Hearing 5

Fabian Society Commission on Future Spending Choices

Hearing 5: ‘Principles and tough decisions: social security’

4th March 2013, 11am – 1pm

Witnesses

  • Christian Guy (Director, Centre for Social Justice)
  • James Browne (Institute for Fiscal Studies)
  • Kate Bell (London Co-ordinator, Child Poverty Action Group)

Key questions for this hearing include:

  • Can universal, contributory principles be retained, or does the aim of welfare need to change?
  • Is the balance between client groups right, both for the short and long term?
  • Can a shift away from cash transfers result in better services?
  • Should the relationships between the social security and tax systems change?
Summary

The hearing began with Christian Guy of the Centre for Social Justice (CSJ) setting out the context in which future reforms to social security spending will take place and some of the principles on which those changes should be based.

Guy argued that trends in working age welfare expenditure prior to the financial crisis show there is not a simple relationship between economic recovery and lower spending on benefits. Any government in 2015 concerned with the public finances must bring down social security spending he said. But achieving this will require systemic reform and an approach which appreciates the incentives created by the benefit system and how they interact with employment.

Moving on to the principles by which social security should be reformed, Guy underlined his commitment to unconditional support for those in need. But he asked whether the system could also be more realistic and if it could support people to take control of their own lives. This, it was suggested, was also the aspiration of Beveridge’s settlement which stated that social security should never substitute what people could do for themselves.

Building on these ideas he presented a number of options as possible components of reform. Guy argued that there was much still to be achieved in terms of conditionality – it is unclear that the benefit system as it currently operates requires enough engagement from recipients. Related to this, Guy suggested that policy makers might consider more thoroughly the geographic dimensions of the benefits debate. He said thought should be given to regionalising benefit levels and asked whether people should be expected to be more mobile in the search for work, just as many higher-income families are. But he opposed people moving from high-cost areas to places where there are fewer jobs.

Finally, Guy indicated that any government that wants to make significant savings in this area must look beyond working age welfare. Relative to the working age population for who reductions in entitlement has been the focus of the current round of consolidation, those of pension age have been protected.

Christian Guy’s presentation was followed by Kate Bell of the Child Poverty Action Group (CPAG). Bell began by arguing that in order to answer questions about the tough choices confronting social security spending, one has to outline what it is the social security system seeks to achieve.

She stated that CPAG’s view is that social security should aim to prevent poverty and promote employment among families, without leading to stigmatisation. In contrast to the preceding analysis, Bell argued that the social security system had worked relatively well on these indicators prior to the financial crisis and while New Labour’s pledge to half child poverty was not ultimately realised, considerable progress was nevertheless made. Despite the popular story told of a rising benefits bill, Kate Bell commented that as a share of GDP social security spending was steady and moderate in the lead up to 2007-08.

Bell said that while she agreed that certain areas of the social security are currently failing in their objectives, she suggested this was largely due to pressures outside of the system rather than internal design failures. She noted that the recent rise in the housing benefit budget reflects a growing shift from social housing to the private rented sector and an increased caseload following the UK’s recession. Bell indicated a similar logic applies in the case of in-work tax credits.

With this in mind Kate Bell argued that to make savings to the social security budget, policy makers should be as concerned with trends external to the system as much as its internal features. Where Beveridge saw full employment, family allowances and the NHS as the preconditions for a post-war social security system, she argued that today the list should be supplemented by a well-functioning housing market, a labour market that delivers secure jobs and an affordable childcare system.

James Browne of the Institute for Fiscal Studies made the final presentation of this hearing and began by detailing some of the cuts already planned to the social security budget by 2017-18. He argued that to be effective proposals for spending reductions must be placed in the context of the design of the system as a whole. This means looking at the trends in social security spending as a background to proposing options for savings.

In the immediate context social security spending is forecast to rise from 28.5 per cent of total spending in 2010-11 to 32.5 per cent in 2017-18. Browne showed that while real spending on pensioners had risen by 59 per cent between 1997 and 2010, working age social security spending rose faster, by 62 per cent between these years. Touching on a point that would be discussed further, Browne suggested that the increasing proportion of working age benefits covered by means-testing in this period represented the effective end of the contributory principle below pension age.

Overall the poorest and riches households are worst affected by the Coalition’s tax-benefit reforms, with top earners affected by tax changes and lower earners affected by £18 billion of welfare cuts. However within each income group there is diversity Browne explained. Significantly, pensioners have not been affected by these changes nearly as much as families with children. Furthermore, whereas many of the changes being introduced today only slightly offset the increased generosity of welfare payments between 1997 and 2010, people below retirement age without children saw few gains during that period but are still suffering under current reforms.

For the rest of his presentation Browne outlined the levels of savings available from a range of benefit reforms, including further extending means-testing, changing indexation policies and extending reforms to disability benefits to older people.

Questions were raised over whether Beveridge’s system would function in today’s economy and labour market. In particular, the existence of in-work poverty suggests that, as Kate Bell highlighted earlier in the hearing, a new set of preconditions would be required for this system to be functional today.

A number of savings from increased means testing were discussed, but Browne showed that the sums raised by this method were relatively modest. Substantial savings could be realised by reducing the up-rating of the Basic State Pension and Pension Credit, though politically this may not be attractive.

There were tensions between the presentations made in this evidence session, but there were a number of areas on which the witnesses agreed. Each witness noted how important it would be for a government in 2015 to make systemic changes with principles for spending at the core, not incremental spending cuts. Recalibrating the social security system to better accommodate new pressures in the labour market and economy was another notable area of consensus. Finally, all witnesses were sceptical of the extent to which further savings could be found from the working age welfare budget, without significant problems regarding the labour market, family welfare and politics.