The nagging doubt of the benefit: Polly Toynbee doesn't need the Government's money, but wonders whether John Smith's Commission on Social Justice will target the people who do

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The Independent Online
The Department of Social Security has just paid out the annual pounds 10 Christmas bonus. This I know because when I went down to the post office on Saturday morning with my two benefit books, there it was, quite unexpectedly, added to my pension as a widowed mother. A nice surprise, but again it raised the question of why the state should pay me pounds 123.53, plus pounds 17.45 child benefit, plus my pounds 10 Christmas bonus, when as a well-paid journalist I plainly neither need nor deserve any of it?

I find the policy particularly hard to justify, because I have just spent several days interviewing families living on income support who will be struggling through Christmas, incurring debts that will extend for months ahead. I pay tax on the widow's pension, though not on child benefit, but that still leaves me with more than pounds 91 a week from the state. Recent calculations by the Institute of Fiscal Studies suggest that between pounds 12bn and pounds 15bn a year is paid out by the DSS to people like me who do not need it. That is almost half the annual cost of the NHS.

Most of that money is spent on old age pensions for people living well above income support levels. Fifty years ago, when Beveridge set up the National Insurance system, to be old was almost certainly to be poor. That is no longer true. Among the recently retired, the top 40 per cent have private and company pensions, which take them well above social security levels. The top 20 per cent receive pounds 230 a week or more, and people are retiring into ever better circumstances. The poorest pensioners, however, have only the state pension, which in most cases is so inadequate that they qualify for income support. Thus two pensioners standing side by side at the post office counter may end up receiving exactly the same sum, even though one has worked all his or her life and paid contributions, while the other has never paid in a penny. The state pension therefore makes a difference to those not classed as poor - not what Beveridge had in mind.

Of course, there is a large group of pensioners living just above income support level who do need their pensions. But if pension money were to be redistributed, and income support levels raised, the threshold would rise to include as many of these people as the government of the day might choose. Even now, the cost of providing benefits as of right, to save the face of those too ashamed to apply for charity from the state, is phenomenally high. If the tax and benefit system were integrated, so that everyone filled out the same form each year and gave or got according to need, that would go a long way towards finding those missed by present targeting policy.

With child benefit it is much the same story. It costs pounds 5bn, and does nothing to help the growing ranks of very poor families, whose income support is reduced by the amount of child benefit they receive. Now that more than 60 per cent of mothers with children under 15 work, it is far less true than before that women and children have no other source of income if fathers fail to hand over their pay packets. With twice the number of children now growing up on income support as a decade ago, the need for more help for the poorest is overwhelming. When I recently interviewed mothers at a post office as they collected their child benefit, the better-off women were surprisingly uncomfortable about the money, and said they used it for a variety of strange purposes - one had saved up to buy a painting, another reported sponsoring a poor child in Brazil.

The National Insurance system always was a political fiction. There never was a fund into which people contributed as they would into a private fund. So no one ever had a right to draw from it according to what they had paid in: payments depend on the whim of the government of the day. It is a hypothecated tax, earmarked, people think, to pay for sickness, pensions, unemployment benefit and the NHS. In fact it pays for only 10 per cent of the NHS, and the Treasury currently tops it up by 20 per cent.

The Treasury is said to be ambivalent about it. On the one hand, it never likes to give up a tax base. On the other, it opposed it from the start on the grounds, more than amply proven, that earmarked taxes always run into trouble and it would be far simpler to run it from general taxation. Keynes, who was a Treasury official when National Insurance was introduced, predicted that it would be scrapped within 20 years or so and rolled up into income tax. Fifty years on, however, it is still there.

The most serious charge against the system is that it wastes ever greater sums on people who are not poor, while failing to do anything at all to help the very poor. It is also an unfair form of taxation as the rich pay proportionately less than the less well off. It never worked as Beveridge intended because he was never able to ensure that those who contributed ended up better off than those who did not. National Insurance benefits for old age, sickness and unemployment always fell below the National Assistance level of his day. Among the older generations there remains a deep and abiding belief in the value of National Insurance as a pillar of the welfare state, but it has become a curious and expensive adjunct to it. Among younger generations there is very little understanding of the contributory principle.

Politicians tempted to reform, let alone dismantle, the system, would be crossing an electoral minefield, though the prize to be won - that pounds 12bn or more to spend on other things - makes the dangerous journey enticing. It would mean taking the state pension or child benefit from the relatively richer to give to the poorer. It would mean adding 7p to income tax in exchange for abolishing National Insurance contributions, and because income tax is more progressive, that would also hit the better off.

At the election, both main parties came to regret the manifesto commitments they made to pensions and child benefit. Labour squandered pounds 3.3bn on promises to increase both, and none of that money would have helped the poorest or pensioners on income support. The Government promised to continue to uprate both benefits each year. Neither tackled the problem of the growing sums being wasted on the better off.

Labour's Commission on Social Justice, launched yesterday, will test where the mines are laid. Everything is open to discussion, even the sacred cows of child benefit and the universal pension. The Tories, meanwhile, will be standing on the sidelines watching gleefully, waiting for the explosions. If there are none, the Tories will be better placed to seize the prize for themselves and spend it on their own chosen projects before Labour can get there. One way or another, the creaking edifice of a near-fictional National Insurance system is unlikely to survive much longer in its present form.

The author is social affairs editor, BBC News and Current Affairs.

(Photograph omitted)

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