It was Conservative governments that fundamentally undermined the contributory principle

It was the Keynesian era of full employment – when, after all, more people were ‘contributing’ – that delivered ever higher proportions of contributory spend that rose to 71 per cent by the mid-1970s Keynesian collapse.

History suggests it is time for our politicians to view welfare and capital spend more in the round. In 1943, an obscure backbench Tory MP, Edward Cobb, made the following statement about the recently published Beveridge Report which, famously, extended welfare provision for the unemployed:

“The proposal…that unemployment should be compensated for by means of weekly payments seems to me a defeatist attitude. I think I can say I know the working man well enough to be able to say that the only compensation which the average working man wants for the loss of employment is another job. It is essential that the government should endeavour to set up machinery which would make it possible for a man not to be unemployed for those long periods which he has experienced in the past, but should be able to place him in another job at the earliest possible moment.”

This seems a pretty sensible statement. It is one Labour have recently implicitly backed with their jobs guarantee. Ed Balls has argued that “£1 billion a year would fund a compulsory jobs guarantee initially for all those out of work for 24 months or more – which we would seek to reduce to 18 or 12 months over time”.

Between January 2010 and October 2012, the number of long-term unemployed people increased by about 140,000 (the vast majority of these – 103,000 – were women).

There is evidently much that should be done about this situation. But the problem here is that long-term unemployment is categorised as any period longer than one year, whereas Labour’s proposals, at present, only deal with two years or more.

It is certainly a very welcome first step, but a caveated claim to ‘seek to reduce’ – why not just ‘reduce’ – this to 18 or 12 months over time is not going far enough. Were someone to be unlucky enough to lose their job the day Britain goes to the polls in May 2015, they would have to wait until almost mid-way in that parliament for the jobs guarantee to kick-in.

This is of course the time the deficit – at present – is pledged to be cleared, so there may be some ‘sunny uplands’ type thinking here. Two years of Tory induced pain, one year of pick-up, and a snap election in May 2018. But Labour should be bolder.

As Paul Krugman has recently observed in his End This Depression Now!, “if workers who have been jobless for extended periods of time come to be seen as unemployable, that’s a long-term reduction in the economy’s effective workforce, and hence in its productive capacity”.

If we don’t make the investment now, we may never recover the loss. Part of this may be in the sums – Labour has pledged to use the proceeds from a tax on bankers’ bonuses to fund the guarantee, and they may be wearing of over-pledging here.

But history suggests there could be an element of killing a few birds with one stone here.

It is well documented that the contributory welfare principle has steadily been eroded over a number of years. And we have indeed moved a long way from Beveridge’s original intention for the welfare state.

But, as my new e-book One Nation Britain shows, it was the Conservative governments of Thatcher and Major that fundamentally undermined this principle – from around two pounds in every three in benefits being dispersed through the contributory principle in the late 1970s to, by the time John Major left office in 1997, contributory benefit making up less than one pound in two of total spend.

It was the Keynesian era of full employment – when, after all, more people were ‘contributing’ – that delivered ever higher proportions of contributory spend that rose to 71 per cent by the mid-1970s Keynesian collapse. No wonder Labour have recently turned to a claim that they are the ‘party of work’.

Work is not only productive, but it is good for exchequer.

Given the post-war record levels of housing building, including the 280,000 famously built by Macmillan’s government in 1958, but also the 425,000 delivered by Wilson a decade later, it does seem that capital spend on new homes could provide something of a magic bullet.

In 2012 Ed Balls hypothesised (essentially) that it would cost £30,000 to fund the construction of a new house. Some poured scorn on these sums. But if we work with a much higher cost of £75,000 per unit the mathematical case for stimulus still makes sense. A three bed social unit brings in on average £3800 each year. This means in 20 years such a unit would pay for itself, let alone any subsequent sale.

But factor in the c.£3000 it costs to pay someone job seekers allowance for a year plus a potential c.£3,500 in tax/national insurance for a £20,000 a year job (or just under £2000 for a £15000 a year job), and the incentives for government to act become obvious.

And this does not build in potentially reduced housing benefit or the additional tax receipts accrued through VAT and other positive externalities of increasing total purchasing power.

In layman’s terms, when people have more disposable income, they will spend more, and the exchequer will take money in, not disperse it out. These are of course truisms, but they do indicate the possibility of instituting a virtuous One Nation circle.

One Response to “It was Conservative governments that fundamentally undermined the contributory principle”

  1. KAREN

    whats going to be done about the bedroom tax? the disabled weren’t meant to be affected but we are!! I have to find £25 extra per week so have cut down on food but when I run out have to eat around my 89year old mothers!! not right!!

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