By Thomas Cawston, Researcher, Reform
As the Welfare Reform Bill goes through Parliament, some commentators have questioned whether a recession is the right time makes changes to the welfare system. But it is precisely when unemployment is growing and government finances are collapsing that fixing welfare must be high on the agenda. The immediate challenges should not obscure how the true cost of Britain’s welfare system has been growing out of control for years and is in urgent need for reform.
Work and pensions is the largest single area of government expenditure, with more spent on welfare measures than health and education combined. But borrowing £175 billion next year won’t be enough to foot the forecast tax credits and benefits bill. As Britain enters an age of more for less, welfare spending is one area where less is more.
An honest appraisal of the welfare budget illustrates that modernising welfare to work schemes, while important, is not the biggest fiscal challenge. Designed to defeat the five giants of want, disease, ignorance, squalor and idleness, Britain’s welfare system now wastes tens of billions every year on providing benefits to the richest.
- Each year £3.2 billion is spent on free television licenses and other pension gimmicks. But a report from the Environment, Food and Rural Affairs Select Committee shows universal winter fuel payments are only needed by 18 per cent of recipients.
- Although pensioners are no longer the poorest in society, we still divert 55 per cent of welfare spending to a part of the population that is made economically inactive at 65.
- £12 billion a year is spent on universal child benefit, although a quarter of households with children have total weekly incomes above £1,000.
- The state spends £1.2 billion on subsidising loans to students mainly from a middle class background, despite the long term financial incentives for young people to enter university.
- Supporting the middle classes is the new raison d’etat sociale, and it can no longer be sustained.
Britain is now a middle class welfare state, where those on the largest incomes benefit from a system that was designed to insure a basic minimum. The safety net has become a tangled web of transfers, not because what of what we claim, but what we accept. A “money go round” that has spun out of control.
It is often claimed that universal benefit avoid the problems that arise from directed assistance, such as “means testing”. Unless spending elsewhere is reduced the money spent on universal benefits must come from taxpayers or from extra government debt. Taxpayers’ money is never free. This is a key lesson from countries, like New Zealand in the 1990s. Targeting is unavoidable to help the most in need, and with much welfare provision already means tested there is now no excuse for keeping the last relics of a universal system. This must be the first step in rebuilding a welfare system that can deliver innovative solutions to Britain’s persisting social problems.
Closing the fiscal deficit will require hard choices, but politicians are not the only ones who must judge what the state can still afford. Voters themselves need to reflect on what welfare society they want to live in. The option of maintaining lower taxes or continuing to take money we don’t need, is a choice all of us can make.
