Frank Field MP
Your MP for Birkenhead
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Is Britain's benefits system fit for purpose?

18 October 2012
Our current system of welfare is broken backed. It cannot be fixed, and governments should not waste too much precious political capital in trying to prove otherwise.

Since 1948 there has been a fifteen fold increase in real terms in welfare spending, and each new government attempts a new reform. However, despite our current welfare system dating back seventy years, those who introduced it would hardly recognise it today.

In 1942 William Beveridge published his report on reform to the welfare state. His report advocated a new model of welfare provision based on a contributory-based system of national insurance.

His scheme, which was introduced by the great reforming government of Clement Attlee, introduced a number of benefits – for spells of unemployment and pensions – which were payable based on individuals’ contributions. 

Beveridge saw individual responsibility as paramount to his system. His values were hard work, honesty and prudence.

His proposed national insurance system was designed therefore to reward people who played by the rules, and contributed to society. It promoted, in simple terms, good behaviour.

In the intervening seventy years successive governments have steadily eroded this central plank of Beveridge’s welfare state. Means-testing is slowly killing the ‘insurance principle’.

Through means testing, welfare in this country is now provided primarily on the basis of need rather than contribution. Gordon Brown’s means-tested tax credits, and its logical successor, Iain Duncan Smith’s means-tested universal credit, institutionalise this change.

Means-tested benefits can promote the worst side of human nature. Means testing encourages dishonesty and penalises those who save. It therefore pays to lie about ones earnings, to cheat, or to be inactive.

Means testing benefits make moving into work less attractive as marginal deduction rates mean money earned is removed from benefit income, sometimes by a rate of 96p for every additional pound earned. It is economically rational therefore not to move into work.

The government claim the universal credit will overcome this problem. It won’t. By leaving council tax benefit out of the universal credit, marginal deduction rates will remain as high as they ever were.

The pension credit also encourages many people to make the rational decision not to save for retirement. What is the point when income from savings will reduce pension credit entitlement?

At its worst means testing encourages people to not declare income to protect their benefit income. 

I believe that voters are where Beveridge was. They support the national insurance system. And here is the opportunity for Labour.

The Coalition has nailed itself to the universal credit fence. I believe the Labour Party should begin to construct a manifesto proposal which seeks to rebuild an insurance based welfare system.

It is the only sustainable solution, and will put the party firmly in line with public opinion. With three years left before the next general election in 2015, will Ed Miliband seize his chance? 


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