Unbundling the welfare state
The state benefits system is a jumbled mixture of welfare transfers, insurance, and savings. But governments are not very good at running insurance or savings companies. We should unbundle the different parts of the system. Government needs to focus on its proper role – the welfare element – and draw the market into providing the rest.But even welfare is changing. Just sending people welfare cheques does nothing to get people off welfare. Indeed, it deepens the perverse incentives in the system and traps people in poverty. The aim now must be to re-integrate people into the workforce and make them self-sufficient. That means tailoring work, housing, childcare and other support services round the individual. Most of this too is better outsourced to independent and voluntary groups.
The benefits system has become more complicated, but it needs to be made much simpler. Saving for a pension should be at least as easy as buying a lottery ticket. We need to cut through the confusion, remove the perverse incentives against saving, and tailor lifetime support round the individual, using the market. That is just what our Fortune Account proposal would do.
