The 1945 Paradox

John Rentoul

200px William Beveridge D 17134 The 1945 ParadoxFrank Field is giving a speech tonight in which he suggests that austerity, paradoxically, offers the best chance of welfare reform. As Simon Landau points out, this recalls the Attlee government’s achievement in creating the modern welfare state at a time of austerity after the war.

Field’s big idea, which he has advocated for a long time, is to return to the principle of social insurance. Here is part of his lecture at Toynbee Hall, commemorating the 70th anniversary of the publication of the Report of the Inter-Departmental Committee on Social Insurance and Allied Services, by William Beveridge (pictured):

“Britain’s experience in the record period of growth after 1992, which was supposed to abolish the cycle of boom and bust cycle, goes someway to disprove the theory that simply throwing money around will somehow solve fundamental welfare reform issues. In the last decade £175 billion was spent on simply meeting needs.  This has resulted in the unstable welfare state that we have today.  By unstable I mean that it spends borrowed money (in the sense that tax receipts do not cover government expenditure) in a manner unsupported by taxpayers.

“Our current system discourages work, taxes savings and does not encourage the declaration of earned income. Voters, by contrast, are on the other side of the argument. They support the values of the good society and see welfare as one means through which such values should be reinforced.

“As Britain continues to age there will be greater demands made on health, community care, and pensions, to mention only the three largest budgets that will bear the strain.  On current trends, if no changes are made, the welfare and health budget will account for, by 2050, half of all government expenditure.  No government will be able to deliver this share. It means, for example, that, without tax rises, which voters oppose, governments, to meet the welfare and health bills, would be required to abolish defence, education and one other major government department’s expenditure to meet this outcome.  This is not serious politics.

“Here however lies the opportunity for fundamental welfare reform.  There is no way that any government will be able to persuade taxpayers to part with more of their reduced income to finance expenditure on topics decided by governments themselves.  On the other hand the electorate knows that it will become more vulnerable, both with respect to the need for greater health services and welfare support in the form of pensions, as life expectancy continues to grow.

“Here is not only the opportunity for serious welfare reform, but for a radical Labour party to seize and begin to forge the coming political agenda.  I believe it is more than possible to persuade voters to pay more towards health and welfare if it was promised that the sticky fingers of politicians would be kept off their funds.

“Here then is the opportunity to re-forge Beveridge in a form that would be as important for the 21stcentury as Beveridge was to the middle decades of the last century.

“But it will only be possible if welfare reform is offered in a format whereby contributors control their own funds.  The one part of welfare they most care about is the NHS.  So why don’t we transform our health service onto an insurance based model. Increased insurance contributions would be matched by tax cuts ( as most of the NHS expenditure is financed through tax revenue) and governments would be required to pay the contributions of the poorest who are shown to exemplify good citizenship.

“The move would have many advantages.  It would for the first time make a direct link between contributions and service provision.

“An insurance based welfare would also open the possibilities for settling the issue of long term care

“For any reform to be taken seriously, it will require the spelling out of the ownership of any new insurance scheme.  I have suggested before that the John Lewis Partnership offers a starting point for developing a model.  Contributors would thereby gain real authority over the safeguarding of their schemes but would be limited when it came to the sale of assets.

“Here is the most radical programme for reform which I believe is achievable during the decades of austerity that are to come.  The alternative is grim and involves continuing a poor law approach to both welfare and health.  That, as Dr Johnson might have said, ought to encourage the minds of politicians wondrously.”

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  • Pacificweather

    “There is no way that any government will be able to persuade taxpayers to part with more of their reduced income to finance expenditure on topics decided by governments themselves.”

    Which is why a transaction tax on non retail banking is such a good idea. Banks don’t vote! Silly me. They don’t need to, they just buy the politicians. Another good idea down the drain.

  • BenM_Kent

    Field says by 2050 welfare and health could take up 50% of all government expenditure.

    Er, it does already, more or less.

    Not the terrifying prospect Field tries to make it seem then.

  • frances smith

    benefits are too important as a buffer zone within the labour market, to be a political football, or to be part of some silly debate about what beveridge really meant.

    if we conveniently forget that the poor law had been in existence in this country since the 16th century and pretend beveridge did invent the welfare state, the point has to be made that the labour market that beveridge was advising on, with jobs for life, where in some towns everyone worked for the same company, no longer exists.

    people are more likely to change jobs more often, and move in and out of employment more frequently, working patterns have change.

    i fear that frank field is trying to change the past, rather than understanding the present and the future, and he isn’t up to the job, but then neither is duncan smith.

  • creggancowboy

    The only way the 1945 paradox works is by casting Blair as Hitler. Discuss.

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