Two Cheers for James Purnell
James Purnell had an interesting and encouraging article in yesterday’s Times – plugging his vision for a new Labour approach to welfare. The former Work and Pensions Secretary calls for a system that re-recognises the importance of reciprocity, that relates payments to contributions and that is designed for all – not simply for the benefit of the already workless. All of this is to the good. As I have written on Conservative Home before, Britain’s welfare system is utterly broken. But whilst Purnell asks the right questions, and has stumbled upon the right direction of travel, still he and his allies fail to comprehend the right answers.
Purnell wants the state to insure people’s salaries. That way, he argues, we can reconnect the benefits to which people are entitled with the contributions they have made and to their standard of living.
When people on mid-range salaries lose their jobs they suffer a horrendous and catastrophic financial shock that, even if their unemployment is short-lived, can prove devastating. Families lose their homes, incur massive and unpayable debt and – all too often – experience relationship breakdown due to the extreme stress of dropping from a middle income to subsisting on welfare. It is true – as I argued in my recent report Of Mutual Benefit – that Britain’s welfare system is too harsh in its treatment of those who drop temporarily out of work. What is more, the way we treat hard-working, productive families who stumble upon hard-times places us far too near the bottom of Demos’ Index of Financial Protection (which compares the level of generosity to average earners who lose their jobs across Europe, North America and Australia). All of which supports Purnell’s criticism of the British social contract and all of which points to the need for real reform to how we pay for welfare and to how we support those for whom unemployment is not a lifestyle choice but a temporary blip.
But, and it is a significant but, Purnell’s solutions are by no means radical enough to work. He wants the state to be the provider of that insurance, he wants the Government to protect all individuals from the risks of unemployment and he wants British welfare to remain a centralised and universal system of coverage. He wants all of this because he wants British people to love the welfare state once more, to view it through the same rose-tinted glasses we see the NHS. He wants to make people’s first thought about the welfare state “Oh, I couldn’t do without it.”’ It’s here that Mr. Purnell and progressive conservatives would part company.
British people are rightly cynical about the state’s capacity to act as an insurer. In the course of our research for our recent report on benefits, we ran focus groups with members of the ‘squeezed middle’ – that band of people most let down by our welfare settlement. They were supportive of insurance as a means to protecting themselves against risk, on two conditions. One, that what they paid out for insurance was matched or supported by tax-breaks and two that the state had nothing to do with running the scheme. As one contributor put it –
‘National Insurance isn't insurance at all though. It’s another tax, just with another name. And that’s the problem when Government says it’s looking after your money or insuring you – it isn’t – you can’t trust them with it because once they’ve got it they spend it on whatever they want.' Quite.
There are further difficulties here. Under the proposals, individuals in work would be entitled to 70 per cent of their salary for six months after losing their job – as a kind of bridging loan to be repayed at 0 per cent interest when they re-enter the workplace. This system will inevitably either be easy to defraud or expensively bureaucratic to administer and protect. Because the loans are charged at 0 per cent - meaning that the state will lose money on them – it is all too easy to see how ‘National Salary Insurance’ would end up meaning state subsidies for middle class career breaks. Whereas the private sector – using an insurance model to pre-protect and providing incentives not to claim – would be built to keep costs down, this system looks destined to pile cost onto the state.
The national nature of the proposal also poses difficulties. British welfare is notoriously inflexible and unresponsive to people’s individual needs. A single man cannot choose a lower level of coverage than a married woman who is the sole breadwinner – even though they have very different quotients of risk. Although the salary protection element of Purnell’s vision gets us closer to a more personalised system it will not – cannot – take us all the way. The only means by which to achieve welfare that meets the individual is to allow variety in provision; that means supporting and growing a marketplace rather than replacing one hegemonic bureaucracy with another.
Reform to welfare must be about making it work for everyone, not about rekindling some naïve affection for social democracy. Income and redundancy protection can be offered by the market more cheaply, more flexibly and in a more personalised and genuinely responsive fashion that the state can ever hope to. If James Purnell and the IPPR want to make welfare work for those who pay for it they should trust people to find and buy their own solutions - rather than trying to reinvent the state-centric wheel that has failed them thus far.