Laura Perrins: James, your new book is called the Welfare of the Nations – so how much trouble is the UK in?
James Bartholomew: Actually, there is a bit of good news here. Britain has turned the corner when it comes to welfare dependency over the past three or four years. The reforms put in place by Iain Duncan Smith and Lord Freud have had remarkable results that will go down in the histories and case studies of the future. Everyone knows that the unemployment rate has gone down. But not everyone realises that the reduction in the number unemployed has fallen more dramatically than ever before in the absence of an economic boom. And not everyone knows that the ‘participation rate’ – the proportion of the adult population available for work – has gone up. In the USA, over the same period, the participation rate has gone down. We still have plenty of major problems, though, with unmarried parenting, divorced parenting, unemployment, alienation, incivility, ineffective education and one of the worst healthcare systems in the advanced world.
LP: How will leaving the EU help us reform our welfare state?
JB: I am not aware of major ways in which leaving the EU will help us reform our welfare state. However it is certainly the case that the EU has ambitions to increase its influence on the welfare states of Europe. It has views on pensions, care for the elderly and social housing, for example, which it has been pushing onto countries. In social housing, it has been trying to stop countries such as Sweden housing people of all incomes. This may be well intentioned, but it is potentially damaging because it can create sink estates where many do not work. Of course, the EU welfare targets and instructions to countries are not debated or discussed so they are not open to criticism or democratic control. The EU is not good at reacting quickly when one of its policies goes wrong. The euro is just one example of that.
LP: Is the current welfare state really that bad for those in poverty? What does it mean to be ‘trapped’ by welfare?
JB: Welfare benefits are like stale cheese in a mouse trap. The cheese is hard and stinks. But on the other hand, the mouse happens to be passing nearby and he is hungry. So he goes in and PING! The trap door closes behind him. The benefits are not large. But once someone gets accustomed to living on them they find all sorts of ways to supplement their income. Research in America has found that most lone parents on benefits, for example, have other sources of income. Even with the extra money, their lifestyles are poor. But as they can get by, they often have not got the urgent motivation to improve their situation. And if they go back to a normal job, they will both lose benefits and be taxed. The gain from working normally can be small. Staying on benefits is bad for the individual and his or her self-respect. It is also unfair on other people who are financing the benefits.
LP: Do you think Osborne was right to scrap the tax credit reform?
JB: That is a very difficult one! Tax credits are deeply flawed. They enable employers to pay lower wages and workers to accept them because they both know it won’t make so much difference when the tax credits are taken into account. On the other hand, the measures he was proposing actually reduced the incentive to work for many people, which is bad, too.
LP: What will cause Britain to make the necessary reforms to its welfare state?
JB: Only two things cause reforms to welfare states:
- The perception by a large number of people and particularly the government that welfare is causing perverse consequences such as a boom in unmarried parenting. Then, with enough popular support, a change can be made as it was in the USA in the late 1990s.
- Running out of money. The big reduction in social housing that has taken place in Britain in recent decades is largely due to the fact that it has been costing a fortune. Plenty of estates failed so badly that they were literally blown up.
The biggest reforms take place when the two causes work together: people can see things are going wrong and the treasure chest is empty. But then, some years down the line, someone will decide to be ‘generous’ with taxpayers’ money again. And so the cycle continues.
(Find out more about his book at this website).
(Image: Matt Brown)