On the Andrew Marr show on 7 October David Cameron quite rightly put welfare reform at the centre of the Government’s plans to rescue the public finances. The government spends more on welfare than on anything else and it is simply not possible to fix the public finances without getting the welfare budget under control. Yet there is a major blind spot in the Government’s plans. The Prime Minister has continued to rule out saving money in the largest part of the welfare budget – that relating to pensioner benefits. As a Reform report released today shows, this is not only the wrong thing to do but is a political mistake.
Reform’s research looked at the welfare states in Australia, New Zealand and the United Kingdom. These countries provide an interesting comparison given their similar social policy traditions. They also provide important lessons – on what to do and on what not to do – for each other.
Australia has done the most to encourage a nation of savers and private contributions to services like healthcare. In the United Kingdom and New Zealand pensioners rely to a greater degree on the government for their incomes. A similar bias is present in their health systems, with both countries having relatively low levels of private health funding.
The Australian approach of encouraging people to make provision for themselves and their families provides real benefits. Private funding creates the space that makes public programmes affordable in the long run and lowers the risk of deficits returning and debts increasing. Emphasising the role of saving and products like insurance and equity release can also highlight the options that families have. They do not just have to rely on what the State provides but can make arrangements that reflect their circumstances.