A plan for contributory welfare

The welfare system has been losing public support. Duncan O’Leary argues for the return of the contributory principle – and has a plan for making it happen.

When it comes to welfare, the British public is gripped by irrationality, misled by elites and vulnerable to populism. That, at least, is the view of many on the Left who bemoan the decline in support for the welfare system in recent years.

As Frances O’Grady, the General Secretary of the TUC put it recently:

It is not surprising that voters want to get tough on welfare. They think the system is much more generous than it is in reality, is riddled with fraud and is heavily skewed towards helping the unemployed, who they think are far more likely to stay on the dole than is actually the case. …But you should not conduct policy, particularly when it hits some of the most vulnerable people in society, on the basis of prejudice and ignorance.

The Independent article carrying O’Grady’s comments was entitled Voters brainwashed by Tory welfare myths’, shows new poll.

This is a comforting story. Many would like to believe that there is nothing wrong with the welfare system itself, the problem is the misrepresentation of it. It is a communication issue, best solved by rigorous fact-checking, smarter political language and ‘reframing’ the debate on more favourable terms.The TUC hosted a conference with George Lakoff, last year, the American author best known for his work on how language influence politics. Ed Miliband has reportedly instructed his shadow cabinet to talk about ‘social security’ rather than ‘welfare’.

There is something in all this. The public do overestimate the generosity of benefits and the incidence of fraud. Media coverage is overwhelmingly negative. The National Statistics Authority has rebuked a cabinet minister over the misuse of official figures. But all this provides a partial explanation, at best, for plunging support for welfare in recent years.

One reason for this is that the public is not as misinformed as many would believe. As Bobby Duffy at Ipsos MORI has found, public overestimates of fraud can be attributed, in part, to how people understand the term. In focus groups, when people are asked what they would class as fraud, many include things like claimants not having paid tax in the past, or people having children knowing that the state will support them – neither of which would count in official figures. Government definitions of fraud are legal, while public interpretations of it are ethical. This does not explain all of the difference between official figures and public estimates, but it is far too easily discounted.

Ipsos MORI also find that the accuracy of people’s guesses improves when they have incentives to get the figures right. The explanation for this is that exaggerated estimates may be a result of people’s fears, rather than a cause of them. People overestimate as an expression of what they are worried about, aware, at least on some level, that they are doing so. The evidence also casts doubt on whether politicians and even newspapers are as influential as is often suggested. A study on benefit stigma for the charity Turn2Us found that the number of negative stories about the welfare system actually fell between 1998 and 2003/4 – the period in which support for the welfare system declined on a number of measures. The dominant media narrative on welfare may be negative, but this is nothing new. This demands we look elsewhere for explanations of why attitudes have changed sharply over time.

What has changed substantially is the welfare system itself, which has morphed from a social insurance designed to pool risk to one much more squarely focused on the needs of the least well off. The Institute for Fiscal Studies has chronicled the rise of means testing: excluding pensions around two thirds of welfare expenditure is now means tested, compared to less than a third in 1979. The corollary has been a decline in the role of the contributory principle, which defined the welfare system as an insurance policy, with some relationship between what people put in and are then able to draw out.

This change has been the consequence of decisions taken by governments of all stripes, from Mrs Thatcher’s decision to abolition of the earnings Related Supplement to New Labour’s expansion of tax credits and the Coalition’s government’s decision to time limit contributory entitlements to Employment and Support Allowance. Governments of the Right have tended to favour means testing in order to save money, while the urge to means test on the Left comes from the desire for greater equality. The cumulative effect of these changes has been a system quite detached from the reciprocal deal envisaged by William Beveridge and his contemporaries.

The realities of this shift from reciprocity to redistribution have been brought home to many during the downturn. Some people have found themselves relying on the welfare system for the first time in their lives, only to learn that the social insurance system they though they had been paying into entitled them to just £71.70 per week. Those with savings, or a partner in work would find their entitlements cut off after 6 months out of work. Those with good work records would not receive a penny more than anyone else.

Today’s welfare system is experienced both as miserly and profligate. When people come to rely on the system they find it inadequate, meanwhile growing numbers are convinced that money is paid out to the wrong people. The percentage of the British public in agreement with the statement ‘many people who get social security don’t really deserve any help’ has risen from less than 1 in 4 in 1993 to more than 1 in 3 in 2012. A majority of the public now agree that ‘if welfare benefits weren’t so generous people would learn to stand on their own two feet’, compared to a third agreeing with the statement in the late 1980s and early ‘90s. Welfare has become about ‘them’ rather than ‘us’: people fear they are paying into a system that provides little protection and subsidises the wrong behaviour in others.

The international evidence shows that those countries with the strongest contributory elements in their welfare systems have the most generous wage replacement rates and the most positive public attitudes towards welfare claimants. Austria, Norway and the Netherlands, for example, all have this combination. By contrast, nations with weak contributory elements, such as the UK and New Zealand, tend to have much less generous systems, coupled with more hostile attitudes. The reciprocal element matters enormously: we all have the capacity to sympathise with those less fortunate, but this kind of altruism only goes so far.

It is time to bring back the contributory principle, as a thread running throughout welfare policy. Unavoidably, this means a two-tier system, with higher entitlements for those with good work records. Demos has shown that, over the life of a parliament, Jobseekers Allowance (JSA) could be increased by around £20 per week for the 226,400 people who currently qualify for contributory JSA. This would be paid for by reducing spending on Support for Mortgage Interest (SMI) – a benefit for unemployed homeowners.Rather than the government pay people’s mortgages during periods of unemployment, people would be required to insure themselves (at a cost less than the average monthly mobile phone bill) against the risk incurred by the decision to take out a mortgage. The money saved – around £250 million – would pay for a two-tier system which would provide better protection for those have contributed regularly into the system.

The contributory principle should also be applied to the way people are treated when they interact with the welfare system.For example, those who have been in work for sustained periods should have a lighter touch relationship with job centres – unless they want otherwise – alongside more breathing space to find the job that is right for them. There is strong public support for a welfare system that comes with terms and conditions, but the state should recognise that some people have earned the right to be trusted.

Government should also look to reward contribution in other areas of welfare state. A 2012 TUC pamphlet, for example, suggested that government should provide contributions based benefits for the current period of statutory unpaid parental leave. The authors argued that such a move would make the leave more accessible, whilst reinforcing the value of a record of contribution. The money would need to be found to pay for the idea, but it represents a sensible longer-term goal.

There is also space to apply the contributory idea to other ‘in-kind’ benefits and services. Many councils have begun to follow the lead of Manchester, for example, in taking work records into account when allocating scarce social housing. This policy ought to have several benefits: reflecting a richer sense of fairness, building in greater incentives to work and reversing the disastrous trend towards ghettoising the unemployed in Britain’s housing estates. Councils will, of course, still need to fulfil their duty to prevent homelessness, but will weigh up contribution records when weighing up the merits of less urgent applications.

In reality, what most people want from the welfare system is not particularly complicated. People want protection when they need it and reassurance that the system will encourage the right behaviour in others. People can, of course be altruistic and sympathetic to those in need – but this cannot be relied upon on its own. A revival of the contributory principle would restore the reciprocity and sense of risk-pooling that characterises most insurance systems and used to feature more strongly in the welfare state. In the absence of this, all the efforts to fact-check or ‘reframe’ people’s opinions will be doomed to failure.