20 January 2021

Leader: The welfare conundrum

Rather than cutting Universal Credit, Rishi Sunak should use this moment to build the resilient welfare state the UK has long needed.

By New Statesman

The Covid-19 pandemic is the greatest crisis the welfare state has faced since its postwar creation. Over the past year, job losses and wage cuts have forced three million more people in the UK to claim Universal Credit. After a decade of austerity, the necessity of a resilient social safety net has been demonstrated during this period of national emergency.

In recognition of this, the government increased Universal Credit payments by £20 a week at the outset of the crisis last March. This move helped protect basic living standards and support economic demand. It was also long overdue: unemployment benefits were previously worth no more than in the early 1990s, despite the economy having grown by 75 per cent since then.

Over the past month the resurgence of Covid-19 has forced a third national lockdown and raised the spectre of a double-dip recession. Though the government’s furlough scheme – under which the state pays 80 per cent of workers’ salaries up to £2,500 a month – has rightly been extended until the end of April, further redundancies will inevitably follow (around 820,000 jobs have been lost to date).

In spite of this, the Chancellor, Rishi Sunak, has yet to confirm whether he will extend the Universal Credit increase. On 18 January, six Conservative MPs rebelled by voting in favour of a Labour motion to protect payments. The case for doing so is overwhelming. At present, six million households stand to lose £1,040 a year, with the bottom fifth deprived of 7 per cent of their disposable income. Unemployment support would fall to its lowest real-terms level since 1992 and its lowest ever level relative to average earnings.

Mr Sunak has privately argued for a one-off £500 payment to claimants. But rather than seeking to do the minimum required, the Chancellor, acclaimed early in the crisis for his interventions, should use this moment to build the resilient welfare state that the UK has long needed.

The postwar system devised by the Liberal reformer William Beveridge was intended to act as a form of collective insurance against the “five giant evils” of want, disease, ignorance, squalor and idleness. In a parliamentary speech in 1946, Clement Attlee, the Labour prime minister, pointedly noted that the welfare state was “designed not for one class” but “for all”.

Yet, in the decades that followed, the contributory principle and the ethic of reciprocity the system represented were undermined. Those who paid into the system throughout their lives often found themselves with little support when they most needed it, during a period of illness or unemployment. The UK’s replacement rate – the share of previous salaries that individuals receive from benefits – fell below 15 per cent, one of the lowest rates in the OECD (the average is 56 per cent for six months). In Germany, by contrast, citizens receive 60-67 per cent of their income for up to 24 months.

Such payments are not and should not be unconditional. The welfare state is not a substitute for work, but a temporary protection in its absence. Under the “flexicurity” model, the Nordic countries have successfully combined a flexible labour market with high levels of social security. The UK has the former, but the absence of the latter leaves individuals exposed to the vagaries of the market and bad luck.

Opponents of the increase in Universal Credit protest that government borrowing (expected to reach around £400bn this financial year) has already risen too far. But rather than cutting essential payments, Mr Sunak should address the long-term drivers of welfare spending: record levels of in-work poverty and unaffordable housing. In recognition of this, the 2018 British Social Attitudes survey found 56 per cent of respondents believed cutting benefits “would damage too many people’s lives” – the highest figure since 2001.

The 1918-20 Spanish Flu, one of the deadliest pandemics in history, spurred the creation of the Swedish welfare state. Faced with a comparable crisis, the UK must construct a system that is adequate to meet the giant evils of our times.