1 DECEMBER 1984, Page 13

Rehousing Beveridge

Andrew Brown

Skid Row

Forty years after the Beveridge Report, the resulting mess defies belief, and makes the word 'system' look ludicrously inappropriate. It is difficult to decide whether it is more unfair to the people who cannot better themselves, such as single parents with small children to bring up, or the people who really try to improve their circumstances.

A family with two small children and a gross income of £60 a week is quite clearly horribly poor: by the time they have received all the benefits to which they are entitled, their net spending power has been raised to £72.53 a week. But suppose one Parent gets a part-time job, and earns an extra £40 a week, to raise the family's gross income to £100. After tax, national insur- ance contributions, and the reduction in means-tested benefit consequent on this new wealth, the family's net spending Power will be 24p higher than it was without the extra £40. If the new job brings in £60 instead of £40, and thus doubles their gross income, the family keep only f-5, .39 of the extra money. In order to keep the extra £40 a week — which, remember, only brings their net income up to £100 a week — the family must earn an extra £110. And if they had it in their power to earn that sort of money anyway, what are they doing earning only £60? Like the Bishop of Durham, I cannot Produce this family. The figures were Presented as evidence to the House of Commons select committee enquiring into the tax and benefit systems, and depend on quite reasonable assumptions about hous- ing costs.

One more statistic shows the absurdity of the present mess. Supplementary Be- nefit is hardly generous, as can be seen !r(3111 the figures above; yet £760 million of It goes unclaimed each year. Roughly 1.4 Million people are entitled to share in this Money, but do not claim it. By definition, anyone entitled to Supplementary Benefit

needs it badly; yet if all those people were

t3 1 claim their legal rights the system would break down at once, since the DHSS ,Ilaturally budgets on the assumption that tn. e ignorance of claimants and the ineffi- clencY of its officers will ensure that the money remains unclaimed, and can be 'Pent on other things. Butgiven that one wouldn't want to 'Tart from here, how did we get here? The technical answer is quite simple: the under- growth of means-tested benefits grew up- Wards quite independently of the creepers tni_t the tax system growing down to pay for formed until they met, twined together, and 4urrned a thick matting that quite obscures

the house that Beveridge built. Any pover- ty line is an arbitrary construction, not just because poverty is relative, but because a sum of money that might with good house- keeping cover essential needs may well be spent on things considered fripperies. Un- less the poor are herded into workhouses, some people will always be unable to eat enough or heat their houses on what the state considers reasonable. It is just be- cause the poverty line is a political con- struction that one can assert with complete confidence the political point that no one should pay direct taxes on an income below the poverty line: and under the present dispensation it is now quite easy to pay tax on an income rather smaller than Sup- plementary Benefit will provide. And Sup- plementary Benefit is by definition the lowest income that the state is prepared to tolerate for anyone. It is meant to be the very last resort. Seven million people now receive it.

The importance of Supplementary Be- nefit, which has now quite outgrown the unemployment benefit that it was meant to supplement, can be derived directly from Beveridge. He made very clear his assump- tion that full employment was a necessary condition for the efficient functioning of his system. Now that we no longer have either full employment or any reasonable prospect of an end to mass unemployment, a system that is based on a palpably false assumption is likely to prolong and in- crease the problem it set out to solve.

It is simply no longer true that unem- ployment is for most of the unemployed an unfortunate parenthesis in otherwise pro- ductive lives. National Insurance, which was based on this assumption, has become in its effects indistinguishable from Nation- al Assistance, as Supplementary Benefit was first known, which was based on the assumption that its recipients could do nothing to help themselves. These assump- tions are important because they suggest the sort of level of payment considered appropriate, and the sort of rules applied to extra income. Insurance payments should bear some relationship to previous contributions; while payments for the relief of need are made on different criteria, and are desirable for different reasons.

This reasoning would suggest that National Insurance payments ought to be higher than Social Security payments — as they are in most European countries. But in Britain they're not, which still further complicates the business. Unaffected by previous income, most families are far better off on Supplementary Benefit.

These factors alone do not explain the savagery of the poverty trap outlined above, where a family may keep only 24p of £40 extra earnings. That arises from the disorganised nature of means-tested be- nefits. These are numerous, and have grown up quite independently of each other. The multiplicity of means-tested benefits may seem an inevitable develop- ment: the poor need help with all sorts of different things. Housing and heating bills, even the cost of children, can vary wildly between different families in different parts of the country and it is usually the very poor who have the least choice about where they live, and how their costs can be reduced. Just as the first thing to do if you want to save money on food is to buy a freezer, so it is the homeless who have to be housed in squalid bed and breakfast hotels at a cost to the council of £125 a week.

Yet any attempt to improve matters seems to leave them even worse. The recent reform of Housing Benefit not only caused great distress to many recipients, but required the hiring of 2,700 extra staff to administer the new, simplified system. What is to be done?

Any rational system must achieve two things that are not wholly incompatible: it must relieve suffering, and it must interfere as little as possible with the workings of the labour market. The present tangle man- ages neither to relieve suffering efficiently, nor to supply its clients with any incentive to work legally. One way of providing incentives to work is to lower the rate of benefit until even no-tech jobs appear attractive by compari- son. Quite apart from the Pilgeristic objec- tions to such a policy — though I find those, too, wholly valid — it is likely in the long run to prove quite futile. If British labour costs are to be brought down until they are internationally competitive - with those in Hong Kong, say, or Singa- pore — then they would prove almost impossible to live on in Britain. Third World wages demand Third World prices, and foodstuffs.

This is not to say that lower wages in some jobs are not highly desirable: only that they must be supplemented by the state, and that an efficient way of doing this is a precondition for the growth of those no-tech jobs for which one is so admirably suited by a British education.

From this it follows that any system' suitable for dealing with a period of pro- longed mass unemployment must amalga- mate social security and unemployment insurance, so that the criterion becomes need rather than any contribution record; and, what is even more important, it must be harmonised with the tax system so that legal work will always pay. This considera- tion in turn demands that means tests are used as little as possible; for it is the vicious interaction of means-tested benefits with income and payroll taxes which produces the poverty trap.

It may seem that it is impossible to assess need without some form of means test. The only alternative is to give money to the undeserving. Quite. It would be a govern- ment of truly remarkable incompetence that couldn't work out some way of taxing the surplus. This argument against means- testing has absolutely nothing to do with the humiliation and indignity suffered by the people who have to prove destitution in order to claim money. It is based on the fact that the indirect costs of means- testing, both narrow, in terms of the apparatus of control required, and broad, in terms of their distorting effects on the labour market, far outweigh the direct benefits, even to the Government.

The idea of a guaranteed state income for everyone, to be paid either as a cash sum or as an allowance against tax is hardly new. I stole it from Mrs Hermione Parker's pamphlet on the subject published by the Social Affairs Unit (Action on Welfare, SAU, 2 Lord North Street, £2,00).

She has worked out a 'revenue neutral' costing for such a scheme: in other words her proposals do not require that any more money be raised for transfer payments than under the present system: merely that it be raised differently, and spent different- ly. Such a way of looking at the problem has the incidental advantage of making informed political debate much easier. If all government hand-outs, and the taxes that pay for them, are kept under a single heading, then it is very much easier to see what the real conflicts of interest are, and how they may be resolved. No perfect resolution is possible, of course, but Mrs Parker's system would be much clearer and easier to control than the 'Star Chamber' method used at present. But if everyone gets, as a right, an income from the state, will anyone work? On Mrs Parker's figures, they would. The highest marginal rate she would allow on the incomes of the poor is 73 per cent (remember that this is considerably lower than some of the marginal rates payable under the present system). This still gives a considerable incentive to take over badly- paid jobs. Suppose my budget for food and cigarettes is £10 a week, and I take a part-time unskilled job writing think-pieces about social security, for which I get another £10 a week and can keep only £2.70. This is still a sizeable incentive, compared with £10: it represents concrete goodies: two shots of vodka in the French Pub.

These examples are not in the least bit frivolous. They are chosen to illustrate whY one cannot get away from means-testing altogether. Housing and heating costs do vary greatly as one moves around .the country, and can only be assessed from case to case. So Mrs Parker would allow 3 means-tested housing benefit. This would cover the rent, rates, water bills, and heating. It would not cover mortgage, interest payments, which are covered under the present Supplementary Benefit system. Mrs Parker's benefit would be locally administered, to allow for a certain amount of flexibility; and it would be withdrawn at a consolidated rate of 33p in the pound. It is this, coupled with her new basic tax rate of 40 per cent, that gives the marginal rate of 73 per cent. Mrs Parker's 40 per cent income tali would incorporate the payroll tax now known as National Insurance contrani.

tions, and would be payable on all income. This is at least partly to discourage the growing practice of paying wages lust under the minimum limit for NI contribu- tions, at present £34 a week. This version of the scheme also entails the abolition of all income tax reliefs above the basic threshold. This means mortgage interes`, too. But she believes that you cannot get a worthwhile reform of the social security and tax systems if you start off from the premise that no one may lose from the exercise, and in this she is surely right. The top rate of tax in this version of her scheme would be 60 per cent. Again, this means that the rich pay lower marginal tax rates than the very poor. But it is impossible t°, ensure reasonable tax rates for the poorest without introducing for everyone else such savage marginal tax rates as seriously to distort the economy. Yet the distortions that the present tax-induced poverty have introduced to the economy are as serious as any imaginable' If the Government really wants to u`" something radical about unemploylnet then some reform on the lines suggested by Mrs Parker seems the only lasting way t0 achieve it.