Norman Warner: will a new Beveridge emerge?

It is nearly 70 years since William Beveridge set out his proposals for vanquishing the five giants he identified as haunting Britain – want, disease, ignorance, squalor and idleness. Even in today’s challenging times, few would argue that these giants stride the land, although Wagnerian versions of them do seem to have secured much of the treasure. Or have the giants, like bacteria, simply mutated and become resistant to Beveridge’s social antibiotics? If so, is there a doctor in the house?

Beveridge’s remedies have certainly had a profound impact on post-war Britain. A massive blow to ignorance and idleness has been dealt by universal access to education for much longer periods of time, together with Keynesian economics and near-full employment. These measures, along with new social housing and expanded owner occupation, have done much to reduce housing squalor. As have the development of an expanded range of social security benefits for child support and periods of sickness, disability and unemployment. State pensions and the expansion of occupational pensions (now becoming less affordable) have done much to reduce poverty in old age. And the National Health Service has, along with these other social improvements, helped us both to live longer and cope better with episodes of acute illness.

Although Beveridge’s welfare state has served us well, it was designed for a different time and a set of social, economic and political assumptions that no longer holds good. We no longer face the rebuilding of our society after six years of world war following a decade of high unemployment. In the 1940s and 1950s, we could earn our living with a totally different industrial base that provided lots of unskilled and semi-skilled jobs for a largely male workforce. We still had an empire that would take our goods. Mainland Europe was in no state to challenge us economically, and nor could Asia, Russia or Latin America. National governments were able to largely call the economic shots in their own country; and could make promises to their citizens that they could usually deliver with Keynesian policies and a flexible exchange rate.

All this made it easier to achieve an implicit social contract between the state and the citizenry. Beveridge’s giants were put to the sword by a comprehensive range of social support services, funded by the state on a basis of general taxation, and collective risk pooling. The political Left always favoured this more than the political Right, but there were sufficient Disraeli one-nation Conservatives for this social contract to survive. It was also facilitated by long periods of economic growth, with women joining the workforce in greater numbers, and the ability of both the state and individuals to borrow increasingly large amounts of money at relatively favourable interest rates. Despite occasional economic blips, the social consensus underpinning Beveridge has held – until now.

We have now a confluence of events and circumstances that suggest the Beveridge social contract is unravelling, and will continue to do so. What’s changed? For a start, the day of reckoning for the borrowing has arrived and it’s payback time. The rest of the world has caught up with the West economically, and is in the process of overtaking it. Our goods and services have to compete in tough global markets, where labour rates and new technologies make some of our products uneconomic. Other competitor economies have the same skills or better – maths and science qualifications is a good example – than much of our workforce, which needs re-skilling quickly. We chose to consume, rather than invest, our sources of wealth like North Sea oil; and became over-dependent on a financial service sector that overreached itself with our willing agreement. So the giants of ignorance and idleness threaten again in a new guise, especially for our younger population.

Beveridge and science has helped us all live longer, but our working population is shrinking in proportion to our non-working population. So there are fewer people to keep us older folk in the style to which we have become accustomed. We are not yet used to the idea of working longer, or spending more of our accumulated assets on our care, rather than holding on to them for posterity. We have become accustomed to the state providing services from a tax base that is shrinking relative to the demands made upon it. As a citizenry, we are reluctant to allow our governments to collect more from us through taxation or contributions, but expect services to do more for us and to do it better. Too many of us lead a lifestyle that piles demands on our healthcare system. If forced to choose between what JK Galbraith described as private affluence and public squalor, we seem increasingly willing to favour the former and make the latter inevitable.

The social consensus that underpinned the Beveridge welfare state is breaking up, if it has not done so already. David Cameron talks bravely about a “Big Society”, and that “we are all in this together”, but the public mood does not suggest he has convinced that many people. As in the United States, the wealthiest top 5 per cent in Britain have acquired an increasingly disproportionate amount of the national wealth and income. The middle class, who largely funded Beveridge’s changes, have seen their share of the national income shrink – again as in the US. “The squeezed middle” has joined the political lexicon and discourse. This shift of wealth and income has been happening for some time: in the US, middle individual incomes have been pretty much static in real terms since the late 1970s. The shift has been disguised by the middle’s household income being boosted by the increase in women in the workforce, easy credit and a housing boom creating a sense of greater wealth. As things stand, what this means is a shrinking tax base for any new Beveridge, unless there is a dramatically different approach to extracting more from the top five per cent, and a reversal of the UK’s trend of increasing extremes of wealth and income.

Without some radical changes, the differences within our society will only increase. There is a ferment of unrest and anger in our society, and indeed across Europe and on the other side of the Atlantic. The established political parties and systems are struggling to deal with the level of anger in their electorates. They find it difficult to engage with two difficult but key questions. Why should a new generation of young people put up with a future that provides them with little hope? Why should a group of people in the top echelons of wealth and income be overprotected from their debts to a society that created that wealth? Unless we can find some answers to these questions, and tackle some new social policy issues, the welfare state built by Beveridge will disappear.

Britain’s changed economic circumstances have exposed some fundamental social policy questions that lack easy solutions, particularly when the state has no financial wand that it can readily wave. Here are a few examples for a would-be 21st-century Beveridge to get his or her teeth into: How can we ensure that the relatively well-off in the older reaches of our society avoid overburdening a shrinking working population? How do we enable our people to secure the education and skills to compete in a fast-changing global economy? Are only the children of the middle classes to access higher education? How can we shift wealth and income from the prosperous South-East northwards, without over-reliance on public sector make-work jobs? How do lower-income groups obtain affordable housing that maintains labour mobility and incentives to work? How can we ensure it is easier for those under 40 both to save for their old age and handle their current family responsibilities? How are we to ensure that the cost of bringing up children as the next working generation is fairly borne across the society?

There are no easy answers to these questions, particularly without political agreement on how to share their costs. The difficulty of securing consensus is illustrated by the current unrest over NHS reform, and the time it has taken to reach agreement on the related issue of funding long term care for the elderly. Science has shown us how to live longer, but not how to cope with its consequences. About 10 per cent a year of our national wealth goes on publicly-funded health and social care, and this is increasing as the population ages: in real terms, our spend will go up about three to four per cent a year with our ageing population, scientific advances and rising public expectations. Our tax-funded NHS, free at the point of clinical need and providing universal coverage, is probably unsustainable in its present form without radical reform going well beyond the current Government’s changes. Much more of the care has to be shifted outside expensive and underperforming hospitals, and the largely monopolistic NHS needs a greater dose of competition. More of the heavy financial lifting probably has to move to more cost-effective, means-tested social care, with better public funding and greater contributions from those receiving care and their families, but capped at an agreed level for those needing the greatest amount of care to prevent financial ruin. Securing change in both these areas is hotly contested politically.

At the heart of these wicked socio-economic policy issues Britain faces are the political issues of fairness and social justice. Without a greater political consensus on solutions and their funding, progress will be difficult. We need a new Beveridge to step forward and probably one with the financial skills of a Robin Hood. But who would want to take on the job without more political consensus on the way forward and more effective political leadership?

This essay appears in The next ten years published by Reform.

www.reform.co.uk