Santa Claus State
Philip Collins talks a lot of sense with the piece in The Times in which he argues that the UK's welfare state has moved way beyond the intentions of its creator William Beveridge who envisaged benefits being paid in return for contributions, rather than free allowances from the state.
Despite the fact that there is still widespread public support and cross party political support for that basic principle, politicians in the UK seem unable to build a consensus on how to move towards a system based on the notion that, broadly speaking, people get out what they pay in - in a similar fashion to the way public sector pensions now work.
Up until recently, pensions in the public sector were mainly based on 'final salary' schemes which benefited the all the higher paid groups because the low paid council cleaner was effectively subsidising the pension pot of the council chief executive.
But now these pension schemes are all moving towards 'career average' payments which mean that people get back out what they have paid in over their working lives which seems eminently sensible and fair to me, even though the trade unions fought these changes tooth and nail, albeit ultimately to no avail.
Now the welfare state is different to pensions payments because there will always be a small number of fellow citizens who, for one reason or another, are unable to work and make contributions into the welfare pot, and for those people there have to be special arrangements.
Yet the general principle of basing welfare payments on contributions is a good one because everyone can see that it's fair and in the long-run that's the only way to ensure that they system retains public support.
Welfare in Britain isn’t fair, as Ukip knows
By Philip Collins - The Times
To counter the prevailing sense of injustice, we need a benefits system where people take out what they’ve paid in
The 2015 general election has all but happened, apart from the enigmatic appeal of Ukip. The opinion polls are stable; no party has the reach to break for the line. There will be an eleventh hour fear-shift against the Labour leader. There will be a corresponding, reluctant, creep back towards the Conservatives. Whether the creep is sufficient to return David Cameron to power depends on Ukip, stubbornly stuck on 14 per cent, a puzzle the main parties have yet to solve.
The noisome, frenetic, strange politics of the day is all the fault of Nigel Farage. His pressure has tempted Mr Cameron into promises he must barely mean and can hardly keep about European immigration. This week Ed Miliband, who has instructed his shadow cabinet to discuss immigration more frequently, did so briefly himself. The impression he left was of a man who knows that immigration is a thing that must be spoken of but not a man who actually had anything novel to say.
These are moves born of desperation and they cannot hope to succeed. There will be some Ukip-inclined supporters who will cast a secret Tory ballot for fear of Mr Miliband but such people know, in their dark hearts, what they are set to do. There is also, however, a significant group of biddable voters in the Ukip camp and neither Mr Cameron nor Mr Miliband are talking to them properly. It is well understood that the appeal of Ukip is nothing to do with Europe. It is less clearly comprehended that immigration is also a proxy issue, under which a conundrum lurks. Nobody would ever mistake Mr Farage for a moral philosopher but the roots of support for Ukip are tangled up with the issue of what the welfare state is for.
This is a dispute about what it means to be fair. William Beveridge’s welfare state was supposed to be based on individual contribution; those who paid in earned their entitlements. In his famous report, Social Insurance and Allied Services, Beveridge could not have been clearer: “Benefit in return for contributions, rather than free allowances from the state, is what the people of Britain desire.” There was no appetite in Britain, said Beveridge, for what he called “the Santa Claus state”.
The historical practice hasn’t turned out like that. The idea of contribution rapidly gave way to the idea of need. It is not ignoble, by any means, to base benefits on need but it is a quite different conception of welfare from one based on individual contribution. In 1971, benefits based on contributions were 21 per cent of the total. Now they are only 5 per cent. Less than a third of welfare spending was subject to a means test in 1979. Now two thirds are subject to an assessment of need. If you have paid in for 30 minutes or 30 years it makes no difference. The benefit level depends on how much you need the money.
Governments of both persuasions have done this. Mrs Thatcher abolished the earnings-related supplement, which meant that people with a strong record of contribution received higher benefits when they were out of work. John Major limited contributory jobseeker’s allowance to six months.
There was a time when Labour despised the stigma of the means test, which was, said Aneurin Bevan, “a principle that eats like an acid into the homes of the poor”. That didn’t stop Labour introducing the tax credits regime, which, in the 13 years from 1997, extended means testing from 13.7 million people to 22.4 million. Since 2010 the coalition has been doing the same to the earnings support allowance. All benefits, whether based on contribution or not, will be wrapped into the Universal Credit.
There have been two reasons for this targeting of resources. Sometimes it is to save money and sometimes it is a forensic strike against inequality. The outcome, which is to erode the link between welfare and contribution, is the same no matter what the motive — and the effect on trust in welfare has been disastrous. The recent British Attitudes Survey found that the number of people who think a life on benefits means a life of hardship fell from 55 per cent in 1993 to only 19 per cent now. The British people think that one in four welfare claimants is defrauding the system, rather than one in 50, which is the best estimate. Thirty per cent think the poor have brought their misfortune on themselves.
Across the world, there is a clear pattern. This declining consent is happening in countries, such as the UK and New Zealand, whose welfare states are based on entitlement and need. In all such countries, attitudes towards welfare recipients have become less generous. In marked contrast, countries with the strongest contributory elements, such as Austria, Norway and Holland, have not seen a decline in consent. At the same time, their actual payments are higher. Consent to welfare, pace the chancellor of the exchequer, is not just about the amount. It’s about whether it feels earned.
This is what we are picking up in the debates about welfare and immigration. Britain has a bigger immigration problem than Germany because Bismarck left the Germans a welfare state predicated on insurance. You have to have paid your stamps to be eligible. In Britain, you only need to be in need. No doubt there are some Ukip supporters who are xenophobic but the majority are not. Their discontent is not about immigration in itself. It is not even a claim that lots of immigrants are, in fact, defrauding the system. It is a fury that people, immigrants or not, are receiving benefits that they have not earned. The only way to win back that section of Ukip supporters who might yet be persuaded to switch to Labour or the Tories is to express their idea of fairness.
It follows that the answer is not to promise immigration controls or even to cut benefit levels. The answer is to resurrect the principle of contribution in welfare. It is not enough to make people attend job interviews. The principle has to extend to giving people with a strong record of work more unemployment benefit than those who have no such record. It is to allow people who have contributed a lot, either by working or by caring for a relative, to jump the housing queue. It would mean that the residual contributory elements of benefits were extended, not frozen. It would mean that the principle of national insurance were brought out of near-retirement, not collapsed into general taxation as the chancellor wants to do.
This is difficult territory for both parties. Mr Miliband’s sovereign value is equality, and contribution runs in the other direction. Mr Cameron wants to cut the bill and unless he is prepared to make the needy destitute, contribution costs more. This, however, is the language that Ukip supporters are speaking. It’s not Europe or immigration or anti-politics. It’s more basic than any of that. They think the welfare state isn’t fair and they’re right.
To counter the prevailing sense of injustice, we need a benefits system where people take out what they’ve paid in
The 2015 general election has all but happened, apart from the enigmatic appeal of Ukip. The opinion polls are stable; no party has the reach to break for the line. There will be an eleventh hour fear-shift against the Labour leader. There will be a corresponding, reluctant, creep back towards the Conservatives. Whether the creep is sufficient to return David Cameron to power depends on Ukip, stubbornly stuck on 14 per cent, a puzzle the main parties have yet to solve.
The noisome, frenetic, strange politics of the day is all the fault of Nigel Farage. His pressure has tempted Mr Cameron into promises he must barely mean and can hardly keep about European immigration. This week Ed Miliband, who has instructed his shadow cabinet to discuss immigration more frequently, did so briefly himself. The impression he left was of a man who knows that immigration is a thing that must be spoken of but not a man who actually had anything novel to say.
These are moves born of desperation and they cannot hope to succeed. There will be some Ukip-inclined supporters who will cast a secret Tory ballot for fear of Mr Miliband but such people know, in their dark hearts, what they are set to do. There is also, however, a significant group of biddable voters in the Ukip camp and neither Mr Cameron nor Mr Miliband are talking to them properly. It is well understood that the appeal of Ukip is nothing to do with Europe. It is less clearly comprehended that immigration is also a proxy issue, under which a conundrum lurks. Nobody would ever mistake Mr Farage for a moral philosopher but the roots of support for Ukip are tangled up with the issue of what the welfare state is for.
This is a dispute about what it means to be fair. William Beveridge’s welfare state was supposed to be based on individual contribution; those who paid in earned their entitlements. In his famous report, Social Insurance and Allied Services, Beveridge could not have been clearer: “Benefit in return for contributions, rather than free allowances from the state, is what the people of Britain desire.” There was no appetite in Britain, said Beveridge, for what he called “the Santa Claus state”.
The historical practice hasn’t turned out like that. The idea of contribution rapidly gave way to the idea of need. It is not ignoble, by any means, to base benefits on need but it is a quite different conception of welfare from one based on individual contribution. In 1971, benefits based on contributions were 21 per cent of the total. Now they are only 5 per cent. Less than a third of welfare spending was subject to a means test in 1979. Now two thirds are subject to an assessment of need. If you have paid in for 30 minutes or 30 years it makes no difference. The benefit level depends on how much you need the money.
Governments of both persuasions have done this. Mrs Thatcher abolished the earnings-related supplement, which meant that people with a strong record of contribution received higher benefits when they were out of work. John Major limited contributory jobseeker’s allowance to six months.
There was a time when Labour despised the stigma of the means test, which was, said Aneurin Bevan, “a principle that eats like an acid into the homes of the poor”. That didn’t stop Labour introducing the tax credits regime, which, in the 13 years from 1997, extended means testing from 13.7 million people to 22.4 million. Since 2010 the coalition has been doing the same to the earnings support allowance. All benefits, whether based on contribution or not, will be wrapped into the Universal Credit.
There have been two reasons for this targeting of resources. Sometimes it is to save money and sometimes it is a forensic strike against inequality. The outcome, which is to erode the link between welfare and contribution, is the same no matter what the motive — and the effect on trust in welfare has been disastrous. The recent British Attitudes Survey found that the number of people who think a life on benefits means a life of hardship fell from 55 per cent in 1993 to only 19 per cent now. The British people think that one in four welfare claimants is defrauding the system, rather than one in 50, which is the best estimate. Thirty per cent think the poor have brought their misfortune on themselves.
Across the world, there is a clear pattern. This declining consent is happening in countries, such as the UK and New Zealand, whose welfare states are based on entitlement and need. In all such countries, attitudes towards welfare recipients have become less generous. In marked contrast, countries with the strongest contributory elements, such as Austria, Norway and Holland, have not seen a decline in consent. At the same time, their actual payments are higher. Consent to welfare, pace the chancellor of the exchequer, is not just about the amount. It’s about whether it feels earned.
This is what we are picking up in the debates about welfare and immigration. Britain has a bigger immigration problem than Germany because Bismarck left the Germans a welfare state predicated on insurance. You have to have paid your stamps to be eligible. In Britain, you only need to be in need. No doubt there are some Ukip supporters who are xenophobic but the majority are not. Their discontent is not about immigration in itself. It is not even a claim that lots of immigrants are, in fact, defrauding the system. It is a fury that people, immigrants or not, are receiving benefits that they have not earned. The only way to win back that section of Ukip supporters who might yet be persuaded to switch to Labour or the Tories is to express their idea of fairness.
It follows that the answer is not to promise immigration controls or even to cut benefit levels. The answer is to resurrect the principle of contribution in welfare. It is not enough to make people attend job interviews. The principle has to extend to giving people with a strong record of work more unemployment benefit than those who have no such record. It is to allow people who have contributed a lot, either by working or by caring for a relative, to jump the housing queue. It would mean that the residual contributory elements of benefits were extended, not frozen. It would mean that the principle of national insurance were brought out of near-retirement, not collapsed into general taxation as the chancellor wants to do.
This is difficult territory for both parties. Mr Miliband’s sovereign value is equality, and contribution runs in the other direction. Mr Cameron wants to cut the bill and unless he is prepared to make the needy destitute, contribution costs more. This, however, is the language that Ukip supporters are speaking. It’s not Europe or immigration or anti-politics. It’s more basic than any of that. They think the welfare state isn’t fair and they’re right.
Robin Hood in Reverse (13 November 2014)
After months and years of protests and strikes, the trade unions in Scotland have finally come to their senses - by accepting the principle of career average pension schemes which are much fairer than the old final salary arrangements.
But what a palaver over an issue that has been as plain as the nose on your face ever since this dispute began - why should the low paid subsidise the pensions of the much higher paid?
I wrote on the subject back in 2010 and pointed out that under a 'final salary' scheme low paid council cleaners were helping to pay for the pension of their council's chief executive.
Here's a previous post from the blog site archive which explains the background to this dispute which has been running for three long years when it should, in fact, have been settled a long time ago.
I wrote on the subject back in 2010 and pointed out that under a 'final salary' scheme low paid council cleaners were helping to pay for the pension of their council's chief executive.
Here's a previous post from the blog site archive which explains the background to this dispute which has been running for three long years when it should, in fact, have been settled a long time ago.
For the Few - Not the Many (7 October 2010)
Former Labour Minister - John Hutton - today sounded the death knell for final salary pensions schemes - proposing instead that pensions should be based on a career average earnings.
In other words - that people get back out of the pension scheme - broadly what they put in during the course of their working lives.
Who could argue with that because it's a much fairer sytem than the one we have just now - where low paid council workers effectively subsidise the big pension pots of their bosses and senior managers.
I wrote about this back in June 2010 - here's what I had to say then about 'Robin Hood in Reverse' - so it's good to see that public policy makers are finally grasping the nettle.
By the way, elected councillors in Scotland now have access to the local government pension scheme - and that's on the basis of career average earnings.
So why should senior council staff be any different?
Robin Hood in Reverse
The final salary pension schemes operated by Scotland's councils - are a fine example of Robin Hood in reverse.
Why? Because they take from the 'poor' and give to the 'rich'.
What happens is that low paid employees - end up subsidising much higher paid groups - including many senior and middle ranking officials.
In effect, the part-time cleaner is subsidising the lifestyle - of the council chief executive.
The system works in favour of senior council staff of all kinds - including many teachers.
Let's take an example to illustrate the point - a chief executive paid £150,000 a year - now the person doesn't actually work at that salary level throughout his or her council career.
But their pension is based on this final salary - even if they've only done the job for a relatively short time - as part of their overall service which can be a maximum of 40 years.
The pension scheme rules changed in April 2009, but for the great majority of employees (i.e. those in post before April 2009) - the maximum pension is still worth half of a person's annual salary - plus three times their annual pension as a tax free lump sum.
So, a chief executive on £150,000 and a maximum service would receive - £75,000 annual pension plus £225,000 as a tax free lump sum, i.e. 3 x £75,000.
The new post-April 2009 rules provide for an even bigger pension - worth two thirds of a person's final salary - 25% of which can be converted into a tax free lump sum.
But under both sets of benefits and rules - the reality is that other lower paid council workers (and other tax payers) - are helping to subsidise the scheme - for the benefit of the better paid staff.
Why? Because the higher paid take out much more than they pay in - over their working lives.
Meanwhile - at the other end of the pay ladder - the scheme is not so generous.
Because most low paid workers remain relatively low paid - by and large they don't have a career path - or many opportunities for promotion.
For most low paid workers - their pensions reflects what they pay in to the scheme over the years - because their pay rises only very slowly and mainly through an annual 'cost of living' pay increase.
Now what would be much fairer - and more progressive - is a scheme based on average salary.
So that people get back roughly what they put in over their working lives - this could even leave a bit of room to boost pension benefits - in favour of the lower paid.
The unions like to pretend they're on the side of the low paid when it comes to pensions - but in truth they're propping up a system that favours the relatively better paid.
Does this remind anyone of how the trade unions behaved over equal pay?
In other words - that people get back out of the pension scheme - broadly what they put in during the course of their working lives.
Who could argue with that because it's a much fairer sytem than the one we have just now - where low paid council workers effectively subsidise the big pension pots of their bosses and senior managers.
I wrote about this back in June 2010 - here's what I had to say then about 'Robin Hood in Reverse' - so it's good to see that public policy makers are finally grasping the nettle.
By the way, elected councillors in Scotland now have access to the local government pension scheme - and that's on the basis of career average earnings.
So why should senior council staff be any different?
Robin Hood in Reverse
The final salary pension schemes operated by Scotland's councils - are a fine example of Robin Hood in reverse.
Why? Because they take from the 'poor' and give to the 'rich'.
What happens is that low paid employees - end up subsidising much higher paid groups - including many senior and middle ranking officials.
In effect, the part-time cleaner is subsidising the lifestyle - of the council chief executive.
The system works in favour of senior council staff of all kinds - including many teachers.
Let's take an example to illustrate the point - a chief executive paid £150,000 a year - now the person doesn't actually work at that salary level throughout his or her council career.
But their pension is based on this final salary - even if they've only done the job for a relatively short time - as part of their overall service which can be a maximum of 40 years.
The pension scheme rules changed in April 2009, but for the great majority of employees (i.e. those in post before April 2009) - the maximum pension is still worth half of a person's annual salary - plus three times their annual pension as a tax free lump sum.
So, a chief executive on £150,000 and a maximum service would receive - £75,000 annual pension plus £225,000 as a tax free lump sum, i.e. 3 x £75,000.
The new post-April 2009 rules provide for an even bigger pension - worth two thirds of a person's final salary - 25% of which can be converted into a tax free lump sum.
But under both sets of benefits and rules - the reality is that other lower paid council workers (and other tax payers) - are helping to subsidise the scheme - for the benefit of the better paid staff.
Why? Because the higher paid take out much more than they pay in - over their working lives.
Meanwhile - at the other end of the pay ladder - the scheme is not so generous.
Because most low paid workers remain relatively low paid - by and large they don't have a career path - or many opportunities for promotion.
For most low paid workers - their pensions reflects what they pay in to the scheme over the years - because their pay rises only very slowly and mainly through an annual 'cost of living' pay increase.
Now what would be much fairer - and more progressive - is a scheme based on average salary.
So that people get back roughly what they put in over their working lives - this could even leave a bit of room to boost pension benefits - in favour of the lower paid.
The unions like to pretend they're on the side of the low paid when it comes to pensions - but in truth they're propping up a system that favours the relatively better paid.
Does this remind anyone of how the trade unions behaved over equal pay?
