What would a new social contract look like?

Debbie Abrahams

77 years on from the Beveridge Report, with poverty and inequality running rampant, it is clear that we need a new social contract with the British people. But what might it look like?

First, we need to develop consensus across the country on what our social security system should be for. Attitudes are shifting, but the mainstream media’s shirker scrounger rhetoric still needs to be comprehensively challenged. What we want from a new social security system must be evidence-based, and yet that evidence needs to be driven not just by data but by all of us, ensuring the principle of ‘nothing about us, without us’. That’s why I’m delighted that an expert-user-led commission on social security chaired by Ellen Clifford was launched at the end of May. Alison McGovern’s Make Ends Meet campaign is another excellent example of identifying alternative evidence-based solutions.

I believe that our social security system should be there for all of us in our time of need, just like the NHS, providing: security and dignity in retirement; the support needed should we become sick or disabled; protection from poverty whether we’re in or out of work. Beveridge said the system should be about “securing an income to take the place of earnings when they are interrupted by unemployment, sickness or accident, or to provide for retirement, or to meet exceptional events such as births, deaths or marriages”. Is this definition fit for purpose in today’s Britain?

Our social security system has tended to ape our neoliberal cousins across the pond, but what can we learn from other international models, such as those used by our Nordic neighbours? We also need to review the principles and ethos that should underpin how the system operates. Beveridge defined key principles that hold true today:

  • Firstly, support is available based on contributions paid by the individual.
  • Secondly, support should be available to anyone when they need it.
  • Thirdly, some benefits will be available according to your means.

Although we’ve seen the erosion of universal support and could argue that this coincided with the fall in public empathy for social security claimants, many believe that these principles are ones we need to retain. But are there others that we should add to our list? What about how we deliver social security and the importance of providing dignity and support? Should reducing poverty and inequalities, including intergenerational inequality, be fundamental principles of our social security system? How do these compare with other systems?

Beveridge was adamant that the income provided by the system should “satisfy a minimum income standard on condition of service and contribution”. He went on: “But the provision of income should be associated with treatment to bring the interruption in earnings to an end as soon as possible.” It is clear that the level of support provided particularly to today’s working age and disabled people is less than adequate, and far removed from the ambition of a minimum income standard. But how should it be funded in a new social contract, by whom and at what level?

The Social Insurance Fund that Beveridge established was to be funded by contributions from employees, employers and the state to ensure a national minimum income standard. 74 years ago, the total budget was £697m. Today, it is £190bn – about 12 times more than in 1945 once adjusted.

With an ageing society where the state pension is at 43% of UK welfare spending – the largest proportion of spending – and is set to rise to 45% (£119bn) by 2023, how can we ensure a fair and just state pension age, given that both life expectancy and healthy life expectancy are now stalling generally and reversing for women? With support to children and working-age people including disabled people at just 4.4% of GDP, and more working people living in poverty than ever before, how can we ensure this minimum income standard for all is delivered in a sustainable way? What about the projected five million children projected to be living in poverty by 2022?

In addition to more progressive, distributive economic policies, is the price for flexible labour markets that employers must pay higher taxes to pay for more generous unemployment support, low-income support and active labour market policies?

As John Maynard Keynes put it, “anything we can do, we can afford”. Our monetary system has been developed over many centuries, enabling us as a society to do anything we can, as we did in the aftermath of the Second World War. But for that monetary system to work well – to generate the tax revenues needed to finance the borrowing that pays for public investment, including in social security – we need an economically active population.

We currently have an economy held back by austerity, which has cut public investment at a time when the private sector is heavily indebted and where investment is at its lowest level in decades. The OBR’s own model has shown that the independent effects of austerity have been to stifle economic growth by at least £100bn in 2018/19, the equivalent of £3,600 per household. What a difference that money would have made to families up and down the country.

It is an economy where many of our people are in insecure, temporary and part-time employment. And the fact that so many are in insecure jobs means those in secure jobs are less secure. But the key point about Britain’s level of high employment is that we have “the most severe pay crisis for two centuries” as “real pay in the 15 industry groupings is still well below pre-crisis level”. We have wage growth – but only for the few.

If a government wanted to invest in people and their economic rights, the very best way of generating the tax revenues needed would be to raise incomes. Well-paid, skilled and productive employment generates more revenue than insecure, low-paid employment. To afford the public spending that society regards as necessary in a civilised society, we need the revenues collected from a thriving, educated, skilled and well-paid workforce.

Let us increase tax revenue by increasing skilled, well-paid quality employment for all, and investing in a social security system that ensures citizens – young and old, disabled and non-disabled – can live full and independent lives free from poverty. Poverty and inequality are not inevitable: they are political choices.

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