Benefits Street

Approximately 42% of the UK adult population (23 million out of 54 million) are in receipt of at least one state benefit. Of that number, a little over half (12.6 million) are pensioners, of whom 29% claim at least one additional benefit over-and-above the state pension. 40% of Universal Credit claimants are in at least part-time work. Across the UK, more than half of households are in receipt of one or more benefits in all regions bar London and the South East. While the composition of benefits has changed over time, e.g. the shift from unemployment to incapacity benefits in the 1980s and 90s, their incidence - i.e. who receives them - hasn't changed all that much. Demographic ageing has increased the number of pensioners as a proportion of the total, but among the working age population benefits remain concentrated among the poor (understandably enough) and the more deprived parts of the country. This has given rise to myths about inter-generational dependency, but the more accurate picture is of a national population that routinely moves between paid employment and welfare or that needs to claim benefits to augment low-paid work. 

The social history of the last century, from the Old Age Pensions Act of 1908, was marked by the steady expansion of welfare, not just in the broader sense of the provision of public goods such as healthcare, education and housing, but in the narrow sense of cash benefits. While the original pensions were non-contributory, it was the contributory principle that marked the ideological high-point of this expansion in the late-1940s with the reform of National Insurance. Thereafter, the growth of non-contributory schemes, such as National Assistance and Supplementary Benefit, would see the ideological frame of benefits shift towards questions of entitlement and abuse. The welfare reforms initiated by the Conservatives in the 1980s, and rebooted under New Labour after 1997, effectively conceded the end of the contributory principle as the central pillar of welfare, but instead of a frank acknowledgment that people should simply be given money to avoid destitution, in its place was substituted the moralising regime of workfare while welfare more broadly was subject to a culture of means-testing and bureaucratic hindrance.

The Covid-19 pandemic has led to many more people finding themselves in receipt of state handouts, such as the furlough scheme, but this probably hasn't changed the total number who will at some point in their life find themselves dependent on welfare payments, because that figure is already very high. What it has done is raise the question as to whether the state should simply respond to need. While there has been plenty of critical coverage of the government's poorly-managed and easily-defrauded business loan schemes, there has been little debate or media fuss about the deservedness of those in receipt of income support during lockdown. Similarly, it's clear that most people were sympathetic to the temporary Universal Credit uplift, and would support it being restored, not least because the proposed 3.1% uprating of benefits is clearly going to be inadequate in a year when inflation may touch 8%. The demand that the state protect consumers from high gas and electricity prices, particularly those already hovering above the poverty line and forced to make choices between heating and eating, is also close to universally popular.

This presents a challenge for a Conservative government committed to the free market. In a choice between direct market intervention and subventions, they will tend towards the latter for ideological reasons. Any gestures towards the former will be designed to maintain commerial relations, thus the proposed £200 discount on energy bills will be paid back through higher charges over the next five years, while the £150 council tax rebate is non-repayable. But this risks undermining another tenet of conservative philosophy, that people should not be dependent on state handouts, so those subventions must in turn be framed as exceptional and geared to virtuous behaviour, such as homeowning. The government's problem, which can also be seen in microcosm in its reaction to the P&O affair, is that the electorate supports direct market intervention, whether that be windfall profit levies or nationalisation of energy supply. It also believes that the government has a moral duty to protect the population from excessive price increases. This is a notable shift from previous decades when questions of morality focused on the legitimacy of benefit claimants.

The negative reaction to the Chancellor's recent budget statement has focused on the immediate increase in taxation (i.e. the previously-announced increase in the NIC rate), but what really distinguishes it is the disappearance of the activist government forced into existence by the pandemic. This is why the statement went down better with Tory backbenchers than the population at large. In terms of interest groups, Rishi Sunak's plan appears to be to get middle-earners back on board though the increase in the NI primary threshold and the cut in fuel duty, with his attention switching to pensioners next year when he presumably hopes to restore the triple-lock, ahead of a promised cut in income tax in 2024 just before the likely general election. What received less coverage were his announcements in respect of business, where increased reliefs on investment and the NI employment allowance for smaller firms were held up as steps towards addressing poor productivity growth, despite these being measures already tried on multiple occasions to little effect. In practice, these were simply reassurances that business is valued, which presumably is intended to head off any competition on that score from Labour's pro-capital turn.

Behind these short-terms tweaks and gestures lies a more significant secular change in the composition of welfare recipients since the 1970s. It's important at this juncture to understand that a welfare recipient is not just a benefit claimant. In a fiscal system centred on income and property taxes, any favoured group that receives a rebate or discount on their tax - for example, reliefs on investment or the employment allowance - is effectively a welfare recipient because they are being subsidised by other tax-payers. The term "corporate welfare" has gained currency over the last 50 years, but it might be better to speak of capital welfare given that one of the persistent features of the period has been lower rates of taxation on dividends and capital gains, which benefits the share-holding classes and homeowners. We can also see this capital welfare quite explicitly in housing benefit, where general tax revenues flow to landlords. Though claimants get the benefit of the housing, the property owner gets the benefit of the one cash welfare that has increased more steeply than incomes. 

This welfare is also extended to favoured groups in the form of employment income. The steady increase in the tax-free allowance on income tax and now national insurance, which higher earners receive the full benefit of, should really be seen as what the hardly-radical Fabian Society have taken to calling "shadow welfare". When these taxes foregone for individual income and housing (i.e. exemptions for CGT and VAT) are taken together at a national level, they amount to four-fifths of the total spending on social security and state pensions. The Fabians' Andrew Harrop correctly identifies what this startling fact points to: "The answer to the question ‘should the UK have a UBI?’ is that we already do, once tax-free allowances are taken into account. The ‘shadow welfare’ of tax-free allowances is a quasi-UBI, but one that excludes people who earn little or nothing: it is means-tested in reverse." But crucially, "When social security and ‘shadow welfare’ are looked at together we have a broadly flat-rate system, with middle and high income households being entitled to only slightly less than low-income households on average."

Where Harrop and the Fabians revert to type is in preserving the role of means-testing for all benefits beyond a "flat-rate universal allowance for each adult (evolving from today's tax-free allowances". In other words, they are arguing to formalise the current situation, in much the same way that they argue that national insurance should be merged with income tax and the myth that it is hypothecated for specific benefits or welfare services dispensed with. As ever with this argument, the unstated premise is that overall levels of taxation will not change, hence "While there is nothing wrong with the principle of universalism, it cannot be justified if it means resources are spread so thinly that those who rely only on state support must face extreme hardship". But this is a disingenuous argument given that the Fabians' own analysis shows that so much of "shadow welfare" is actually related to wealth, rather than income, such as capital gains, dividends and accumulated property. And if there is one stylised fact we know about fiscal policy during the neoliberal era, as detailed analyses by the like of Piketty et al have shown, it is that we have systematically under-taxed wealth.

Basic income is now clearly visible in the Overton Window of legitimate political discourse, but what matters in the UK context is less the idea than its reinterpretation within the history of welfare, hence the Fabians insistence that we have long had a de facto basic income that combines benefits for some and allowances for others. But the acknowledgment of this does not promise an end to the popular culture of beasting benefit claimants, simply because the discretionary benefits that the poor rely on will still be means-tested. In this regard, it's worth noting that the focus on benefit fraud long ago shifted from income to housing, hence the introduction of the "bedroom tax" a decade ago. Behind this is a wider defence of wealth and capital, hence the strong correlation in attitudes between support for the bedroom tax and opposition to inheritance tax. The framing of basic income as the logical evolution of a parsimonious dole merging with tax-free allowances is an essentially conservative reading. It not only occludes the role of wealth in the growing inequality of the last 45 years, it also closes down any discussion of UBI's emancipatory potential, and I suspect it is the latter that most attracts the Fabians.