CAN WE AFFORD IT?
By DOROTHY PARRY
ONE of the first questions being asked everywhere about the Beveridge plan is, can we afford it? That is perfectly natural. It is not impossible that the introduction of the scheme might lead to a reduction in the size of the national income (by national income is meant total production of goods and services), or at least retard its normal growth. This effect would follow if the reper- cussions of the scheme on the economic structure were such as to lead to one or more of the following results :—(a) high taxation, which would discourage business enterprise ; (b) an unfavourable movement in the balance of international trade ; (c) an increase in idleness I (d) retirment at an early age, with a consequent reduction in the size of the working population.
In considering all these four points it is necessary to have in mind some idea of the relative magnitudes of the figures we are discussing. In its first working year the additional cost of the scheme will be some 4265 millions. It is anybody's guess what the size of the national income will be in this post-war period. On the one hand we have lost foreign investments and we have failed to maintain some capital equipment. On the other hand there will have been considerable technical progress, and we may end the war with a large volume of new factory space, machine tools and other equipment. We may also expect a higher level of employment than before the war. It seems, therefore, conservative to assume that the national income will be at least as high after the war as before. On Sir William Beveridge's assumption of a 25 per cent. rise in prices over 1938 levels this 'would give us a national income in the neighbourhood of £6,000 millions in 1945.
It is with figures of such magnitude well in mind that we should approach our first point. An extra 486 millions has to be found by the Treasury in the first year of the scheme. Some of this will come out of the pockets of the working classes in the form of indirect taxation, and perhaps also in the form of direct taxation if income tax for the lower income groups has come to stay. Part of the burden certainly will fall on the rentier class. The remainder will have to come out of profits. This may be thought likely to have a discouraging effect on enterprise. There is, however, no agreement ' among economists as to the effect of an increase in income tax. Extremely high taxation would undoubtedly cut too deeply into marginal earnings and company reserves. On the other hand, as the money raised by taxation for the Beveridge scheme will find its way into the pockets of the poorer classes, who are more likely to spend it, any adverse effects on incentive would be offset in part at least by the increased demand for goods and services. But even if the depressing effects are the more important this need not -be a bad thing, for the scheme should be used as part of a general policy to control the Trade Cycle. In a boom taxation may be used to exercise a check on unhealthy economic expansion ; in a slump the increased expenditure can be financed out of the national debt and thus increase total purchasing-power in the same way as publi works. Although it is impossible to make any firm statement un we know what our other commitments are going to be after th war, yet on balance it seems safe to say that the additional cost t the Exchequer may not have any serious effect on internal economi progress.
The effect on our external economy is, however, an even greater source of fear to many. It has been argued that the scheme will lead to a rise in prices, which will have a depressing effect on those unsheltered industries which are producing for the export market and have to face world competition, consequently turning our balance of payments against us. The magnitude of the problem is not, however, as great as might appear at first glance. The only part of the increased cost which will definitely be handed on in the form of a rise in prices is the employers' share. In 1945 this
only represents £54 millions extra, against a total national income of 46,000 millions. The rise in prices, therefore, can only be slight.
As far as any rise does occur it can be taken care of when the time comes to fix the value of the pound after the war. We should surely benefit from the lesson we learned in the 'twenties and not peg the pound too high after this war..
So far we have seen nothing to lead us to fear that our economic system will suffer from the introduction of the Beveridge scheme. This is not to deny that the threat might come from another direction. The scheme promises to all unemployed workers a subsistence benefit for an indefinite period. Admittedly this alone might encourage idleness and thus lead to a growth in unemploy- ment. There is, however, a safeguard. After a certain period, normally six months, the continued payment of benefit is condi- tional on attendance at a work or training-centre, this in Beveridge's own words "being designed both as a means of preventing habituation to idleness and as a means of improving capacity for earning." Further, if a person refuses suitable employment, benefit is stopped, as under the present scheme. In the case of the small trader, the self-employer, the widow, &c.--that is all those who, when losing their means of livelihood, need to be trained for new employment forthwith—the payment of benefit is from the start conditional on training.
Far from increasing unemployment as might be feared, the scheme may have an important effect in maintaining employment by facili- tating the transfer of labour from industry to industry. Beveridge provides for the payment, as a loan or otherwise, of all or part of the expenses of removal and temporary lodging where the procure- ment of new work involves a change of locality. This factor, together with the system of re-training which Beveridge envisages, should be of inestimable value in the post-war years, when millions of war-workers have to be transferred to the consumption and export industries and in many cases re-trained. The Beveridge scheme should further add to the efficiency of our working population by improving their standards of health through the extension of our medical services which it provides.
The level of employment is again the crucial factor in considering the effect of the guaranteed subsistence old-age pension which the Beveridge scheme provides. The payment of the pension is condi- tional on retirement, and as such might be criticised as encouraging people to retire at an early age, thus reducing the size of the working population at a time when the increasing preponderance of the higher age-groups is in any case going to make this an acute problem. Beveridge has, however, sought to provide against this by offering higher rates of pension for those who go on working beyond the normal retiring ages of 65 for men and 6o for women. Whether or not the increases offered (as. per week for each extra year worked for a couple and is. for a single person) will in fact be a sufficient inducement to encourage people to go on working time alone will show. With this same problem in mind the ages of retirement are fixed at what are relatively high levels.
So far we have been concerned with the cost of the scheme in its first year. After twenty years the cost would have increased by another 4160 millions, due almost entirely to the rise in cost of old-age pensions, and the whole of this would fall upon the State. (Unfortunately the report does not supply us with a comparable figure for the cost of our social services in the same year at present
standards.) It is encouraging to reflect, however, that this increasing cost will be incurred over a period when our national income will be rising, for it is unlikely that the decline in the working population which sets in towards the end of the period will outweigh the rise in output per head which we can assume. If however, one looks beyond 1965 the prospect becomes gloomy indeed. With a steadily declining working population we may expect towards the end of the century to witness a fall in national income in spite of improving efficiency. At the same time the number of old people in the population will be increasing at an alarming rate. This is, of course, one of the major social problems of the age. If our low birth-rate continues, the rising proportion of the aged to the working popula- tion will represent an increasingly arduous burden which must be borne in some way. Its magnitude is so vast that, although it is important to consider how the cost should be shared between the State and the individual, this latter problem is of secondary interest. What is far more important is to encourage an increase in the birth- rate, and the Beveridge proposals for doing so, through children's allowances, are perhaps the most essential part of the report.
Thus, when the scheme is set in its proper perspective against the background of a declining birth-rate and rising proportion of old people, much of the dispute about its practicability becomes academic and unreal. Maternity benefits and family allowances must be provided. On political grounds this is a concession which the Treasury can scarcely escape ; on social and strategic grounds it would be disastrous if such an escape were possible. It will also be out of the question to reject the demands for a rise in old-age pensions and an extension of the health services. In short, there appears to be no means of escaping an extension of our social services. The real question is to discover how this can be done most simply and economically and with the least possible adverse effect on our economic structure. Mere negative criticism of the Beveridge scheme is not enough. Its opponents must provide another positive solution ; until they do, it would be poor statesman- ship to jettison the one coherent plan which has so far been proposed.
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