The latest report by Right-wing think tank reform could lead to the dismantling of the welfare safety net for millions of Britons.
As covered in this morning’s Times and Telegraph, Right-wing think tank Reform’s new report argues for the “abolition of middle class welfare”. But in fact this is a call for the dismantling of the welfare safety net for the vast majority of British people, challenging a political consensus that has been in place since the 1940s.
The first misguided assumption here is that the very poorest can be supported by a residual benefits system. In fact, universal benefits are the best means to target the poorest (means testing reduces take up through stigma, administrative errors and systemic complexities) and, as Titmuss told us – and the Fabians have reminded us – “services for the poor will always be poor services”. As soon as middle earners are excluded from welfare, services and levels of support deteriorate.
But Reform are not talking about the Daily Mail’s ‘middle classes’ (probably the top ten per cent of employees on salaries of over £45,000), or of actual ‘middle earners’ (those on around £20,000 a year). They reference the Joseph Rowntree Foundation’s research on ‘minimum income standards’ (MIS), which sets out minimum income levels that the public believe it is socially unacceptable for anyone to live below (for example, for a single person the MIS is £210.14 including rent).
Reform suggest abolishing state support for anyone whose income exceeds these levels – which, as the Office for National Statistics’ 2008 Annual Survey of Hours and Earnings shows us, is pretty much everyone apart from the poorest ten per cent of employees and those who are not in work.
The assumption that people in these income brackets do not need or benefit from the welfare state is ridiculous. In fact, as the ONS show, only those households in the fourth and fifth income quintiles pay more in tax than they receive in benefits (those with starting household incomes of more than £38,500 and £72,000 respectively), and groups with particular needs – including parents, disabled people and pensioners – will benefit more: there are few working families who do not need tax credits to help with household expenses.
The abolition of Reform’s “middle class welfare” would in fact impose an effective tax rise on the vast majority of working people. And as well as creating large increases in poverty, reducing labour market participation and increasing gender inequalities, such massive benefit cuts would have negative implications for demand; as the US Congressional Budget Office shows, extending benefits is the most cost-effective stimulus option and withdrawal of welfare significantly reduces spending across the economy (those who need welfare benefits spend their cash).
But Reform will be glad to know there are many ways in which benefits and protection for low and middle income earners can be retained without massive increases in the basic rate of income tax or negative economic impacts – by reducing tax reliefs and preventing tax avoidance among those who are the very best off, as The Missing Billions sets out.
For those who are really concerned about city bankers receiving child benefit the best way to maintain provision for those who need it is simply to up the taxes of the minority who don’t.
Our guest writer is Nicola Smith, Senior Policy Officer at the TUC
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