UK Election: What’s in it for the welfare state?

In this short post I would like to discuss what I see as the key issues for welfare and to briefly compare them to parts of the labour, conservative, liberal democrats, greens and UKIP manifestos. Though one could no doubt identify other issues, to keep this text short I have decided to focus on two big issues the manifestos should address if the welfare state is to remain fit for the 21st century.

Ageing: Parties lack an overall long term strategy

The first issue concerns the ability of the welfare state to cope with ageing societies. This is something we all know about but it’s worth mentioning a few numbers. There are currently about 10 million people that are over 65 years old.  And – if we believe the current projections – this number will increase to nearly 20 million by 2050 (8 million will be more than 80 years old). This will put pressure on at least two policy domains.

The most obvious is pensions. Indeed, well over half the benefit expenditure by the Department for Work and Pensions goes to those over the working age. I think the UK is comparatively well placed to tackle this challenge but one worry is to ensure that the elderly are properly covered by future pensions. Most – though not all – pension spending is now means-tested and not particularly generous so it’s important that pensions are protected. The Greens probably have the most generous and most costly proposition (and I should note in passing this is the case for most policies!). The so-called triple lock – which protects the value of state pensions – is adhered to by the Liberals and Labour, while the Conservatives have said they will not freeze benefits for the old. This protected status is not surprising given that pensions remain the public’s favourite area for additional welfare spending (though there has been a recent drop in support).

The second policy domain where ageing puts pressure is Health. As an example, in 2007/08 the average value of NHS services for retired households was £5,200 compared with £2,800 for non-retired people. Health is already underfunded and a well quoted report estimates the shortfall to rise by 2020 to 30 billion in the absence of efficiency savings! Recent surveys also suggest 92% of the population thinks there’s a funding crisis. The Lib Dems promise an extra £8 billion a year into the NHS by 2020, and so do more or less the Conservatives, while Labour promises £2.5 billion more than the Conservatives.

What’s lacking from all manifestos is a long term vision to address the ageing issue. For instance, except for the Greens, no one proposes sufficient funding for social care. Ring fencing or increasing pension and health care will also make it hard to balance the books[1] let alone address the next set big issue I will mention now.

New social risks in the labour market

This second big issue concerns the ability of the welfare state to tackle labour market risks, and in particular (in-work) poverty, unstable contracts and reconciling work and family. While pensioner poverty has been falling, the absolute (but not relative) poverty of children has increased in the last couple of years. In 2013, 8% of people in employment, aged 18 to 64, were identified as being in poverty (approximately 3 million people). The evidence suggest that both increasing hours and increasing hourly earnings are crucial to unable people to exit in work poverty.

With respect to the most extreme form of unstable work, ONS figures suggest that at the end of 2014 there were 1.8 million people with non-guaranteed hours, including Zero Hours Contracts (ZHC). Most parties promise some form of actions on ZHC: Liberals want to ‘stamp out abuse’; Conservatives want to eradicate ‘exclusivity’ in ZHC; UKIP will prevent the NHS from hiring ZHCs; Labour says it will (missing verb here) abolish ‘exploitative’ zero hours contracts, and those who work regular hours for more than 12 weeks will have a right to a regular contract; Greens want to abolish it entirely.

With respect to wages most manifestos want to give some boost to wages. This is clearest in the case of minimum wages: the Greens suggest £10 an hour by 2020; Labour wants to increase it to more than £8 an hour by October 2019. They also want to incentivise employers to pay a living wage using tax rebates; Conservatives are more ambiguous, I quote: “they accept the recommendations of the Low Pay Commission that the National Minimum Wage should rise to £6.70 this autumn, on course for a Minimum Wage that will be over £8 by the end of the decade”; UKIP wants to end income tax on minimum wage; Lib Dems limit their demands to better enforcement and I quote “asking the Low Pay Commission to look at ways of raising the National Minimum Wage, without damaging employment opportunities”.

But addressing new social risks and precarious work also requires better childcare provisions which are particularly unsatisfactory in the UK. With respect to childcare, the main parties are getting to grip with this but there’s too little too late, and funding is a question mark. Surprisingly, out of the three main parties, Labour has the least generous policy proposal. It wants to provide 25 hours of free childcare per week to all 3 and 4 year-olds with working parents (costing £500 million). Conservatives are slightly more generous and propose to give working parents of 3 and 4-year-olds 30 hours of free childcare a week. IFS suggests that the funding for the policy is more plausible for labour than for the conservative. The Lib Dems have, in their words, the most ‘ambitious aspiration’ to provide free childcare to all parents with children aged two to four, and all working parents with children aged from nine months to two years. They estimate that this could cost around £2 billion: it’s not clear where the money would come from, so cuts to ‘unprotected’ departmental spending would be required.

We also need a better policy to tackle unemployment without increasing poverty, which in 2013 was around 30% for those aged 18 to 64 and not working. As far as I can tell, no parties propose significant increases in the generosity of benefits for the unemployed, not surprisingly given the increasingly negative public attitudes towards these benefits, including among labour supporters. Conservatives go in opposite direction with two-year freeze on rates of various working age benefits, lowering the household benefits cap, and some changes to benefit entitlements for 18–21 year olds. The Lib Dems also want to retain overall cap on households’ benefits and believe this should continue to be set at around the average family income. We also have more workfare in both Labour and Conservative manifestos, particularly for the young, with the conditioning benefits on acceptance of jobs.

Overall, impact of ageing should in short term be manageable but we lack a long term vision. In a context where parties feel rightly or wrongly that they have to contain costs and given how expensive pensions and health care, this limits our capacity to tackle new social risks. This is partly because of the much greater electoral support for pensions and health care than benefits, and hence a normal electoral mechanism. But this victory of ‘politics over economics’ will undermine our long term potential and limit our ability to tackle inequality and poverty.


[1] Achieving budget balance while protecting pensions and healthcare suggest further drastic cuts in other policy domains that have already been hit hard. Indeed, spending outside of the NHS, education and aid has already been cut by 18.1% between 2010–11 and 2014–15.

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