Issue 216 of SOCIALIST REVIEW Published February 1998 Copyright Socialist Review

Feature article: War on welfare

Peter Morgan and Margot Hill answer questions about the benefit cuts

Is it true that the welfare bill is spiralling out of control?

Total welfare spending includes health and education, as well as social security payments such as housing benefit, pensions, disability and unemployment benefit. Direct spending on welfare reached nearly 190 billion in 1996-97. But as a proportion of national wealth (GDP) welfare spending has actually decreased over the last few years. In 1992-93 it was 26.3 percent of GDP, whereas for 1996-97 it is just over 25 percent.

Since the mid-1970s Britain's total welfare spending has been stable as a share of national wealth at around a quarter - well below France, Germany, Greece, Belgium, Italy and Ireland.

What we have witnessed in the medium term has been a change in the composition of welfare spending - away from housing and education, towards social security and the NHS.

Spending on welfare is much greater than when the welfare state was first set up. What are the reasons for this?

In 1946 the big three - social security, health and education - took 6 percent of GDP. This rose to 11 percent by 1951 and 25 percent by 1975. There it broadly stuck, with ups and downs reflecting the economic cycle.

Part of the increase in welfare since the Second World War reflects the changing needs of the British economy - to have a more skilled, better educated workforce. Britain's housing stock doubled from just over 12 million dwellings in 1945 to around 24 million in 1992. The number of people in education has mushroomed - in 1950 only 30 percent of 15 year olds were still at school; today all are. In 1945 only 50,000 students went to university - by the 1990s more than 1 million people were on degree courses.

The fact that people live longer today means the number of pensioners has risen from fewer than 7 million in 1951 to more than 10 million today. Over 2 million people receive disability benefits today which simply did not exist in 1945. And in health the NHS treated barely 4 million patients in 1954 compared to a record 9.6 million in 1993.

Thus the welfare state has to cope with a much different world than when it was first set up - and much of this, like advances in health or a better level of education, is to be welcomed.

There is also more unemployment today than in the past and more people in poverty. Changes in the structure of the family means there are many more lone parents than there were in the 1940s.

But if welfare spending has remained relatively constant since the 1970s why is Blair claiming it is too high?

Blair is particularly interested in cutting back the social security element of welfare. This has increased quite considerably, from 50 billion in 1980 to 93 billion in 1996-97. But this rise is at a rate lower than economic growth and the Department of Social Security expects social security spending to fall as a share of GDP over the next five years. There are a number of reasons why total social security spending has increased.

One of the main reasons is the rise in housing benefit from 4.5 billion in the early 1980s to 12.5 billion in the mid-1990s. The key reasons for the growth in housing benefit spending are lack of affordable public housing and high rents in the private sector. In the past the most obvious feature of state housing provision was large scale council house building. Today housing benefit is the largest part of state spending on housing.

From 1988, government subsidies paid to local authorities were cut and have been reduced virtually year on year. Housing association grants were also slashed from 80 percent in 1990-91 to 58 percent in 1995-96.

The 1988 Housing Act removed rent controls for any new lettings made after that date, allowing housing associations to set up assured tenancies at market rent levels. Increasing numbers of private tenants were people on pensions or low incomes who could not get a mortgage and needed housing benefit to meet their rent bills.

The shift away from housing subsidies to housing benefits is spelt out by the government's objective to cut all funding for social housing by 1.1 billion over the next three years while at the same time projecting that spending on housing benefit will rise by 1.2 billion. Peter O'Kane, head of the London Housing Unit wrote recently:

'Since 1988 the government has paid out in real terms an accumulated 9 billion extra in housing benefit, effectively to the same number of private rented dwellings.'

At the same time mortgage relief to private dwellings continues - tax relief in 1995-96 was 2.8 billion.

There has also been an increase in disability benefits. Both the Disability Living Allowance (DLA) and the Attendance Allowance (AA) increased dramatically throughout the 1990s. The increase in Attendance Allowance is directly related to the increasing numbers of older people in our society. Many local councils impose charges for community care services and expect disabled and frail elderly people to use their DLA and AA to help pay for these charges - this encourages a greater take up rate. There has also been a dramatic increase in the number of people who care for a sick or disabled relative - and this falls disproportionately on those from lower incomes which means they are entitled to Invalid Care Allowance. As a result ICA has more than doubled since 1990.

Is this a form of privatisation?

There is creative accounting involved in the figures here. In the late 1970s and early 1980s huge amounts of spending went on disabled people in residential care - this was classified as council expenditure. Today, with more care in the community, this appears as social security expenditure.

The tendency with virtually all forms of benefits under the Tories was to direct state spending towards the private sector. The state encouraged social security spending to go on private care. Since 1993 local authority social service departments have been working as purchasers of care rather than providers of, say, residential homes for the elderly. This is effectively resulting in the privatisation of care which goes back to the Griffith Report and the subsequent white paper, 'Caring For People', in 1990. While the NHS has saved money by closing down long stay geriatric wards, spending on social security increased.

Shouldn't benefits be means tested to ensure the poorest are helped?

Means testing is very expensive to run. Expenditure on means tested benefit has increased by 300 percent since 1979, ten times more than increased expenditure on National Insurance benefits. In 1995-96 means testing represented 1.1 percent of the costs for retirement pensions, 2.2 percent for child benefit, 9 percent for income support, and 36.7 percent for the social fund.

The Tories relentlessly pursued a policy of forcing the old, sick and unemployed onto means tested benefits. So many of the benefits for which people have paid National Insurance contributions throughout their working lives have been gradually whittled away. It is estimated that, as a result of not uprating pensions in line with earnings, an additional 900,000 pensioners will be claiming income support by the year 2000.

Means testing was the main argument used in setting up the 'social fund' to replace grants for essentials in the mid-1980s as a way of targeting benefit to those most in need. In fact what happened was that over 250,000 applications were turned down because those applying for the loan were deemed too poor to be able to pay it back.

The way to retrieve any money that goes to those who are not in need of it is to have a progressive, equitable system of taxation. As the Rowntree Report on welfare says, 'If the main objection is, for instance, to child benefit going to high income middle class mothers...it would be possible to set up a high income clawback via the tax system.' But raising taxes on the rich or removing the top rate ceiling at which National Insurance is paid is something that Labour has categorically ruled out.

Labour is putting forward scare stories about those on higher income getting disability benefits which would be better going to the poor. It is claimed that 10 billion of the annual bill goes to households on 'above average' income, with some 3.5 billion going to those with disability in the 25 percent of households with the highest incomes. But this category includes individuals on 20,000 a year or couples on 27,000 (ie 13,500 each). This is hardly the super-rich.

The whole point of benefit for the disabled is to compensate them for some of the extra costs they face as a result of their disability - it was never designed simply to relieve absolute poverty. In addition, as the pressure group Disability Alliance argues, all the evidence suggests that the provision of disability allowance reduces demand on local social services and the NHS. In practice disability benefits are a very cheap way of government discharging its obligations - there is no way that even the higher rate of DLA care component, at 49.50 a week, could pay for more than a very limited amount of paid personal care.

How widespread is housing benefit fraud?

DSS figures in October 1997 show that between 410 million and 760 million of housing benefit has not been claimed. This is up to ten times the 76 million detected as fraud over the same period.

Local authorities receive a subsidy for identifying fraud, or 'benefit savings'. This has meant that errors or mistakes, even if they have not resulted in actual benefit having been paid, can be assumed to have occurred over a six month period, and the assumed amount is added to the benefit savings. For example, if a young person living at home completes and returns the housing benefit form contained in his Jobseeker's Allowance claim pack, the form can be deemed 'fraudulent' because he is not eligible to claim. Councils can then calculate how much benefit they would pay on that over six months if it were assessed. The council then claims a subsidy on that money. Of the 150,000 allegedly real frauds committed in 1996 there were only 1,000 prosecutions.

Labour puts great emphasis on moving people off welfare and into work. Will this lead to a huge reduction of the benefit bill?

Millions of people in paid work in Britain today are claiming benefits because they are paid so badly. The benefit bill could be reduced at a stroke if Labour were to introduce a decent minimum wage for those already in work.

Britain has one of the highest proportions of its labour force in paid employment of any of the advanced capitalist countries - more than Japan, Germany, France and Canada. As Will Hutton pointed out in the Observer, 'Britain has simultaneously one of the highest proportions of people living in poverty and high labour market participation rates. Mr Blair is ill-advised to argue that the explanation of widespread poverty is a high non-working population; this is factually wrong.'


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