What now for welfare?

What now for social security?

That was the question asked by the Law Centre NI at a conference in Belfast this week.

This conference came on the heels of the Evason Report, the Fresh Start-mandated investigation into Welfare Reform mitigations in Northern Ireland, prepared by Professor Eileen Evason, who was central to the panel at Thursdays’ event.

It is an interesting question but one where, the closer you look, the more complicated it gets.

NI Human Rights Commissioner Les Allamby was also on the panel, and he was happy to agree with the two broadest principles the current Westminster government says are behind its huge social security reforms:

• Simplify the system
• Make work pay

Mr Allamby also reaffirmed a previous comment he made – that this represents “the kernel of a good idea” – before he, along with the rest of the panel, were broadly scathing about the scope and nature of benefits cuts.

But if we don’t like the Tories’ new system, why don’t we like it, where does it fail, and what would we rather have instead?

In asking what our social security system should look like, we begin with a more general question: what should any social security system look like?

People at the bottom, relying on benefits because they do not have a job, should have sufficient support for necessities – food, energy, a home – and some degree of life beyond mere existence.

For those with serious disabilities or work-limiting problems support should be available to alleviate their issues and perhaps the rest of their benefit should be more sympathetic, and noting that incentivising work is irrelevant.

Looking at the two Conservative aims, the first is self evident: the system should be as simple as possible in order that people understand it as best as possible.

It is also entirely sensible that this system should makes work pay, in the words of the Chancellor, which means that someone in work should earn more than they would do outside of work.

And so we arrive at the first major practical blockage that we have in the UK when looking at plans for a fair and reasonable welfare package: having a full-time job is not necessarily a route out of poverty.

If a 40-hour-a-week job on minimum wage is not enough to live on in at least parts of the UK – and try living in London on that money – then either your standard unemployment benefit is higher than this wage or it has the same problem.

Of course, we have tax credits and other in-work benefits as options to top up wages in order for them to reach an acceptable threshold by our modern standards.

But then you trade one problem for another that amounts to much the same thing: if wages need supplements to achieve some minimum standard of living, then in order to make work pay your social security payments have to be something palpably less than that.

Is the economy stupid?

At this point social security can no longer be seen as something in comparative isolation; it is woven into the economy, and here things only get more complicated.

Redistribution of wealth can encourage growth (while too much inequality restricts it), due to pressures including the fact that the less money someone has, the higher proportion of their income will be spent in the short and medium term.

In other words, higher benefits payouts have the potential to grow the economy (and cuts can do the opposite). This isn’t straightforward, however, because too much redistribution will affect the incentive for individuals to work.

Increasing wages is therefore a major issue for several reasons.

While there is a common belief that high net immigration is producing the definitive downward pressure that has seen stagnant wages in the UK – and much of the Western World – for middle and lower earners, this doesn’t necessarily fit with the facts, with a recent Economist article calling immigration’s effect on wages “measly”.

So what is the major pressure? It might be the global village.

If Piotr from Poland and Farimah from Iran come to Northern Ireland then, for sure, they are competing for jobs with local people.

But even if they stay put, or go somewhere else, they are still competing for many of the jobs that backbone any economy.

Free markets are broadly the free movement of capital, goods and services, and also labour (meaning people). If you take a protectionist approach to the final one, and close your borders, the money and the work can leave entirely, and go to meet the people you have denied entry.

Capitalism gets a good kicking with regularity and, while our current crony corporate version is far from ideal, open markets have seen many benefits in poorer nations around the world. (More on that here)

These benefits have come at a cost to the western world, where all but the highest wages are stagnant and will continue to be so.

And the major worry is that in much of the developing and third world, this recent jump in wages will itself plateau and then stagnate much earlier than anyone might hope.

Small but significant uplifts amongst some of the planet’s poorest demographics are not the only trend of recent decades (it’s worth noting further that these uplifts have seemingly encouraged emigration, not discouraged it).

Wealth is accumulating at the very top. And while talk is of the 1%, that is a small buzzword that doesn’t get to the heart of the matter. It’s more like the 0.000001%. A super-rich ownership class is already emerging – both individual and corporate – that has so much money it is gravitational.

Not only does having money make it easier to make money in the traditional way, these individuals and corporations are so powerful due to their wealth that they can negotiate tax terms in a way unthinkable for the vast majority of people.

What is the endpoint? There has to be a worry that wages everywhere will essentially stagnate and a superwealthy ownership group will sit atop a global economy that stutters and splutters and grinds but goes nowhere because consumers everywhere have seen their wages squeezed leading to an unhealthy effect on general demand. The recent major contraction in the Chinese economy will not assuage such fears.

Social security

The above is no more than an oversimple précis of some of the problems facing the wage potential for the majority of people, but the state of low and medium wages in an economy are a crucial factor in what social security looks like – both in terms of what is fair and reasonable, but also in terms of how the public feel about social security. The more people that feel they have some disposable income and, moreover, that their own income is relatively secure and set to rise in real terms in the future, the more they will be sympathetic towards the idea of welfare, which is vitally important for any social security system.

Therefore, if we want to have an honest and also effective discussion about welfare, we need to really understand what is going to happen to the factors affecting it.

The picture is not rosy.

Another complication for social security is the status of children. There is vocal opposition to the idea that some people have large numbers of children in order to receive large numbers of benefits.

Whether there are more than a negligible number of examples of this or not, the fact is that cuts to the welfare of the parents in this case are also cuts that affect the children, who are by any viewpoint blameless in such a scenario and surely as deserving of good life chances as any other children in the country.

This raises significant issues for the current child welfare cap, whereby payments do not increase after the second child in any given family.

At the Law Centre NI event, Alison Garnham, Chief Executive of the Child Poverty Action Group, was able to list a number of depressing facts about child poverty and social security.

Amongst her observations were that child poverty was rising from the 1970s until the mid 90s. It then fell until 2009-10 and IFS studies now say it is rising once more; and that, in 2012-13, two thirds of children living in poverty had working parents.

Speaking at the event on Thursday, Professor Eileen Evason herself hinted at some of the problems mentioned above.

“There are central issues we have to discuss, relating to the erosion of democracy and the creation of a society where, essentially, financial services and corporations are in control, and there is a lack of concern for the people in the bottom half of our society and, indeed, people outside the South East.”

Perhaps the final word should go to Mr Allamby, and his thoughts on how the current welfare changes have done with regards to the Conservatives’ own aims:

“We have a gargantuan and complex scheme, and the only difference is we will have one and not six benefits – but navigating through Universal Credit will be as difficult as going through any of the previous systems we have had.

“The incentive to make work pay has been shot to pieces. There are a number of people who will be better off in work but there will be a large number for whom that won’t be the case.”