“No man is an island entire of itself; every man is a piece of the continent…And therefore never send to know for whom the bell tolls; it tolls for thee.”
There is no more powerful articulation of mankind’s universal vulnerability, and of our necessary participation in bonds of mutual obligation, than John Donne’s Meditation XVII. Nor could there be a better expression of the humane and moral instincts behind the creation of Britain’s welfare state.
We know we are not islands. Yet the crisis facing modern Western democracies, caused by lengthening life expectancy and the shrinking relative size of working age populations, is forcing us to ask the question: what is this ‘continent’ that supports us?
Britain’s answer, at least in recent decades, has been ‘the state’. Despite Thatcher’s revolutionary attempt to shift responsibility back onto individuals and families, and David Cameron’s bold but ultimately unrealised ideal of the Big Society, this consensus has gone essentially unchallenged since the Second World War.
During that time the welfare state has grown and grown. Since 1948, welfare spending has risen from £11bn to well over £200bn, in today’s money – that’s 18 times more spent on social security than under Clement Attlee’s supposedly socialist Labour government. Some of this increase is accounted for by economic growth (there is more money available to spend), but spending on social security has also risen as a proportion of national income from around 4% in 1947 to over 10% by 2019, and is projected to rise to over 12% by 2065.
The lion’s share of this is accounted for by pensions, and the proportion of social security spend on funding long retirements is continuing to increase. However, while Universal Credit has been effective at cutting the number of long-term unemployed by incentivising people back into work, the percentage of national income going to pay working age benefits has remained stubbornly high at between 4-5%, at a cost of about a £100bn a year.
The nation’s near £400bn annual deficit and the Chancellor’s latest bout of borrowing and money-printing have collectively taken a hatchet to the concept of finite government resources, giving a new lease of life to ‘magic money tree’ thinking – the Treasury’s allotted £6bn to fund the £20 uplift to Universal Credit looks small fry for this Government’s balance sheet. But for all the frothing about Modern Monetary Theory [MMT], it’s widely accepted that enormous debt-to-GDP ratios are risky in the long term, and that Quantitative Easing [QE] can only go on so long without risking inflation or, ultimately, undermining the currency.
The truth is that to sustain even pre-Covid spending habits over the medium term, the Office for Budget Responsibility has estimated that taxes would need to rise by one third in order to stabilise debt – without any increase in the generosity of welfare per person. Rishi Sunak’s recent Budget is set to take Britain’s tax burden up to over 35% of GDP, the highest level since the 1960s, with many economists speculating that the country may well be as taxed as it can be without killing growth and tax revenues actually falling. Britain’s cash welfare generosity per head is not high – but, as the doubling of the Universal Credit caseload since Covid-19 shows, it’s the number of recipients that produce the huge costs.
The main driver of this social security time-bomb is demographic; Britain has an ‘inverse pyramid’ society with a minority of working adults sustaining a majority of economically inactive citizens. Another is economic – even with approaching full employment before the pandemic, the UK still faced massive welfare commitments, with a significant number of benefit claimants being in work. Weak wage growth and the cost of housing contribute to this pressure. But there is another root cause – the elephant in the room – family breakdown.
While there is little that can be done to cut the pensions bill without undermining living standards for elderly people who cannot improve their own incomes through work, the cost of social breakdown is something that has to be faced up to. This is not a Left-Right issue: it’s an inevitable reality coming down the track.
For all the talk of social mobility and improved opportunities, there is little attention paid to the downwards social mobility and detrimental effect on children’s outcomes caused by family breakdown. It’s alarming this is not something we discuss, given Britain’s high prevalence of unstable family structures and high divorce rate. The breakdown of a marriage can push a financially self-sustaining household into two households each in need of state support. The family was once the welfare state of first instance. Now its first-order role has to a large degree been supplanted by the state.
In a peer-reviewed study, Benjamin Scafidi has calculated that family breakdown and the decline of marriage costs US taxpayers at least $112bn per year – a trillion per decade. This extraordinary sum includes the costs in social security payments as well as lost tax revenue.
There is also a symbiotic relationship between welfare-ism and social breakdown. While some research shows that more welfare spending can increase a country’s rate of marriage (perhaps through alleviating financial barriers to starting a family), it increases the divorce rate much more. Reasons for this might vary, but one is the shifting of the financial risks associated with splitting up from couples and onto the state.
While it’s true that the welfare safety net is there to help people in need, it also has a clear effect on behaviour and the wider social fabric, providing what some political philosophers would see as a ‘moral hazard’ by encouraging the erosion of non-state, natural structures of support, and by incentivising individualism.
It’s also worth noting that a large contributing factor to Britain’s large welfare bill is, sadly, the increasing prevalence of illness and disability, with mental health difficulties forming the largest and most rapidly growing proportion of this increase. The percentage of adults reporting mental health as their main health difficulty has roughly doubled since 1998. Given what we know about the importance of family, community and face-to-face relationships for mental wellbeing, Britain’s increasingly atomised society is clearly contributing to its own welfare liabilities – and, more importantly, to poorer health and quality of life.
Finally, the UK’s broken housing market is in dire need of fixing. Each year we funnel £8bn of taxpayers’ money into the pockets of private landlords through housing benefit, with government spending on meeting people’s housing needs exceeding the police and justice budgets combined. With house prices continuing to rise despite a decade of stagnant incomes, the madness of taxes from the nation’s stuttering incomes being pumped into landlords’ pockets and inflating prices must end.
Economic growth solves many a problem, raising living standards and increasing the resources available to the state to provide for its citizens’ needs. But when public spending requirements outstrip that growth, there’s a problem, and it will not be long before we need a fundamental review of the balance between individuals, society and the state. Indeed, if the scale of social reliance on welfare could be reduced, the actual generosity of the system for each individual could be improved.
If our goal is to achieve human flourishing, such a rethink may be no bad thing. It could be that smaller, localised communities of shared economic interest will ultimately provide a more effective forum for generosity and altruism than a giant, bureaucratic state ever can. And while it may be the brute fact of affordability that forces this question upon us, it could also be that the client state was never the best way for us to live.
Click here to subscribe to our daily briefing – the best pieces from CapX and across the web.
CapX depends on the generosity of its readers. If you value what we do, please consider making a donation.
