Is Welfare Fair?
Redistributing wealth in a major economy inevitably involves large numbers. The fact that Gordon Brown is spending £79 billion a year on benefits and tax credits will not, by itself, be his undoing. But it will alarm many pondering a choice between him and David Cameron at the next election that more of their taxes are funding the welfare state than are being spent on preparing young people to make their own way in the world; which is to say, on education.
Today’s robust critique of the Chancellor’s welfare system, by the right-of-centre think tank Reform, reveals that benefits are paid to two fifths of all households, including some that are already earning three times the average household income. The report offers no instantly available alternatives. Because so many people are dependent on benefits — an estimated 5.4 million of working age — only comprehensive reform can hope to curb this dependency without exacerbating rather than alleviating poverty. But the new research will reignite a vital debate that goes a long way towards defining British values: How to help the genuinely needy whom the current, hugely complex system has failed, while nudging others into work and limiting abuse of taxpayers’ generosity?
Philosophically, Mr Brown may be inclined to shelve fiscal prudence to go on indulging his taste for social engineering. Politically, those days are over. This debate will be won by whoever persuades voters that those funds earmarked for welfare will be spent most efficiently.
The argument that means-tested benefits create a disincentive to earn more is familiar. It is also sound, and the finding that 1.2 million Britons are caught in a poverty trap should concern Mr Brown more than it appears to. It is also true that targeted benefits are hugely costly and wasteful to administer, and a system that has ballooned to encompass 51 separate benefits and credits would be due for urgent streamlining even if it were not also accused of failing.
The third important criticism of the current system is that it targets those just below the official poverty line at the expense of the very poor and of a heavily taxed middle class. Stealth taxes, including a significant increase in national insurance contributions, have proliferated, creating a genuine and understandable sense of unfairness in middle-income Britain. Nor is there any dispute that under new Labour the income gap between the poorest and the best-off has widened steadily. However, this is more the result of wealth creation at the top end of the economy as of failed redistribution at the bottom. The task is to provide as many incentives as possible for the poor to improve their lot. The challenge for policy-makers is not only to alleviate poverty but to define it. Where on the income scale does poverty begin — or, in David Cameron’s animal metaphor of the moment, how far back down the camel train of society?
Mr Cameron is close to Fredrik Reinfeldt, the new centre-right Swedish Prime Minister, who came to power promising earnestly not to shrink Sweden’s famously expensive welfare state; merely to run it better. Here, new Labour and new Tories alike should not be so cautious. A civilised society takes care of its disadvantaged. An advanced society keeps moving forward. Britain should be both.