge University Press 1990. The extension of health care, which they focus on, is essential to the maintenance of any modern labour force.
It was the English Poor Law that began as a safety net. The accusations that the British system had become excessively generous can be dated back to the criticisms of the monasteries before the Reformation, but it became a regular part of complaints about welfare from the mid-18th century onwards; it continued in the accusations that workhouses had become ‘pauper places’; and it continues now in the assertion, contrary to all the evidence, of generations who have ‘never worked’. The system is neither generous at an individual level, nor collectively unaffordable. There is extensive evidence of the relationship of welfare to economic performance: there isn’t one. See A B Atkinson, 1995, The welfare state and economic performance, in Incomes and the welfare state, Cambridge University Press, and the entry on my website.
Using median income as a measure of poverty
Earlier this year I had a paper published about the use of 60% of the median income as a measure of poverty (Why refer to poverty as a proportion of median income?, Journal of Poverty and Social Justice, Volume 20, Number 2, June 2012 , pp. 163-175.) I suggested it would be simpler, and easier to justify, if the reference figure was 50% of median earnings instead. According to recent figures in the HBAI series, 60% of median income fell from £259 in 2010 to £251 pw in 2011. By contrast, 50% of median earnings fell from £250pw to £249 pw.