speri.comment: the political economy blog

Inequality Redux IV

Shedding light and turning down the heat in the debate on welfare reform

Thomas Hastings, Associate Fellow, SPERI, and Lecturer at Sheffield University Management School


Thomas HastingsIncreasingly, debate about the British economy is focusing on welfare reform and the downward adjustment of the rate of benefit British citizens can expect at times of hardship.  The logic here has typically coupled the need for deficit reduction with moral arguments about who should lose out more: the poor or the ‘squeezed middle’.  In such a highly charged political context there is a need not only for some debunking of the crisis narrative itself, but greater awareness of the different conclusions being drawn about the relationship between welfare, economic growth and inequality in other crisis-hit European countries.

As noted recently by the OECD – the West’s most prominent pro-market think-tank, lest we forget – inequality has been shown to hamper economic growth.  This raises interesting and concerning questions regarding the British coalition government’s attitude to welfare cuts, which have intensified in the wake of financial crisis in the name of reducing the deficit and bringing about ‘fairness’ for a squeezed middle-class.

Benefits act as a vital safety-net for people out of work or struggling to make ends meet, a point not lost on the OECD which views government transfers as the key to guaranteeing that low-income households ‘do not fall further back in the income distribution’.  This post argues, however, that debates around welfare/benefit reform routinely fail to make the connection between inequality and economic growth due to their pre-occupation with deficit reduction and the moral aspects of welfare reform.  I also suggest that these debates would benefit from cross country-comparisons and a stronger engagement with the political economy of welfare by the mainstream media.

Clearly, the thorny issue of welfare reform has cemented itself as ‘hot topic’ in the run-up to the May election.  Presently, it seems, we can’t go a week without hearing about the pros and cons of welfare cut-backs, benefit sanctions and the impending system of Universal Credit both from the perspective of ‘taxpayers’ and recipients of out-of-work support.    The latest notable instalment – Dispatches: ‘Britain’s Benefits Crackdown’ – has added to Channel 4’s growing repository of ‘reality nasties’ (Benefits Street, anyone?).  Unfortunately, few mainstream discussion programmes analyse the wider implications of benefit reform outside of basic moral dilemmas on either side of the debate, or reach for more critical reasoning to justify the reforms in the first place.  They seem designed instead to generate more heat than light in debating welfare reductions and their corollary: rising rates of social inequality.  This is good news no doubt for Katie Hopkins and Russell Brand, less so for members of the public interested in a critical engagement with the whole issue.

So, where to begin?  Undoubtedly, the context of the 2008 financial crisis has proved pivotal in establishing the ‘need’ for deficit reduction and consequent welfare adjustments.  This drive has been reflected particularly in the coalition government’s WORK programme which has intensified the welfare-to-work aspect of employment policy in Britain, primarily through the use of sanctions for ‘non-compliant’ claimants.  Outside of benefit suspension, additional compelling measures have included enforced community service for long-term jobseekers (part of the ‘Help to Work’ programme which began in April 2014) and further pressure for jobseekers to accept zero-hour contracts under threat of benefit restrictions.

There is strong evidence to suggest this turning-up of the dial disproportionately impacts the most vulnerable in society.  Although the Department of Work & Pensions points to declining rates of sanctions overall, the fact is that, for those receiving employment support allowance (the main benefit for the disabled and seriously ill), they have increased fourfold in the two year period 2012-14 (a rate of more than 3,000 sanctions per month).  Campaigning charities, such as Mind, have accordingly chastised policymakers for failing in their duty of care to the most vulnerable, particularly those suffering mental health problems and associated medical conditions.  We’ve also witnessed extended use of means-testing in relation to entitlement to child benefits.

As noted earlier, justification for this ‘sanction culture’ has typically centred on two related issues.  First, there is the perceived need to cut the deficit and the accompanying suggestion that in this context the £94 billion spent annually on working age benefits is both wasteful and ineffective.  Second, there is the purported moral dimension to the benefits issue, epitomised by attacks on claimants and the ‘something for nothing culture’ by leaders across the political spectrum.  This creates a problem of choice for the electorate, with all the major parties attacking benefits spending – in one guise or another – as inimical to renewed economic growth.  The question becomes: ‘whose benefit inequality matters least’?  Answer the elderly (vote Lib Dem), migrants (vote Conservative) or the young (vote Labour)?

Any way round, the calls for benefit reform and related austerity responses have been presented as necessary evils linked to lower deficit levels.  This need not be the case.  As shown by ETUI reports (such as Clason et al.), cross-comparison studies in the EU suggest multiple interpretations of the crisis and the necessary outcomes across different EU states.  In the case of Spain, a less prevalent narrative depicts post-crisis labour market reform devoid of major cuts to labour market policy expenditure.  Rather, Spanish administrations have focused on reducing employment protection legislation with a view to enhancing labour market flexibility on behalf of firms and, specifically, in the interests of labour market ‘outsiders’ struggling to attain work.  For its part, Italy has also put considerable effort into post-crisis reform intended to enhance employment rates (via solidarity contracts offering wage cuts/reduced social contributions) and has recently sought to strengthen social protections for groups of (non-)workers previously unprovided for.  In contrast to current conservative rebuttals of ‘inhuman inflexibility’ with respect to British benefit sanctions, it is notable too that reform in Italy has extended the coverage of social insurance to apprentices and other workers with fragmented employment histories.

A further point of comparative interest with reference to rates of lifelong learning arises with the case of Ireland, where education has been pushed as a means of lifting jobseekers out of poverty.  Contrary to the British experience, where educational funding has suffered in recent years (e.g. the abandonment of the Train to Gain programme and the axing of the educational maintenance allowance), the rules relating to Ireland’s Back to Education Allowance (BTEA) have been adjusted in a contrary direction.  In 2010 eligibility for BTEA (which provides funding for a return to full-time education for those receiving welfare payment) was expanded to allow the entry of applicants claiming benefits over a period of nine, rather than twelve, months.

In other words, different things can be done.  These various actions have received insufficient attention in Britain and have in effect been drowned out by the generalising narrative of austerity and deficit reduction which implies that the main ‘crisis states’ have little or no scope to implement progressive policies geared both to reviving the economy and tackling inequality.  That said, it’s obvious that the related issues of inequality and benefits reform are not going to disappear in the run-up to the election in May.  In fact, the polemic will only intensify.

Rather than entrenching ourselves on one side of the ‘moral argument’, we should look to steer the discussion in more useful directions that embrace a better grasp of political economy.  After all, does the crisis and the rise of sovereign debt really necessitate welfare cuts?  How have other states reacted to both debt and inequality concerns?  If this is too ambitious, we can at least spread the word that inequality is not only distasteful: it actively holds back economic growth.  We could then perhaps try to ask, as objectively as possible, if welfare policies that sanction, bully and propel people into low-paid (often zero-hour) work are likely to do much good for any of us outside of the 1%.

Thomas Hastings is a member of the Work, Organization and Employment Relations Research Centre (WOERRC) based at the Sheffield University Management School. You can follow the work of WOERRC on twitter @WOERRCsheffield.

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Categories: British growth crisis, Economics, Inequality, SPERI Comment, Welfare | 1 comment

Articles and comments posted on this blog reflect the views of the author(s) and not the position of SPERI or the University of Sheffield.

Comments (1)

  1. “… inequality has been shown to hamper economic growth …” Now: I wonder if they examined Singapore as well? I doubt any of these ideas can be “proven”. The OECD, by the way, is not an independent think tank but if you know researchers working there or on a remunerative basis for the OECD you will quickly find out that the OECD provides certain benchmarks that are pre-ordained. Were it otherwise the 2007 crisis would have been investigated PRIOR to it happening as independent (!) researchers warned of the bubble since late 2000. Anyhow – the question is why do we have inequality? Certainly not because the rich “defraud” the poor. The rich are more interested in having well-heeled customers. So the only actor who DOES have an interest in having a large constituency of have-nots depending on “him” is … the politician who doles out benefits. And again, look at Singapore. Isn’t it funny this arrangement does not apply there?

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