First, most basic benefit rates are simply too low. According to the Rowntree Trust, current welfare payments leave an average household £36 a week short of an “essentials only” budget. The tax and benefit system Labour has inherited from the Tories is not neutral. It redistributes wealth from the poor to the rich. A study by an academic at LSE has revealed that even if the welfare-to-work scheme is a success, one million more individuals will be pushed below the poverty threshold in five years time unless the Government raises benefits substantially.
Second, this should be financed by steeply progressive taxation. This is the only just and efficient method for society to distribute its common resources and determine its priorities rationally.
Third, we need to ensure that people have the knowledge and confidence to secure the benefits to which they are entitled. A UN committee recently expressed alarm over the one million pensioners in Britain who are entitled to income support but fail to claim it. These unclaimed benefits will contribute almost as much to the Treasury this year as Gordon Brown’s windfall tax.
Finally, looking ahead, if we are to provide social cohesion and economic security in an age of “flexible” labour and casualisation, we will need to reduce means-testing and expand universal provision. Universal benefits are the key to binding together a social majority — including the poor — on the basis not of charity but of mutual interest. We also need to increase rights in the workplace, strengthen trade unions, regulate business, and establish a comprehensive minimum wage to ensure that work really does lift people out of poverty.
Tragically, what the Government has in mind is completely different. According to figures secured by Ann Clwyd MP and published in the Guardian, the Government will have imposed £3.2 billion worth of benefit cuts — affecting single parents, the disabled, the elderly, children, and the unemployed — before it even begins to implement its own welfare reform package in two years time.
Blair has launched a roadshow to sell the package, and New Labour’s disinformation squad is already gearing up for a massive exercise in muddying the waters.
There’s the old chestnut about fraud (it is reported that one of Blair’s focus groups has revealed that “people don’t like scroungers”). There’s never been much logic in cutting benefits for those who claim them legitimately in order to punish those who claim them illegitimately. If the same principle was applied to millionaire Inland Revenue evaders, the top rate of income tax would go through the roof! What’s more, numerous studies have shown that the amounts left unspent because of under-claiming far exceed the amounts paid out to fraudulent claims. Most importantly, a regime which combines low benefits with low wages is bound to force huge numbers to claim and work unofficially at the same time. Crackdowns on this kind of “fraud” can only end up as wasteful campaigns of harassment against the poor.
It is said that our present welfare state costs too much and is unsustainable in the long run. By what mystical measure has it been determined that the £90 billion spent annually on social security is “too much” or that it is growing “too fast”? It amounts to some one quarter of total government spending and less than one eighth of GDP (much less than in most EU countries), and in real terms has grown by less than GDP over the last few years. Is that “too much” to spend for a shared civilised life?
Benefit cuts are not being forced on the Government by financial emergency or some IMF-style rescue package. In fact, the Government expects to run a surplus on the public accounts in 1999 and, as Will Hutton has pointed out, it is currently spending several billion less than the Tories planned to. If reducing the social security bill were the sole aim of the welfare reform exercise, then one would expect the Government to take action to control rents in the private sector, whose deregulation under the Tories is one of the principal reasons for the increased cost of housing benefit. Sadly, this measure does not even appear to be under consideration.
Gordon Brown’s cuts in corporation tax will amount to a £2 billion a year hand out to the corporate sector, even taking into account his abolition of ACT, a corporate tax credit. His refusal to lift the ceiling on National Insurance contributions represents an additional £3.5 billion give-away. Meanwhile, the ring-fenced £22 billion a year defence budget, the private finance initiatives, the planned “best value” scheme, the Millennium Dome, welfare-to-work subsidies, and the handing over of state schools to private companies will all put huge sums of taxpayers’ money into the pockets of big business. It is these policies that make welfare spending “unsustainable”, not any demographic time bomb.
The most insidious claim made on behalf of the Government’s misconceived version of welfare reform is that it is a “redistributionist” strategy. We are told that Gordon Brown wants to spend less on benefits in order to spend more on education and the NHS. But, according to figures ferreted out by the FT, the NHS will enjoy a rise in real resources of less than 1.5% in 1998-99; it needs a rise of 3% simply to maintain its current level of service. Although education spending will rise by 1.3%, the FT reports that: “More spending on schools will be balanced by cutbacks elsewhere in the education budget”. Already, local education authorities across the country are being forced to slash budgets. Cuts in other departments, including transport, will be even heavier.
Many Labour MPs seem to be living in hope that Brown, having amassed a huge pre-election warchest, will go on a spending spree in three years time. But even if he wanted to — and it would make nonsense of the fiscal conservatism he has preached so sternly — he would be prevented by a variety of factors, not least the convergence criteria for a single European currency and the impact of the downturn which most economists are now predicting.
Another form of the “redistributionist” argument is that New Labour’s welfare reform will take benefits away from the middle class and restore them to the genuinely needy. The recently mooted “affluence test” is clearly designed to placate Labour Party members and backbench MPs, but it is, of course, simply means-testing by another name. For the “affluence test” to have the kind of effect on the social security budget which the Treasury seeks, it would have to reach far down the income scale. Harriet Harman’s £1m per year woman collecting maternity benefit has already been exposed (by her own department) as a fabrication. The reality is that the kind of “affluence test” the Government is considering will hurt the living standards of millions of working people. And by far the most efficient and equitable way to claw back common resources from the affluent while meeting the basic needs of the non-affluent majority is to raise the top level of income tax.
Politicians use the phrase “middle class” elastically and opportunistically. Where does the “middle class” end and the “underclass” begin? Over the last twenty years, not only have the proportion of people in the lowest income group increased, so has the rapidity with which households fall into and rise out of that group. The kind of massive extension of means-testing that the Government is considering is exactly the opposite of what is needed. Economically, it will add to insecurity and leave large numbers without the assistance they require to live a decent life. Politically, it will divide the working class, setting marginally privileged people (students, people with disabilities not living in dire poverty, working women) against people with even fewer privileges.
While the “middle class” are being asked to give up their universal benefits, the “underclass” is being told to get a job. Samuel Smiles moralism about the wonders of hard work comes ill from a government which has abandoned full employment as an achievable goal and whose macro-economic policies are anything but expansionary. (Whatever happened to the manifesto pledge to keep interest rates “as low as possible”?). Unlike the French and Italian governments, Blair and Brown seem unwilling even to contemplate any redistribution of available work through a reduction in the working week. In the European Union, Blair has proved a steely opponent of job creation measures or of any loosening of the fiscal and monetary tourniquets. And, quietly, Labour has scrapped its pre-election pledge to adopt the EU standard for counting the jobless. Cuts in benefits, the extension of means-testing, and coercive welfare-to-work schemes will ultimately have a tremendous impact on the entire labour market — to the disadvantage of the majority. Should the British economy enter recession later this year or early next, and global economic developments are making this more probable by the day, the effect of these measures on millions of lives hardly bears thinking about.
It is vital that Labour Party members keep their eyes on the welfare reform package as a whole. All indications are that this package, coupled with the Government’s “comprehensive spending review”, will amount to a far-reaching assault on the living standards and rights of working people. It promises to push more people into a less regulated labour market, while at the same time looking to private insurers to compensate for an increasingly threadbare state provision. It is a turn away from social democracy towards an individualist US model, in which the “middle class” are weighed down with huge social insurance costs, while the poor either work or starve.
The arguments for Blair’s preferred version of welfare reform are incoherent and dishonest, but as a piece of social engineering, the package may prove only too coherent. The Government’s hopes for increased growth rest very much on what the Treasury calls an “expanding labour market” coupled with “wage moderation”, i.e. more of the lop-sided, inequitable growth we experienced, fitfully, under the Tories. In the end, this vision of welfare reform boils down to a low-wage, casualised labour force regulated by a coercive and parsimonious benefit system and enduring mass unemployment. That is why the Tories are so tempted to support it.
The unity of the Government and the Tories on welfare cuts means that on this issue at least, we have a de facto coalition government. The real argument is no longer between the two major parties but between the New Labour Government and the Labour left.The unfolding welfare reform package represents a huge historic challenge to the Labour Party and the trade unions. Should we fail to mount an effective resistance to it, and at the same time pose our feasible socialist alternative, the poor and the working class will forfeit any meaningful political representation, and British democracy will become even more of a farce.