There are two types of welfare benefit: universal ones, paid to everyone in a given category regardless of income; and 'targeted' benefits restricted to the poor by means testing. The basic state pension and child benefit are the main examples of universal benefits. Income support is one of a complex range of means-tested ones. Across the political spectrum, the logic of universal benefits is being questioned. One of the prime tasks of the fundamental review of public spending announced this week by Michael Portillo, Chief Secretary to the Treasury, must be to examine the case for directing more money at the genuinely needy and less (or none) at the relatively well-off.
Consideration should also be given to the integration of the income tax and benefit systems. If it is nonsensical to pay out money to those who do not really need it, it is no less absurd for those at the lower end of the income scale to be receiving benefit and paying tax at the same time. A favoured method of integration is through a 'negative income tax'. This concept, much favoured in the Seventies, would require everyone to make an annual statement of income to a single authority. If their income were below a certain minimum level, it would be made up to that level, then taxed as it rose above it. Progress towards this prodigious administrative simplification, which would also eliminate the ignominy of applying for means-tested benefits, was delayed by the need to computerise the Inland Revenue. It now seems to have been dropped as a goal. Although apparently outside the scope of a review of public spending, such a fundamental change could secure enormous economies and ensure that those daunted by the complexities of the present benefit system do not fall through the net.
Within the existing system the Government should aim not just for better targeting but also for greater flexibility in allowing those receiving benefit to earn extra income without benefit payments being clawed back. Under present rules there is in effect a marginal tax rate of 90 per cent on some of the lowest incomes, thanks to the malign interaction of the tax and benefit systems. This acts as a severe disincentive to people with little bargaining power, and helps to create the so-called culture of dependency.
In addition to the Department of Social Security, Health, Education and the Home Office are being asked to rejustify their spending. The NHS and schools have been in the forefront of reform for the past few years. The best hope of significant savings must lie in the area of increased efficiency, with bureaucracy a prime target. Yet asking bureaucrats to cut their own numbers is to invite an offence against nature. The Government's capping of local authority expenditure demonstrates the dangers: councils have generally been readier to axe popular services, such as libraries, than their own ranks.
Whitehall's officials are infinitely skilled in defending their own interests and territory. When their survival is at stake, they may even be prepared to make common cause. Ostensibly, they are the servants of a governing party that has been in power for 14 years. In reality, they have by now so bureaucratised their ministers that the latter have probably lost any initial feeling for where cuts could usefully be made.
The challenge to ministers is to come up with genuinely fresh ideas, even as Labour conducts its own commission on social justice. The resulting debate should be conducted in terms more considered and thoughtful than the usual knee-jerk reactions to new and challenging ideas. During the Forties, a consensus was formed over the shape of the post-war welfare state. With both parties now engaged in comparable reviews, is it too much to hope that a similar consensus might emerge over the evolution of the welfare state into the next century?Reuse content