Jim Kincaid Archive   |   ETOL Main Page

James and Audrey Kincaid

The Glossy Soup Kitchen:
Social Security under Labour

(Summer 1966)

From International Socialism (1st series), No.25, Summer 1966, pp.7-13.
Thanks to Ted Crawford & the late Will Fancy.
Transcribed & marked up by Einde O’ Callaghan for the Encyclopaedia of Trotskyism On-Line (ETOL).

1. Social Security and The National Plan

Until quite recently it was widely believed in the Labour Party that a decent welfare state involved redistribution of income on a large scale. It was only in the period preceding the 1959 election that the party leadership made the wonderful discovery that extra resources to increase welfare expenditure are created by economic growth. More wonderful still, since the tax system is to some extent progressive, and since people pay most of their taxes on a percentage of income (though there are flat-rate elements like the National Insurance stamp) the Chancellor can keep tax rates constant and yet his percentage of economic growth will come rolling into the Exchequer of its own accord; thus Gaitskell’s dream election manifesto – higher welfare benefits all round, but no increase in tax rates to scare off the middle classes.

It all seems commonplace now; yet Gaitskell’s pledge not to increase income tax in the campaign of 1959, is widely held to have lost him votes on the grounds that people expect politicians to promise the impossible, but not the obviously impossible.

Nevertheless, since the election of 1959 it has remained the settled policy of the Party that major improvements in the scope of State welfare must be paid for out of the returns of economic growth, rather than by redistributive taxation. This was made a central element in the Labour Manifesto of 1964:

‘the key factor in determining the speed at which new and better levels of benefit can be introduced will be the rate at which the British economy can expand.’

Once in office, the Labour Party invented the growth rate of 3.8 per cent, and in The National Plan it allocated the extra resources this growth rate would produce, right up to 1970. Mr Gaitskell’s miracle has been translated into the workaday doctrine of the Control of Public Expenditure whereby the amount of extra resources becoming available to the government is fixed by the overall growth rate; and a Ministry only gets its share of the additional money in the proportion laid down in The National Plan. For the next few years history is to be made by the growth rate in circumstances chosen by the Plan.

It follows that the Plan provides a more realistic view of how the social security sector may develop up to 1970, than the hopeful speeches of Labour’s welfare Ministers. It is now fairly certain that a lot less resources than are promised in the Plan will become available for welfare expenditure in the next few years. The economy has not so far delivered the growth that Mr Brown told it to produce. The Economic Review is currently expecting an annual growth rate for the first two years of the Plan (till the end of 1966) of slightly less than 2.5 per cent.

During the 13 years of Tory rule, the proportion of gross national product (GNP) spent on social security payments to individuals rose from 4.6 to 6.4 per cent – the increase being particularly marked in the second half of the period. In The National Plan, assuming a 3.8 per cent average annual growth rate, the Labour party commit themselves to a further increase in the relative size of the social security sector, which is to be 7.1 per .cent of GNP by 1970. This means that the present government are aiming to increase the relative size of the social security sector at an annual rate which is half that achieved by the Tories in the period 1957-63 (increase in the proportion of national resources allocated to the social security sector: Tories, 23 per cent, 1957-63; Labour, 11 per cent, 1964-70).

Lest it be thought that social security is being held back in order to make possible a more dynamic development of other sectors, Table 1 provides comparative figures:

There is to be a relative contraction only in the case of the Health and Welfare Services, but the increases in the other sectors are small by comparison with the expected increase by 1970 of 4.8 per cent in overall population, and the larger increases of 14.8 per cent in the number of children aged under 9, and of 11.1 per cent in the numbers of people aged 65 and over.

In absolute terms, expenditure on social security in 1964 was £2,085 million. The Plan provides that annual expenditure in this sector will rise over the 1964 level by about £800 million to £2,910 million in 1969-70. (This, by the way, is £800 million in real terms at 1965 prices – the amount of resources you could have bought in 1965 for £800 million.) It is clear from their speeches and White Papers that Labour’s welfare Ministers accept this figure of £800 million as the limit of what they can expect. There is no evidence that they are pressing for more. And official doctrine suggests that if the growth rate lags, the extra amount to be made available will be cut correspondingly.

Because of the demographic changes mentioned above by no means all of this money can be used to increase the level or widen the incidence of social security benefits. There are, at present, about six and a quarter million retirement pensioners and about the same number of children for whom family allowances are paid. The numbers in each of these two categories are expected to rise to seven million by 1970. At present levels of benefit, the extra customers will absorb an extra £154 million a year by 1970.

Of the proposed increase of 0.7 in the proportion of GNP to go into social security, 0.3 per cent will provide for this increase in the dependent section of the population. Overall increases in social security payments will be financed out of economic growth up to a proportion of GNP only 0.4 per cent higher than in 1964. The extra sum will be in real terms £646 million a year more in 1969-70 than in 1964.

The government have already allocated a good part of this money. £355 million a year went on the increases in social security benefits enacted in the autumn of 1964; the wage related benefits in the Bill now going through Parliament will cost another £70 million a year.

Houghton and Herbison are left with virtually nothing in the anticipated kitty with which to improve benefits in the next two years. And by 1970, they can only expect to have about £220 million a year more than at present. In terms of the kind of money involved in the welfare state, this won’t go far. For example, it would be enough to make the old age pension and other social security benefits ten shillings more in real terms by 1970 than they are at present – though this would leave nothing for an increase in family allowances, abolition of earnings rule for pensioners, etc.

If the economy does not deliver the hoped for 3.8 per cent annual growth rate, then either the projected welfare expenditure would be cut, or resources would have to be shifted in from other sectors of the economy, i.e. by a reduction in other forms of government expenditure, or by an increase in taxation. Personal expenditure is the only likely source, but already to finance the increases in social security payments enacted by Labour since 1964, an extra £500 million is being raised by taxation and increased welfare contributions. The National Plan does not discuss redistribution of income as such. But the section which makes predictions about trends in consumption patterns makes the tacit assumption that income will continue to be distributed much as in 1964, And thus to maintain the present degree of income inequality has apparently been adopted as one of Labour’s objectives.
 

2. Labour and Social Security, 1964-5

Towards the end of 1964, the Government increased the basic social security payment by 12s 6d a week for a single man (now £4) and 21s for a married couple (now £6 10s). The rate for a child went up by 2s 6d to 22s 6d a week.

For the unemployed and the sick, these increases were effective from 25 January 1965. The widows and the retirement pensioners had to wait until the end of March, for reasons which the Minister of Pensions has never managed to specify clearly. Increases in National Assistance Board (NAB) scales were equally delayed, but at the end of March 1965, allowances went up from £3 3s 6d to £3 10s a week for a single person, and from £5 4s 6d to £6 5s 6d for a married couple.

Labour party leaders have frequently claimed that these increases were the largest ever made since the national insurance scheme was started in July 1948. In money terms they were; in real terms and relatively, they were not. In 1952, 1955 and 1958 Conservative governments had managed increases of 25 per cent in the basic rates. Labour’s increase was less than 20 per cent.

The standard rate (i.e. what a single man gets) had been last fixed by the Conservatives in March 1963 at £3 7s 6d per week. Between that date and March 1965, as measured by the Retail Price Index the purchasing power of the pound decreased by ten per cent, and the real value, of the 1963 standard rate had decreased, therefore, by 6s 9d. The Labour Government, by increasing the standard rate by 12s 6d, in fact added only 5s 9d per week to the real value of the level of benefits thought adequate by the Conservatives in 1963.

Of this 5s 9d, 3s 1d has now been swallowed up by inflation between March 1965 and February 1966. So that those who depend on social security benefits are now in terms of purchasing power no more than 2s 8d per week better off than they were in 1963. This modest improvement would in turn be completely eroded by a further 3 per cent fall in the value of the pound, and more than this amount of inflation is expected to occur before the end of 1966.

Old age and widow’s pensions are not affected by the National Insurance Bill of 1966, and for these groups the chances of a basic increase this year are very dim. So a couple of years of Labour rule will achieve the reduction of the standard of living of the widows and the old below the levels current in 1963.

In any case, as Tony Lynes has argued recently, the purchasing power of increases in social security benefit is exaggerated by using as a measure the retail price index relating to the expenditure patterns of all consumers; for example over 70 per cent of the income of single pensioners goes on food, housing and clothing. For the period 1948-61, Lynes found that his low income price index rose 50 per cent faster than the official retail price index.

The other changes effected in the autumn of 1964 were relatively minor. The lump sum Maternity Grant was increased from £16 to £22, but the £6 extra paid to a woman who has her baby at home was abolished. 77,000 ten-shilling widows had their pensions increased to 30s a week. The earnings rule for widows was abolished, but the earnings rule for retirement pensioners was retained unchanged.

With minor exceptions, apart from these increases in benefits to meet inflation, no changes were made in the pattern of the social security system.

Since increases in NAB allowances and retirement pensions were not to be paid before the end of the winter, Ministers felt they should do something immediate, so that ‘those whose health was most likely to be at risk if heating was inadequate were in a position to provide themselves with any extra warmth they needed.’ A single payment of £4 was made – enough to buy 4 weeks’ supply of coal to last for 16 weeks of winter. This donation was only given to old age pensioners on national assistance, plus a number of other NAB groups.

Apart from the increases in benefits to match inflation, no changes were made in the overall pattern of the social security systems. In particular, contributory benefits (widows, sickness, industrial injury, unemployment benefits, and retirement pensions) were left at a relatively low level compared with NAB rates. (The NAB rate for a child went up by an average of 4s; the benefit for the child of a man on unemployment or sickness benefit only increased by 2s 6d.) This meant an increase in the gap between the income level defined by the NAB as the poverty line, and the much lower maximum level of contributory benefits. Thus the government’s policy, so far, has been to increase the numbers of families directly dependent on the NAB for a subsistence income.
 

3. Poverty in Britain, 1964-66

In the social security system erected in the years after the war, the role of the NAB was defined in a quite limited way, as a safety net to catch any unlucky individuals who escaped the fine meshes of the contributory sector. It has turned out otherwise, since the general level of national insurance benefits has remained so low that no one can live on them without other private means; and thus for large numbers the NAB is an essential support. The average number of people being paid a weekly NAB allowance has risen from about 850,000 in July 1948 to nearly two million at the end of 1964. The total number who received payments from the NAB in the course of 1964 was 2,700,000 – and this figure does not include dependents. Despite these huge numbers, the NAB has no kind of general brief to prevent poverty, since it is not allowed to help people who are employed, nor their dependents. There is no government agency concerned with the poverty of the low wage earner.

Table 2 indicates that about 75 per cent of payments made by the NAB are to people getting national insurance benefits. Apart from rent, the Board considers that a single man needs £3 16s a week (rate current since 1965) and a married couple £6 5s 6d to live at a minimum standard of subsistence. Since national insurance benefits are currently set at £4 and £6 10s respectively and rent has to be found from this weekly sum, it follows that no pensioner or unemployed man can achieve subsistence unless either he can find a house at four shillings a week rent, or has other means. The proportions of households receiving contributory benefits of various sorts who during 1964 were obliged to rely on die NAB as well, are as follows: [2]

• 20 per cent of all households depending on Sickness Benefit
• 23 per cent of all households depending on Widow’s Benefit
• 30 per cent of all households depending on Retirement Pensions
• 36 per cent of all households depending on Unemployment Benefits

Some NAB awards are made to help families through short periods of financial difficulty, but most have to be made on a regular basis over long periods. Of all NAB dependents in December 1964, 63 per cent had had weekly allowances for die previous three years, 48 per cent for the previous five years. 80 per cent of all retirement pensioners had had a weekly allowance for at least the two previous years.

Such weekly allowances are not enormous – for example, 56 per cent of allowances made to pensioners in 1964 were less than £1 a week. The Board is also able to make additions to die minimum rates for extra needs, e.g. special diet. 70 per cent of pensioners on NAB needed such additional payments, but die average amount given in this way was only 9s 6d a week. Despite the enormous numbers of people dependent on the NAB, the amounts it provides to each one are so small that the total expenditure of the Board in 1964 was only £239 million – 11 per cent of total social security expenditure. The other main group who depend on NAB are those who have to apply for National Assistance because no other part of the so-called universal Welfare State meets their needs. Such groups are created by the operation of the contributory principle which has dominated the structure of the Welfare State since its inception in die late 1950s. The pension, sickness benefit etc. which a person is given is determined not by need but by the number of National Insurance stamps he has paid for. Thus, for example, one in 24 of old age pensioners were not given the full pension increase in March 1965, because of insufficient contributions. There are still about 250,000 retired people who get no State pension. In 1964 there were in addition 81,000 pensioners (now aged 90 and over) who get a pension of no more than 28s 4d a week – and 40 per cent of them get less. A Ministry of Labour survey in August 1965 indicated that 108,000 of the 227,000 men then unemployed were not receiving unemployment benefit – either their contributions had been insufficient, or their period out of work too long. Apart from National Assistance no provision is made for the chronic sick, those who have not worked long enough to become entitled to sickness benefit, or who have exceeded the time limits for the award of sickness benefit. The present Government are just as fervently attached to the contributory principle as were their predecessors.

What must be emphasised is that though the basic level of national insurance benefits and NAB allowances was raised by the Labour government in 1964, no other changes have yet been made in either the role or the administration of the NAB. There is no reason to suppose that the numbers forced to apply to the NAB or their treatment by the NAB is any different today from 1964, The elaborate personal investigations by the NAB which precede the award of benefit are to continue. Nor – and this is even more depressing – has the Labour government done anything to improve the condition of those, not yet discussed, whose standard of living is still below the NAB minimum.

On 23 September 1964, Wilson told the country in a TV election broadcast:

‘What we are going to do now – we are going to do it early because it is urgent in the first few weeks of a Labour Government – is to provide a guaranteed income below which no one will be allowed to fall.’

During the past 18 months the minimum income guarantee has been referred to occasionally by Labour leaders, in a diminuendo way, and the latest word is mat it will now be 1970 at the earliest before the guarantee will be introduced. Whether, or not the guarantee would have made much difference to anyone’s standard of living has never been clear, since at no time was even a hint given about the income level that would be chosen as minimum. The last two Labour election manifestos were menus that scarcely mentioned the food.

There is, in fact, at present, an official minimum income established by Labour’s increases in NAB rates in early 1965. A single person now gets £3 10s a week, plus an average of £1 4s for rent – i.e. £5 a week. A married couple with children would get £8 2s plus £1 2s 6d for each child under five, £1 7s for a child age five to eleven.

It is known that large numbers of people have total incomes which are less than these minima. How many exactly is not, known – nor have the Government yet made any serious effort to find out,

Four main groups have incomes below NAB minima:

1. Non-applicants: those who would be entitled to NAB payments but who do not apply. The Government did conduct a survey in 1965 to establish the numbers in this category. The survey was restricted to retirement pensioners, and the number of unemployed, sick, widows, not applying remains unknown. It was found that about 700,000 (11 per cent) of all pensioners had incomes below the NAB minimum level, but kept away from the NAB. This figure may well be an underestimate. Abel-Smith and Townsend, using Ministry of Labour statistics, have calculated that there must have been about one million pensioners who were qualified by need but did not apply to the Board. They also believe that there are another half million people dependent on State welfare other than retirement pensioners who are similarly non-applicants.
    
2. Low Income – Large Family. The NAB gives no money to a man who is employed, and if his wage is low and his family large, it is very likely that he will be getting less in work than the NAB scale for his family size. It was reported in the Commons (20 July 1965) that between 150,000 and 250,000 families were in this position. (The vagueness of official poverty statistics is only equalled by the inadequacy of information about the wealthy.) The average number of children in these families is probably something over three. This means that between 450,000 and 600,000 children in Britain live in homes that cannot afford what the NAB considers essential: – even when the breadwinner has work.
    
3. Wage stop victims. Both Conservative and Labour governments in this country have an obsession about weakening the incentive to work. The system is, therefore, adjusted so that if the sickness or unemployment benefit plus national assistance were to amount to what a man had been earning at work, corresponding deductions are made to the NAB supplement. Figures are available only for the unemployed – 14,840 families were wage stopped in September 1965 (children affected, 59,000). Men on sickness benefit are similarly affected – but their numbers are not known.
    
4. High Rent Category. Families in privately rented accommodation may not have their rent fully met by the NAB because the Board thinks their rent too high. This limit affected about 20,000 households at the end of 1964 (60,000 children at least). People buying their own house on a mortgage are given enough per week for rates, repairs and mortgage interest – but nothing for capital repayments.

Ann Lapping [3] has quoted as an example a man earning £10, with rent £2 10s, three children between five and eleven years and three between eleven and fifteen. His £10 a week is £5 9s below the NAB minimum for such a family. If he became unemployed or sick, the NAB would limit its grant to £9 5s, i.e. £6 4s below its own minimum.

The above figures assume that the NAB minimum income includes the basic allowance, plus rent. In fact, the Board also makes numerous small additional payments for special needs, which effectively raise its minimum by about ten shillings a week. Also, figures (as above) from official statements are suspect since no Ministry makes itself responsible for investigating poverty. Abel-Smith and Townsend have recently made a painstaking calculation which established that:

‘... in 1960 approximately 18 per cent of the households and 14.2 per cent of the persons in the United Kingdom, representing nearly 7,500,000 persons, were living below a defined "national assistance" level of living. About 35 per cent were living in households primarily dependent on pensions, 23 per cent in households primarily dependent on other state benefits, and 41 per cent in households primarily dependent on earnings.’ [4]

Their numbers will be no less in 1966. The Labour government raised the money value of the NAB minimum; they have, as yet, done nothing to decrease the numbers who fall below that minimum. The NAB is shortly to be abolished, but only in name. Its functions will be continued by the new Ministry of Social Security. The NAB Means Test will probably continue to operate in much the same way. Until they achieved office, the Labour leadership intended to use the income tax return to identify those in need. The proposal is now abandoned; it seems that income tax returns are too confidential to be entrusted to another Ministry. Need is now to be established by a special income return. The Means Test system is to be diluted. There will be investigations to establish that people make an honest return – but at least people will not need to apply for assistance – and the Ministry has promised that officials will make fewer routine home visits,

The Government is not, at present, proposing to stop the wage-stop. Given Ministerial obsessions about the need to compel people to work, they could escape their dilemma by raising the wages of lower paid workers. This is not in their minds. Even the minimum income guarantee, promised in 1964, had they been going to introduce it before 1970, would not have applied to incomes of people employed.
 

4. The Financing of Labour’s Welfare

The increases in social security benefits introduced in the autumn of 1964 required that in the year 1965-6 an extra £332 million had to be found for the National Insurance scheme, and an extra £23 million from the Exchequer for the NAB.

They decided to raise 80 per cent of the £332 million by increases in the flat-rate contributions made by means of the National Insurance Stamp. From April 1965 employees paid an extra two shillings a week, and employers an extra 3s 6d. (The employee still pay more – 13s 8d compared with employer’s 12s 11d.) The remaining £67 million is being provided by the Exchequer out of general taxation. In choosing to raise most of the money by increases in flat-rate contributions, the Government were only following a pattern well established by their predecessors in office. In 1951, about 38 per cent of expenditure from the national insurance fund was directly financed by the Exchequer; by 1964 the Exchequer contributed less than 16 per cent. The Labour government has halted, but not reversed, this swing from a more to a less redistributive way of raising its welfare revenue. It is significant that the present administration – as did the Conservatives before them – have instructed the Government Actuary, high priest of the insurance principle, that he should allow for a Treasury contribution of no more than 16 per cent per annum right up to the year 2000.

In his budget of November 1964 Callaghan had to arrange for the Exchequer to find an additional £130 million for welfare in 1965-6 – the only significant items being the removal of prescription charges, NAB increase and the contribution to the insurance fund mentioned above. Only one of the fiscal changes made by Callaghan directly affected the distribution of income – his decision to raise the standard rate of income tax from 7s 9d in the pound to its present level of 8s 3d. The product of this tax was expected to be about £122 million in a full year.

The child allowance (£115 of income, tax free, for each child below age 11) was not increased, and thus there was no distribution from childless taxpayers to men with families. The minimum income below which tax is not levied was reduced by about £8 a year (the personal allowance went up by £20 a year, but national insurance contributions were no longer to be tax free; at new contribution levels this meant an addition of £32 a year to the taxable income of employed workers). So long as the minimum income level at which one starts paying tax remains virtually static, the effect, in a period when money incomes are increasing rapidly, is to bring an increasing proportion of wage earners into income tax paying categories, for an increasing percentage of their income.

Callaghan’s first essay in fiscal welfare was not wildly re-distributive, and he has to date made no further changes in the income tax system. After 18 months of Labour rule, the rates and incidence of surtax remain at the levels to which they were reduced by Selwyn Lloyd in 1961. (In 1961, surtax brought in £237 million – in the year following, only £161 million despite interim rises in average income levels.)

Since the decisions of the autumn of 1964, no further major expenditure on welfare has been proposed for finance out of general taxation (apart from £21 million for Crossman’s rates rebate scheme). The redundancy compensation scheme of 1965 is to be paid for by a levy on employers, the graduated benefit scheme of 1966 by a levy on employers and employees, with no Treasury contribution whatsoever.

The most recent, and very careful study, of income distribution in Britain is by J.L. Nicholson. He concludes that:

‘there appears to have been little increase in the amount of vertical redistribution between 1937 and 1959.’ [5]

Unless the government change their fiscal policies, his conclusion may well be valid for 1970 as well.
 

5. The New Graduated Scheme

The National Insurance Bill that was wending its way through Parliament in February 1966 introduces the first stage of Labour’s new deal in welfare.

What is proposed is that a wage-related supplement (to existing flat-rate benefits) amounting to one-third of that part of average earnings between £9 and £30 a week should be paid to men who are off work because of sickness, unemployment or industrial injury. Thus a man who in the previous year averaged £10 a week will get 6s 8d a week extra, a man who earned £30 a week will get £7 a week extra. All insured workers are to be in the scheme, and to contribute half a per cent of that part of their income between £9 and £30 a week; employers match the contributions made by their workers.

The original undertaking of Labour’s 1964 manifesto was that wage-related benefits would be quickly introduced for pensions as well as other social security payments. It now turns out that wage-related pensions will not be introduced before 1970. Widows figure in the new scheme, but only as regards the once and for all allowances paid in the first 26 weeks of widowhood (before this Bill they got an allowance for only 13 weeks). There will be no wage-related supplement for long term widows’ benefits till 1970. In choosing to begin with sickness, unemployment and industrial injuries benefit, they have picked out the less expensive part of the system, amounting at present to only 25 per cent of total national insurance expenditure. (Old Age Pensions take 72 per cent.) Second, since only a small percentage of the labour force is unemployed, sick or industrially injured at any one time, or dies before the age of retirement leaving a widow, it is, therefore, easy to organise a self-financing scheme for these groups, in which contributions match payments according to the strict insurance principles which Labour governments like to build into their welfare schemes. The Bill also represents exactly the kind of welfare which capitalism approves (a) because it involves no redistribution of income, and (b) because if the State arranges for additional payments during periods of unemployment or sickness, it is less imperative for private industry to extend cover beyond the half or so of the labour force at present provided for in occupational schemes.

The proposal for wage-related unemployment benefits was enthusiastically welcomed by The Economist, in the interests of labour mobility – though it suggested the dropping of the sickness part of the scheme, as not leading directly to economic growth. There are a lot of nasty little twists built into the new legislation, and the principles they represent are worth a close look, because we are promised a whole new social security system something like this when the major review takes effect at the end of the decade.

To begin with, no supplements will be payable for the first twelve days off work – Sundays and holidays do not count. This will mean a lot of flat-rate sickness. According to a Ministry of Labour survey, in 1965 four and a half million people were off work because of sickness for spells of less than two weeks (cf. three and a half million for longer spells). The supplementary benefit will only last for six months. (In 1965, 162,000 had been sick for more than half a year.) From six months onwards, it is back to the flat-rate only – and the NAB. Periods of sickness or unemployment not separated by more than 13 weeks are treated as one period, so seasonal workers are rarely going to touch supplementary benefit.

Workers who are temporarily laid off are to get no graduated supplement for the first six working days thereafter; and the Bill provides that from 1969 onwards they will get no flat-rate benefit either for these six days. This change is postponed till 1969, the Minister says, to allow time for workers to persuade their employers to make provisions for short-time working and the first week of lay-off. But there is to be no legislation to compel employers to do so.

The amount of the supplement is established by total earnings in the previous year; so if a worker was sick, unemployed, or on short-time in the previous tax year, his benefits in the current year will be correspondingly reduced. This would also apply if he had a holiday in the previous year, but was not paid in the holiday period.

Graduated benefits in the new scheme are related to earnings, not to need. A single man on a given wage will get the same as a man with the same wage, and a family. The one exception to this rule is that the married man with a large family may get less. The principle of wage-stop is built into the new scheme, which restricts the payment of graduated supplement, so that no one will get more than 85 per cent of his average weekly earnings while sick or unemployed. Thus, for example, the man averaging £12 a week with two children will be entitled to a supplement of £1 a week; if he has three children, he will get 14s a week; if four children, 8s; if five children, not a penny. The sacredness of the contributory principle is not proof against the deep conviction that people have to get a lot less money when sick or unemployed than when at work.

The Government appear to feel that in not pitching the wage-stop ceiling any lower than 85 per cent they are being very bold and idealistic. In a Ministerial speech on the Bill, Pentland said:

‘Of course the Ministry is well aware of the identity of the small number of claimants who are referred to as malingerers. They claim benefits frequently for trivial illnesses and injuries, but their claims are investigated and they are examined; we take steps to check their incapacity for work. It should not be assumed that they receive benefit every time they claim. Therefore, while the risk of doubtful claims has to be borne in mind, it would be wrong to think that the supplement with the twelve day waiting period and with the 85 per cent benefit ceiling is likely to create a new large problem. For any cases which do arise, as I have said, the Ministry has a regular system of control.’ [6]

There are one or two aspects of the new Bill which have not been emphasised by the Ministers responsible. The level of contributions is set at a certain percentage of income; whereas benefits are established in terms of so much money per week. Thus contributions rise automatically as the purchasing power of the pound declines and the money value of earnings rises. But benefits fall with inflation and their real value would depend on specific Government decisions to increase benefit rates correspondingly. This fact amply justifies the proud Ministerial claim that the scheme will be self-financing, and will not require any contribution from the Treasury. This has the effect of removing one of the two possibilities for building in a redistributive element into the scheme, since the higher income groups tend to pay a relatively higher proportion of their incomes in general taxation into the Exchequer. Nor is there any redistribution within the scheme; a person will receive benefits whose size is exactly determined by his contributions.

The new graduated system also applies to the industrial injuries scheme, and there is also to be an increase of £3 a week in the allowance for exceptionally severe disablement. On the other hand, the Government are no longer to pay industrial injury benefit for the day of the accident. Herbison says the change will mean the loss of a day’s benefit in up to 600,000 cases a year. To counterbalance this, however, the Minister announced what she called ‘an upward revision of the scheduled assessment for certain leg amputations between mid-thigh and the knee.’ Presumably the rest of the leg amputations will get their increase in 1970.

6. Conclusions

As Table 3 indicates Britain is now lagging far behind many other European countries in social security provision, though information is lacking on the key question of how far European systems are redistributive in structure. The employer usually pays a much higher percentage of total social security costs than in Britain – e.g. 72 per cent in Italy, 69 per cent in France, 41 per cent in West Germany, 21 per cent in UK. But employer financed schemes need not be redistributive if wages are kept correspondingly low and/or social security charges are added to prices rather than subtracted from profits. Modern capitalism likes welfare schemes.

However, the scope of Continental schemes is impressive compared with those in Britain. Retirement pensioners here are not to have a wage-related scheme before 1970, and unless present policies change, pensions will be fixed in money terms at a proportion of earnings during working life, and will not change after retirement. In an inflationary economy the only kind of of pension worth having is one which will rise as the purchasing power of the currency falls. Sweden and Germany are now introducing such ‘indexed’ benefits. They are regarded by Labour leaders as hopelessly utopian.

It would be possible to increase social security expenditure by a vertical redistribution of resources – e.g. by the use of fiscal techniques to decrease level of benefits relative to premiums in the private insurance sector, and/or by cutting living standards of the higher income groups. But social security on the European scale would scarcely be possible (short of socialism) except by cutting the living standards of the middle income groups as well. It is not clear the extent to which a majority of workers would want, if given the choice, to spread their income more evenly over their life-span.

The big welfare issue of the recent election was said to be universalism versus selectivism. In the campaign this was mostly shadow boxing, since Labour do not intend to abolish non-contributory benefits (i.e. NAB) which is the major selective part of the social security system; nor did the Tories intend to award pensions only to those in need. The key immediate issue, redistribution, was not discussed by the politicians.

Labour leaders seem convinced that the financing of welfare expansion out of economic growth, rather than by redistribution, offers a rapid as well as a politically frictionless road to socialism. This is an element of official party ideology that badly needs demythologising. A GNP of £32,000 million (1964 value according to the Plan) increasing at an annual rate of two and a half per cent would produce about £80 million extra in real terms for social security in each of the first few succeeding years (assuming that ten per cent of the total increment from growth could be put into the social security sector). This would be enough, in a given year, to increase old age pensions by five shillings a week – i.e. an increase of only six per cent over current levels of benefit – or to give widows half as much again as they get at present or to increase family allowances by five shillings a week. The Labour Party, if it ever took to giving precise undertakings to the electorate, would blush to promise so little. Though at least these are increases in real terms, and another £80 million extra would be forthcoming in the succeeding year. But it is not hard to think of ways of producing a lot more than £80 million a year by redistributive taxation. For example, only to revert to pre-1961 levels of supertax would increase Exchequer income by more than £60 million.

The only kind of redistribution so far practised by the Labour government is at the expense of the larger family and in favour of small households. In 1964 social security benefits for a single person and married couples rose by 20 per cent; the weekly allowance per child was increased by only 12 per cent. The government have retained unchanged a fiscal system in which the combined effects of tax-free child allowances and family allowances are such that a man earning £10 a week with four children gets eight shillings per week per child. A man with the same size family and £30 will get 21s 8d per week for each child.

No change is contemplated in the system whereby a vast bureaucratic effort (40,000 people work for the Ministry of Pensions, plus an expensive computer) is invested in maintaining a record of every weekly contribution made to the national insurance scheme by every employer and employee in the country for the whole of their working lives. When contributions are judged to be deficient, or a particular need not met by the contributory scheme, and because national insurance benefits are recognised as inadequate anyway, the NAB (employing 13,500 people in 1964) provides an investigating service, and hands out shillings and pound notes according to an intricate set of regulations.

Meanwhile, the Labour Party in the last two elections has preached a gospel of universal welfare, which in practice makes nonsense of their aims to establish any kind of adequate minimum income. Suppose the basic social security payment for a single person was to be £8 a week. At present differentials, this would mean £13 a week for a married couple and £2 a week per child. Universalism implies the provision of such payments to everyone who retires, is unemployed, widowed, etc., irrespective of need. Such levels of benefit would increase total government income and expenditure by 20 per cent – £2,000 million a year. In the immediate political context, the whole project is mere fantasy.

This is the argument of the Tory party, and at least it is honest. If the Labour Party want to make their present Welfare State do its job, then they must identify those in need by the least stigmatising method they can devise, and establish a high minimum income level on a redistributive basis. The present ‘universal’ pattern would only be socialist in a socialist society.

If they feel committed to universalism as a slogan they could redefine it to mean incorporation of the private insurance sector into the State scheme. The private sectors in education and health are negligible in size compared with the massive concentration of resources in the private insurance sector. In 1960 British insurance companies held assets worth over £7,000 million and were raking in premiums to the tune of £1,500 million a year. (In that year National Insurance contributions totalled only £795 million.) The scope for economies of scale must be enormous, given the elaborate arrangements for pseudo-competition by advertising, high pressure sales techniques, the duplication of administrative functions. Insurance rests precisely on the reduction of relative costs by the spreading of risks as widely as possible. For this purpose the private insurance sector is hopelessly fragmented.

Anything worthwhile that the Labour Government could do in welfare would involve a confrontation with powerful interests. Their present welfare policy was accurately summarised by Douglas Houghton in a statement to the House on 23 February this year:

‘We are now engaged in an urgent study of the whole problem and have been for a long time.’

Footnotes

1. The National Plan, 1965.

2. Calculated from Annual Report of the Ministry of Pennons for 1964.

3. New Society, 9 December 1965.

4. Brian Abel-Smith and Peter Townsend, The Poor and the Poorest, London 1965, p.49.

5. J.L. Nicholson, Redistribution of Income in the UK, London, 1965.

6. House of Commons Debates, 7 February 1966.

7. OEEC, Statistics on Finance, 1960.

 
 Top of page

Jim Kincaid Archive   |   ETOL Main Page

Last updated: 24 April 2010