The welfare myth of them and us

Read the complete preface to the second edition of John Hill’s influential Good times, bad times below. This ground-breaking book uses extensive research and survey evidence to challenge the myth that the population divides into those who benefit from the welfare state and those who pay into it – ‘skivers’ and ‘strivers’, ‘them’ and ‘us’. 

John Hills (small)

John Hills

Good times, bad times was completed in 2014. A great deal has happened in UK politics and policy since then, not least the election of a majority Conservative government led by David Cameron in May 2015, the result of the referendum in June 2016 for Britain to leave the European Union, and the subsequent appointment of Theresa May as Prime Minister in July 2016.

Through all of this, the issues discussed in this book have remained central. One of its themes is the way that our lives are ever-changing.

Sometimes this is simply because we get older, we form – and dissolve – marriages and other partnerships, children are born, and they leave home.

But it is also because we move in and out of work, change and lose jobs, and what comes in from work and other sources can change not just from year to- year with our careers, but also from month-to-month, or even day-to-day, in ways highlighted by the spread of ‘zero hours contracts’.

Our needs – for education and for health and social care – change as we grow older, but also with the fluctuations in our state of health.

“Much popular debate assumes that people’s lives are unchanging.”

But despite this, much popular debate assumes that people’s lives are unchanging, and that we can be divided neatly between those who pay into the ‘welfare’ system, and those who take out from it. Allied with the escalating stigma that has been attached to those who are at any one moment receiving benefits and the notion that a large share of public spending goes on people who are out of work, this makes further savings from ‘welfare cuts’ sound attractive – and politically costless, since those affected will be ‘them’ rather than the ‘us’ voters are assumed to be.

‘Welfare savings’

Built into the successful Conservative 2015 election manifesto was therefore a pledge to find a further £12 billion of ‘welfare savings’. This was carried through by the then Chancellor George Osborne’s July Budget, which set out cuts that would reduce spending on working-age benefits and tax credits by what added up to £13 billion per year by 2020.

But in the months that followed reality broke in.

Making cuts on this scale – and getting them in place fast, well ahead of the run-up to the next election – turned out to mean the threat of big overnight cuts in income from tax credits to many families that were ‘doing the right thing’ – just the kind of ‘hard working families’ that had been persuaded someone else could be the subject of this austerity.

“This retreat was in many ways a stay of execution, not a full reprieve.”

Through the second half of 2016 pressure groups, think tanks, alarmed tax credit recipients and eventually parliamentarians in both the Lords and Commons began to realise the scale of what had been planned for the spring of 2017. The government retreated, and existing tax credit recipients were ‘protected’.

But what needs to be understood is that this retreat was in many ways a stay of execution, not a full reprieve. The very dynamics of people’s lives with which this book is concerned mean that there is constant turnover in who receives in-work support and therefore continues to be protected.

As new people try to claim – including those who had higher pay for just a while, as well as those who would have become eligible for the first time – they will enter a system meaner than the one from which predecessors in the same position would have benefited.

This will affect in particular those getting the new ‘Universal Credit’, as it is slowly rolled out in a much less generous form than originally advertised (see Chapter 4).

Despite the political rhetoric that has stressed things like the irresponsibility of people with more than two children looking to the state for support, as if those with teenagers could have foreseen the events of the last decade, the government itself knows that these dynamics mean most of the originally planned welfare savings will still occur – pencilling in only half a billion pounds of cost from the concessions remaining by 2020–21.

With new cuts – such as tougher limits to Housing Benefit for social tenants – the government still forecasts at least £12 billion of savings a year by the time of the next election, if that comes in 2020, only slightly ameliorated by adjustments announced in the 2017 Autumn Statement.

Politically, it will be interesting to see whether this quieter, but more drawn-out, austerity strategy will stay under the radar. But for the individuals and families affected, the lower income will be all too apparent – and so, eventually, will be its effects on poverty, particularly for children in larger families and their parents.

A period of uncertainty

In fact, the cuts – and with them the hardship – may now be greater than originally planned, after allowing for inflation. The immediate effect of the Brexit vote to leave the European Union was a sharp drop in the value of the pound.

“Each 1 per cent increase in prices means a 1 per cent fall in their real value.”

The likely effect of this is higher inflation and a greater cost of living. But with working-age benefits and tax credits frozen in cash as part of the July 2015 cuts, each 1 per cent increase in prices means a 1 per cent fall in their real value. Without any new announcement, this quietly generates further cuts in the generosity of the system designed to protect people from bad times when they occur.

Of course, higher inflation could also mean pay rises to keep pace, and then rising tax revenue in cash terms, which could be used to offset this overshoot. But if Brexit does turn out to mean the economy is smaller than it would otherwise have been, and so public finances are weaker, this link may not be very apparent.

Alongside this, however, another kind of risk we run as our lives change – healthcare needs and how to cover them – looms ever larger. Indeed, the alleged £350 million per week for the NHS promised by those arguing for Brexit before the referendum tapped exactly into that awareness.

The bulk of spending on the welfare state goes on the widely spread services of healthcare, schools and pensions (see Chapter 9) that come into play at particular stages in our lives. If these continue to be at least, relatively speaking, protected, the dominance of ‘life cycle redistribution’ as opposed to ‘Robin Hood redistribution’ between rich and poor will be further reinforced (see Chapter 3).

The new Prime Minister Theresa May said, as she entered 10 Downing Street, that she would fight ‘the burning injustice’ that those born poor live nine years less than others. Wider aspects of links between generations – what Chapter 7 describes as the ‘longest wave’ in our lives – have been given greater prominence under the heading of ‘promoting social mobility’.

The importance of better understanding the evidence surveyed in this book thus seems greater than ever after the turmoil of the last two years.

But there are now more recent data for many of the graphs and analysis that it presents, and so while most of the text is unchanged from the first edition, many of the figures and numbers have been updated. Where there have been more substantial policy changes, these have also been taken into account – such as to the plans for Universal Credit (Chapter 4) or the pattern of austerity (Chapter 8).

If anyone needed a reminder that life is far from static, it was given by the effects of referendum night in June 2016 on all our anticipated futures and on the immediate fortunes of our most powerful politicians.

More than ever as we enter a period of huge uncertainty, we need to better understand what we are arguing about and who really benefits from and pays for the systems we have designed to cope with risks and uncertainties. This book aims to bring the evidence that could underpin that understanding to a wider audience.

John Hills
London School of Economics

9781447336471Good times, bad times by John Hills can be ordered here for £10.39.

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