FT: Deficit axe poised over welfare state

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Old Teaser

28 April 2010

Written by Nicholas Timmins

“Two parliaments of pain” is the phrase used by the independent Institute for Fiscal Studies to describe what is in store for Britain in the years ahead.

With the next government, of whichever stripe, needing to cut nearly £37bn a year from public expenditure by 2014 just to halve the deficit, can the welfare state survive?

“Not as we know it,” says Eamonn Butler, director of the rightwing think-tank, the Adam Smith Institute. In the 1980s at the height of Thatcherism, it promoted – with limited success – vouchers for health and education, drastic cuts to child benefit and big reductions in state pension spending, along with tax breaks to help people provide privately services that are currently publicly funded, from health to unemployment insurance.

Andew Haldenby, director of Reform, another right-of-centre think-tank, agrees the fiscal deficit will force a reappraisal of the relationship between citizen and state. “The idea that the state can do everything, or even as much as it is doing, is just not tenable,” he says.

Yet, far from using the election campaign as a forum in which to debate the hard choices ahead, politicians’ chosen battleground is the degree to which they will preserve the current entitlements – free bus passes, winter fuel payments, free TV licences and child benefit in the case of the Conservatives, in addition to the health and overseas aid spending that all parties say will be protected.

With the exception of Reform, which has outlined big cuts to middle-class welfare, the think-tanks have been almost equally silent.

Mr Butler notes: “No politician wants to talk about these things before an election. Whoever wins, however, will have to tell us about them afterwards”.

The political promises of protection are greeted with scepticism by many closest to policy and politics. Gail Adams, head of nursing at the biggest health service union, Unison, says: “We know that, despite assurances from all sides of the political divide, the NHS cannot escape from funding cuts in the very near future.”

So, aside from a future in which public services inexorably worsen year after year, what could happen?

Ruth Lister, professor of social policy at Loughborough University and a member of the government’s National Equality Panel, says key pillars of the welfare state could crumble. Child benefit could be removed from the better off. All benefits could be subject to a far greater degree of means testing so as to concentrate help on the poor. Education vouchers could provide a basic schooling that parents could top up if they had the means. New charges could be introduced for NHS services, or its spending could be frozen.

“But that would produce a radically different society,” she says. “It would be one with much higher levels of inequality and much less of the equality of opportunity that all parties say they support. In health and education it would produce a second-class service for the less well off . . . And it would risk creating a downward spiral in which the middle classes don’t get much out of the welfare state and so become ever more resentful about having to pay in.”

Back in the 1970s and 1980s, when the fiscal arithmetic was bad, though not as dire as it is now, and when the welfare state was under ideological as well as fiscal attack, “it did survive”, she says. “Somewhat ragged, but it did survive.”

Some believe the problem is overstated. Julian Le Grand, professor of social policy at the London School of Economics, says: “I am not convinced about the need for massive spending cuts. As soon as economic growth resumes, a lot of the red ink will disappear. I suspect both the political and the economic reality is that after the election, somehow the really big cuts won’t happen.”

Mr Butler sees this as “Micawberish – just hoping that something will turn up”. But focus group research undertaken for the 2020 Public Services Trust shows the public are deeply unwilling to contemplate big changes to the boundaries of the welfare state.

Even Mr Haldenby acknowledges the next parliament is unlikely to dismantle great swathes of the welfare state given the political pledges currently being made. But pressures, including that of an ageing population and the need to eventually eliminate the deficit, mean this state of affairs cannot last, he says.

Published in the FT here.