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Towards a new welfare and social security policy

Andy Harrop, General Secretary of the Fabian Societyvisited 160 London Road to speak to members of the Kinston and Surbiton CLP about his new report which looks towards a new welfare and social security policy.

CLP Chair, Laurie South, reflects on the report, and how it can change the narrative.

Andy Harrop, General Secretary of the Fabian Society, has written a report on the potential for abolishing personal tax allowances and using this money as the basis for social security and welfare payments (Harrop A.All in this together” August 2016). We were fortunate in Kingston to have Andy speaking to us shortly after the publication of the report. This blog cannot address every aspect of the welfare and social security system but attempts to provide a basis for new thinking.

Between 1997 and 2010 The Labour Party did try, to a limited degree, to use the social security and welfare system, along with the tax system, to try and redistribute wealth. There were child poverty targets and tax credits to ensure people in work had enough to live on. Tax credits were an important innovation – using the taxation system to redistribute to the poorest - though it does now seem odd to subsidise workers because employers will not pay them a decent wage, which is what happened in a number of cases.

Over the last years since 2010, there has been an uneasy area of agreement between the political parties over Welfare and Social Security. The Tories, and during the Coalition the Liberal Democrats as well, under the political ideology of austerity and balancing the national budget, saw welfare and social security as a minimal safety net which should be reduced as much as possible and circumscribed with testing and sanctions. Although rarely put as starkly as this, the Tories had three assumptions:

(i)            there is a significant group of people who want, and are very happy, to use welfare and social security as a way of life and are thus unfairly piggy-backing on tax-payers (“skivers not strivers”):

(ii)          welfare and social security, unless it is at poverty levels, serves as a disincentive to employment, so people must be encouraged into work by ensuring that “welfare does not pay”: and

(iii)         under their austerity programme, welfare and social security for those under pensionable age is an easy, legitimate and morally justifiable target for expenditure reductions to balance the budget.

As well as capping payments and applying a variety of sanctions, the Tories have frozen benefits at current levels until 2020. This amounts to a reduction in the amount people in most need receive which is very significant.

Unfortunately, Labour only questioned the detail of the Tory policy, which was a harsher and more sanctioned-based development of Labour’s own policies as implemented when they were in government. It was easy for the Tories to argue that this was the same policy as Labour had pursued when in government but just a little more austere because the economy was in a bad state.

Labour appeared fearful of challenging the consensus that the Tories had created around their three assumptions. Labour’s policy was, therefore, to mitigate the worst excesses.

The problem for Labour was that they had no policy on welfare and social security which differentiated them from the Tories. Internal arguments in the Labour Party were about the injustices of parts of the Tory implementation of the system, the degree to which different groups would be penalised, and the affordability of the accepted welfare and social security system. Basically Labour was arguing for a humanised and sanitised version of the Tory policy.

Is it time for the Labour Party to give consideration to a radical system of welfare and social security which breaks the sterility of bickering around the fringes of an inequitable policy that has dominated the narrative of all parties and the electorate? Fortunately, the Fabians, part of the Labour family, have done much of the thinking in Harrop A. “All in this together” August 2016 http://www.fabians.org.uk/all-in-this-together/. Kingston & Surbiton CLP have been fortunate in having Andy Harrop talking about his work.

If we said everyone should receive a basic wage, what is the betting that the first reaction from the media would be “Labour borrowing money to give away” but they would, as is so often the case be blinkered and trapped in a narrow and exclusive thought train.

Political parties have vied to increase the tax free element that everyone receives claiming that this helps the poorest. Actually it is what the Fabian report calls a shadow benefit in that it provides an additional boost to the wealthier in society who need it least: it also helps the middle income. Unfortunately, it does little to help the very poorest who are lucky if they receive enough to pay any income tax.

Just as Tax Credits were a way of using the tax system to redistribute income to help the poorest, so the removal of the income tax allowance could be used to either:

(i)            help the poorest in society by funding a humane and redistributive welfare and social security policy: or

(ii)          provide basic wage to everyone over a certain age (calculated by the Fabians as £3,166 per person per annum or about £60 per week).

A basic wage has the merit that it removes the necessity for means testing. However it is unlikely that the removal of the tax allowance would provide a sufficient basic income for the poorest in society. Currently (2016/17) the personal allowance (i.e the amount on which you pay no income tax or your shadow benefit) is £11,000. Your Personal Allowance goes down by £1 for every £2 that your adjusted net income is above £100,000. This means your allowance is zero if your income is £122,000 or above. The corollary of this is that we might want to see the income tax rate raised for those over £122,000 or the cost of welfare would appear to fall on those earning between £11,000 and £122,000 a year.

The other areas of difficulty in social security and welfare is the housing allowance and the size of families. The Tories capped the amount of housing allowance payable and have frozen the benefit (along with other benefits) at current levels until 2020. The cost of renting privately is not uniform across the country: London in particular has very high levels. The implication of this is a need for a much more variable and flexible housing allowance, and a need for more housing particularly council housing. Similarly, those with more children have increased expenses and need more if we are to avoid child poverty.

Removing the shadow benefit of a tax free allowance means that the Labour Party will be building on Gordon Brown’s policy of using the tax system to redistribute income to the poorest and most in need. This is a very radical step and would need to be communicated very carefully since political parties have, in the past, used an increase in the tax free allowance as a measure of political machismo. Income tax has become characterised as the government taking our money. Treating tax relief as a benefit given by the government changes our perception and perspective. The removal of the personal tax allowances needs to be seen as a way of redistributing wealth and creating a more equitable society.

Perhaps such a policy, which will need to be supplemented by some kind of means tested benefits, needs to be introduced over a period of time. However, it removes the debate over levels of welfare and social security benefits from the sterility of arguing about what the country can afford to provide a decent standard of living for everyone in society.

Unless we want to continue arguing about levels of benefits we need to change the narrative and debate. The Fabian Report has offered us a way forward.

Laurie South

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