Even Margaret Thatcher didn’t manage to dismantle Britain’s disastrous welfare system. Judging by the policy plans of the Lib-Con coalition, there is little reason to be optimistic that today’s leaders will be any more successful.The timid proposals on welfare are little more than an expansion of existing failed programmes.
It is unsurprising that welfare reform has presented such a problem for successive governments. The six million working-age adults who now receive out-of-work benefits – plus millions more over 60s receiving generous pension credits – comprise a large voting bloc. Labour would have risked losing its core support had it attacked benefit dependency.
Within the new administration, the rebranded, centrist Conservative Party will be wary of implementing policies perceived (wrongly) as an attack on the poor, while any major changes could face strong opposition from the Liberal Democrats’ hard-socialist left.
Nevertheless, the dire state of the public finances means the new government will have little choice but to make substantial cuts in welfare expenditure. Benefit payments now account for almost one in three pounds the government spends. Balancing the budget will be next to impossible unless welfare plays a proportionate role in the programme of cuts. In reality, the new adminstration may be forced to implement radical reform.
This represents a huge opportunity – not just to save money, but also to address many of the social problems associated with welfare dependency. Life on benefits not only encourages crime and anti-social behaviour; a growing body of research suggests that long-term claimants are more likely to suffer from poor physical health, low self-confidence, anxiety and depression. Studies have also linked worklessness to lower life expectancy. While one should be cautious about such findings, a convincing case can certainly be made that the benefits of employment are not just financial.
The negative effects of welfare dependency are amplified by its concentration in certain areas and among particular groups. On many social housing estates the majority of residents are reliant on benefits. Any sense of shame for relying on handouts has long since disappeared, replaced by an aggressive sense of entitlement. Worse still, the behavioural norms needed to hold down a job – honesty, reliability, good manners and so on - have been undermined. This catastrophic decline in standards will take generations to reverse. Eliminating the poisonous impact of the benefits system is, however, a necessary first step.
The key to reducing welfare dependency is removing the ‘poverty trap’. The current system means that for many claimants it is simply not worth doing low-paid work – at least not in the ‘formal sector’. Once additional work-related costs such as clothing, train tickets or petrol are factored in, someone working full time on the minimum wage will typically be just a few pounds a week better off. Because benefits are withdrawn as income increases, the effective pay rate can be less than £1 an hour.
Working may also mean losing the other perks given to those on welfare, including priority access to low-rent social housing. As a result of massive government subsidies, social properties are generally of superior quality to privately rented homes. Indeed, a high proportion have recently been refurbished with new kitchens, bathrooms and heating under the multi-billion-pound ‘Decent Homes Initiative’. It is almost as if claimants are being rewarded for their dependence on the state.
This approach has to change. Benefits, tax credits and other subsidies have produced close to a communist distribution for families earning less than the median wage. Yet welfare dependency will only be reduced when there is a big gap in living standards between those who work and those who do not.
A series of specific policy measures would push th