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International Socialism, Winter 1967/68


Jim Kincaid

Welfare: Means ... and Ends


From International Socialism (1st series), No.31, Winter 1967/68,pp.18-20.
Transcribed & marked up by by Einde O’Callaghan for ETOL.


In the current debate about social security the terms of the argument have been narrowed to exclude all but two alternative policies: either a continuation of the present universalist Beveridge system in which flat-rate benefits are financed mainly by flat-rate contributions; or the means-tested selectivity advocated by the Conservative Party, and now by some Labour leaders. Mr Gunter has given fresh currency to the second half of an old phrase —’... to each according to his needs.’

The call is for a ‘new’ approach to welfare involving a return to the means-test – as if means tests were not a central feature of the present system, and the form they take as much of a cause as a cure for poverty. Richard Titmuss has pointed out that more than 3,000 separate means-test schemes are being operated in Britain today. Each local authority runs means-tests for school meals and education grants of various sorts; most LAs apply means-tests for rent rebates and for rate rebates. There are means-tests for supplementary benefits, free welfare foods, free milk, legal aid, health service charges, etc, etc. Every piece of available research suggests that all this is expensive to run and ridiculously ineffective. Many of those in need do not know what they are entitled to, cannot find out how to claim or who from, are rejected somehow though entitled, or refuse to apply out of pride or for fear of an insultingly small award. Of the wage-earning poor in the recent Ministry inquiry, two-thirds of the children were paying for school meals, though in theory entitled to have them free; only 10 per cent of the families had applied for a rates rebate, though most were eligible; 80,000 of the fathers thought their rents were unreasonably high, but only one in twenty had applied to a Rents Tribunal.

The Gunter plan for social justice in Britain gives a central role to the Supplementary Benefits Commission, an organisation which is largely independent of Parliamentary control and public scrutiny, and which exists to define out and deal with the poor as an isolated ‘Social Problem.’ The Supplementary Benefits Commission operates by rules kept strictly secret, and which cannot be challenged in the courts, nor can individual cases be raised in Parliament and no appeal is possible beyond the local tribunal. The Commission’s field officers are allowed enormous freedom to award or withhold benefit. Public accountability in detail would make more difference than all the courses in Human Relations which the SBC runs for its people, or the Social Work advisors it has been appointing at salaries of over £4,000 a year (how many benefits would that cover?).

The present Government has done little else to alleviate poverty. It last increased basic national insurance and pension rates in January 1965. By July 1967, the £4 benefit had lost more than 7s in purchasing power, so the recent increase of 10s a week does little more than restore its previous value. Ministers have managed to persuade an extra 300,000 old people to apply for means-tested supplementary pensions, but a further 400,000 or so pensioners remain below the official poverty line and do not apply for help. To make this group aware of their rights and willing to undergo means-testing will require more than homely invitations in the press. Meanwhile it has been discovered that – contrary to official opinion – non-application is not confined to the elderly. A recent national survey suggests that there are 35,000 families with father sick or unemployed who are below the poverty line, and 10,000 fatherless families in the same situation.

The same survey added substance to a couple of arguments commonly deployed by socialists – that low wages are a cause of poverty, and that such poverty does not arise just from the combination of low wages and numerous dependent children. An estimated 125,000 families are below the poverty line and yet have fathers in full-time employment. Two-thirds of the families in this group had three or fewer children. Only 20 per cent were families with five or more children. Ostensibly to bring some relief to wage earners in poverty, the Government made an interim increase in family allowances in October 1967 – 5s a week for all fourth and younger children. Over half a million families will benefit, but less than one-third of the total group will be below the poverty line. Even the general increase in family allowances next April will leave one half of the wage-earning poor below the official minimum.

Of course, none of the prophets of selectivity advocate any of the kinds of selectivity that are most redistributive, and easiest to administer – namely to steepen tax rates for the upper income groups, or to withhold their flat-rate national insurance benefits. Yet – to take only one example – between 1949 and 1964, in the £6,000 a year and over income category, the percentage of income left to the individual after tax increased from 5 per cent to 30 per cent. Or what could be more helpfully selective than that the Prices and Incomes Board should be told to accept automatically all wage claims from low paid workers?

What the exponents of a selective approach are saying in effect is that there is no urgent need to improve the living standards of those millions of people both in the working and in the non-working sections of the population whose incomes are only just above the official poverty line. There are in all about 6.4 million old age pensioners. Of these, 1.3 million are just on the poverty line by virtue of their supplementary pensions. Another 1.5 million pensioners have less than £2 a week apart from their State pension. Only four per cent of retired people have an income of more than £20 a week (the average wage of employed men). Of the 2.8 million families who will benefit from the increases in family allowances, 1.4 million have less than the average wage, and 350,000 have less than £14 a week.

There has been an increasing tendency in current discussion to take the official poverty line as distinguishing the poor from the comfortably off. Rather, it separates several million nearly poor from several hundred thousand desperately poor. Clearly a Labour Government which allows severe poverty to persist year after year deserves nothing but contempt. What socialists must demand however is not a retreat from Beveridge into the selective arms of the Bow Group. Mr Gunter has been fervently denouncing the Left for wanting to sacrifice the very poor in order to provide extra fiat-rate benefits to lots of people who do not need them. But the Gunter model means sacrificing the living standards of the almost poor, in order to bring the very poor up to a minimum income standard of doubtful validity. The real point about the Gunter approach is not at all that it brings immediate help to a group in acute need, but that it does not cost much money. Gunter is not proposing a serious solution to the problem of poverty, but rather resisting any redistribution of income from higher to lower income groups.

There are two demands to be made. One is for an increase in the amount of money that is drawn into the social security sector of the economy. This implies a change-over from a flat-rate to an earnings-related contribution principle. At present, the fiat-rate system means that the contributions required of the higher income groups are kept down to the maximum level that can be exacted from the lower paid workers without political danger to the Government. The second demand is for a massive redistribution from higher to lower income groups via such an expanded social security sector.

Redistribution is the crucial issue in welfare. Since about 1959 Labour leaders have been saying that improvements in the social services can be conveniently financed out of the proceeds of economic growth. They have argued that serious redistribution belongs to a dated class warfare model of politics – and would alienate the middle-class voter. But there is now no alternative to redistribution. Maybe there will be a spurt in growth sometime or other, but the social services are in any case going to be under increasing pressure. Between now and 1980 it is expected that there will be an increase in the size of the working population of three per cent but an 18 per cent increase in the dependent population. Also, in each age group there is going to be an increasing proportion of the population utilising welfare and educational services. Just to maintain present standards of services and benefits will require an increase of 60 per cent in social service expenditure over the next 10 years. A decade of economic growth at three per cent annually, would only raise the gross national product by 40 per cent.

Yet, far from transferring purchasing power from higher to lower income groups, the Government has been rejecting opportunities for even marginal and unobtrusive redistribution. The fiat-rate contribution system is not progressive – since all pay the same, the rich pay proportionately less of their total income than the poor. But finance for benefits which comes from the Exchequer is mildly redistributive insofar as the Exchequer gets part of its income from progressive income tax where the rich pay a larger part of their income to the State. But, in increasing national insurance benefits in October 1967 by £220 million annually, the Government financed only a quarter of it with an Exchequer contribution. By contrast, the flat rate contribution is up 2s a week for the employer, and 2s 3d for the employee – the 2s, of course, comes from the consumer on to whom employers will pass the extra charge in higher prices.

Every adult worker now pays 15s 8d per week as social security contribution, no matter how small his income. Thus, the broad mass of the population pays for the poor, and the richer you are, the less proportionately you are required to pay. The Government’s overriding concern has been to prevent redistribution by minimising the Exchequer contribution. The effect is even further exaggerated when regressive tax reliefs are taken into account – for the higher your income, the more relief you can claim. Next year, after the April increases, for example, family allowances will cost only about £240 millions, but the cost of tax reliefs to those who can afford to claim them, in the form of child allowances will rise to £630 millions. To him who has, shall be given.

We are promised an earnings related pension scheme, perhaps to be introduced in 1969. This will certainly increase the relative size of the social security sector. But not a hint has been given as to whether it will be to any extent redistributive. Significantly the only installment of earnings related welfare we have so far had from Labour (the 1965 scheme for sickness and unemployment, analysed in IS 25) was carefully non-redistributive – a person’s benefits correlate exactly with the level of his contributions.

If the crisis in social security can only be resolved by massive redistribution, then, under the present Government, the crisis will continue and deepen. For such redistribution involves an attack not just on the outraged middle-class tax payer, but on the powerful financial interests centred on occupational pension schemes and private life insurance. The insurance companies may not be all powerful, but no government so committed to the defence of the capitalist system as the present one could seriously endanger their power.

Several sets of interests combine to resist any broadening of the national insurance system, especially on a redistributive basis – the insurance companies, their shareholders, employers (particularly the large companies), as well as salary earners in general. Life insurance is now the only profitable part of the British insurance industry.

It is likely that the equivalent of about five per cent of the total wage and salary bill in Britain is being paid annually into occupational pension schemes – i.e. about £1,000 million a year. More than half of the total labour force now belong to such schemes, in general the better-paid half. Such schemes (as well as private life insurance) are heavily subsidised by the State, via tax relief on contributions. The extent of subsidisation is not disclosed, but must be almost as much as the £280 million which the Exchequer contributed to the national insurance scheme in 1966. All told, the private sector in insurance must nearly match the State scheme in size – and relatively is very much greater than the private sectors in education and health.

The financial and political role of private insurance is larger in Britain than in any comparable European country, and becoming greater at increasing speed. In recent years, insurance companies and provident societies in Britain have taken up 38 per cent of the net increase in personal savings – compared to ten per cent in Germany, and three per cent in France over the same period.

Thus, that section of the population most heavily subsidised by tax allowances, making the smallest proportionate contribution to general welfare, includes also those already covered by private insurance schemes (used by employers to secure employee loyalty and evade taxation) and those directly drawing profits on the shares invested in insurance. The private insurance sector directly deprives the State sector of immense resources by which the problem of poverty could be conquered. Unless a large section of the private sector can be incorporated into the public sector, the problems of the State social insurance system cannot be solved. National insurance benefits cannot be raised to an adequate level without substantial redistribution from higher to lower income groups. Yet the present Government insists that the private sector must remain intact, i.e. that the very resources which could be redistributed via a comprehensive social security system should be largely exempt. So long as the private sector in insurance is treated as sacrosanct, there can be scope for only the most limited reformism in social security.

The perspective is no more depressing, however, than it has been in the past. For direct working-class pressure has alone secured the concessions now eroded in one way or another, and it is direct pressure of the same kind which alone will restore the balance or go beyond it. The basic question – low wages – remains, and for that problem, any welfare provisions are no more than palliatives, attempts to conceal a problem rather than solve it. The problem of eradicating the creation of poverty (rather than mounting more or less effective salvage operations after poverty has been created) is necessarily part of the wider political and social context. It is here that certain action becomes relevant: to fight for improved wage levels for the lower paid (the one-day action by Ford workers for the nurses is an example). This does not mean giving up the battle for improved wages generally, for it is the forward advance of the best-paid workers which pulls along the worst behind. If the worst-paid advanced on their own, then there might be some truth in the Government’s argument that the best-paid should wait – or rather there would be if the ‘best-paid’ included everyone. As it is the propaganda of the incomes policy is Utopian, and any check to the advance of the best-paid has savage repercussions on the poor. In terms of the history of welfare, all sections of the working class rise or fall together. More concretely, it is obviously vital that effective organisation incorporates or embodies the demands of the poor – for only action, resistance, can change the present situation, not clever schemes by Government advisers.

This is not a strategy to end poverty, for many of the poor are not employed. But it is a practical strategy which will lead towards the ending of poverty, and will certainly show more concrete returns for specific forms of action.

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Last updated on 28.12.2007