WELFARE FACTS # 1: THREE OUT OF FOUR UK BENEFIT CLAIMANTS FOUND FIT FOR WORK

Evidence of the need for reform of Britain’s £192 billion per annum welfare system continues to flow in, with applicants for the new Employment and Support Allowance (ESA) now having to submit to tough new tests called “work capability assessments”.  Currently 2.6 million Britons claim the incapacity benefit, costing taxpayers £12.5 billion a year. According to The Telegraph, four out of 10 new applicants for the ESA were found fit to work and:

Another 36 per cent abandoned their application before submitting to medical tests, leading ministers to suggest that many gave up their attempt after realising that they would have to be assessed by a doctor.

Just six per cent were signed off work, with another 16 per cent found to be capable of some form of employment if they received help and support.

UK Employment Minister Chris Grayling said the figures justified the government’s plans to shift people off incapacity benefits which have simply been used as a “dumping ground”.

“We now know very clearly that the vast majority of new claimants for sickness benefits are in fact able to return to work.

“That’s why we are turning our attention to existing claimants, who were simply abandoned on benefits.

“We will, of course, carry on providing unconditional support to those who cannot work, but for those who can it’s right and proper that they start back on the road to employment.”

FAIRNESS, POVERTY AND WELFARE REFORM

The respected British thinktank Policy Exchange has just published a research note Just Deserts: Attitudes to Fairness, Poverty and Welfare Reform.

It reports findings by market research company YouGov on what the British public thinks fairness really means and the implications of this widely endorsed concept for poverty and welfare issues.

Interesting results are as follows:

What is fairness?

• Second only to “economic responsibility”, “fairness” is the second most important value which voters want to see in a political party.
• The majority of people think that fairness is mainly a question of people getting what they deserve, rather than being about equal treatment.
• By a margin of four to one (73%-18%) people agree that society can be fair even if it is unequal – as long as there is equality of opportunity.
• Some of the least popular options for increasing fairness were reducing tuition fees (11%) and banning private education (4%), while increasing welfare benefits was the least favoured option of all, with just 3% identifying this as an effective way to create a fairer society.

Poverty and its causes

• Few members of the public endorse the more expansive definitions of poverty favoured by many academics, which equates poverty with differences in relative incomes, or some people not having goods that other people have. 
• By a margin of four to one (71%-16%) people agree with the statement that “Some people who are poor are much more deserving than other people who are poor. We should focus help on those who are trying hard and doing the right thing, rather than those who have made themselves poor.”
• Asked what factors might make a child more likely to end up poor in later life, people identify factors like growing up with drug/drink addicted parents (60%), failing to gain any qualifications at school (37%), or growing up with parents who are unemployed (33%).

Fairness and welfare reform

• By a margin of six to one (80%-13%), people agree that “people who have been out of work for 12 months or more, who are physically and mentally capable of undertaking a job, should be required to do community work in return for their state benefits.
• The median voter would back the idea that jobseekers should spend 3-5 hours a day searching for work.
• The public would back a stronger sanctions regime in the benefits system than exists at present.
• The public would back particularly tough sanctions for drug users, people with criminal records, or those who have claimed benefits several times before.
• By more than two to one (66%-27%) people agree that “People who have more than three children should not get extra child benefit if they have a fourth”.
• The government shouldn’t encourage marriage through the tax system, but should discourage people from becoming lone parents.

It seems the views of respondents to the YouGov survey are consistent with many of the themes in the recent Welfare Working Group report chaired by Paula Rebstock.

The research note quotes a perceptive statement by Liberal Democrat leader Nick Clegg.  His view contrasts with the views of some ‘poverty advocates’ in New Zealand:

“You cannot measure poverty with a snapshot because people’s lives last longer than a single second. If you want to measure genuine fairness, the question to ask about government policy is what its dynamic effects are, particularly across the generations. How does it change the future course of people’s lives? How does it increase their opportunities? Will it unlock the poverty trap or deepen it?”

LESSONS FROM SINGAPORE

This week’s issue of The Economist contains an important special report by one of the paper’s most talented journalists, John Micklethwaite, on the role and size of the state.

He concludes that the prospects for reforming the state have improved with the fiscal crises buffeting Western nations:

… the incremental benefits of ever bigger government, even assuming it was somehow affordable, become ever smaller.  Decent-sized government can reduce inequality and poverty, but most of the evidence is that gargantuan government merely gets in the way of social progress.  A state that takes up more than half the economy begins to deliver an ever worse deal to ever more people in the middle: the extra benefits become harder to detect, the extra costs harder to hide.

The report argues that with good management the share of government spending in Britain could be reduced to 40% of GDP – a very modest goal and an outcome that would still be far too high for fast growth.

It rightly notes that the British welfare state, with high levels of social transfers and middle class churning, would remain twice the size of Singapore’s.  Unusually, for what is still a Eurocentric paper, the report devotes this section (scroll down) to observations about Asia and Singapore in particular.

Singapore is certainly a standout country.  Only two generations ago Orchard Road looked like a third world thoroughfare.  In the 1970s I was involved with the administration of New Zealand aid to Singapore.

Today, Singapore’s per capita income (PPP basis) according to World Bank figures is US$47,940, roughly on a par with Hong Kong ($43,960), well ahead of Australia ($34,040) and nearly twice that of New Zealand ($25,090).

Some New Zealanders think of Singapore as a country that reflects the state paternalism of Lee Kuan Yew who ran the island from 1959 to 1990.  It is true that there are dirigiste elements in the Singapore model, such as mandatory contributions to the Central Provident Fund which finances  much of Singaporeans’ housing, pensions and health care.  Also some outsiders dislike Singapore’s limited political democracy, proselytising of ‘Asian values’ and attitudes that they find somewhat stifling, including of entrepreneurial vigour.

But to regard Singapore as an essentially statist country is to miss the wood for the trees.  It consistently rates behind Hong Kong as having the freest economy in the world.  As Micklethwaite notes, Singapore’s success owes far more to laissez-faire than to industrial policy:

Rather than seeing foreign investment as a way to steal technology or to build up strategic industries, as China often does, Singapore has followed an open-door policy, building an environment where businesses want to be. The central message has remained much the same for decades: come to us and you will get excellent infrastructure, a well-educated workforce, open trade routes, the rule of law and low taxes.

Government spending is around 19% of GDP, the top income tax rate is 20%, the top corporate rate is 17%, Singapore has been at free trade for years, and its labour market is highly flexible with no burdensome rules on dismissals and work hours.

Many other interesting features are noted by Micklethwaite:

• Singapore’s competitive advantage has been good, cheap government
• It provides better schools and hospitals and safer streets than most Western countries
• It is near to the top of educational league tables, yet education consumes only 3.3% of GDP (less than half New Zealand’s level of education spending)
• Teachers need to have finished in the top third of their class; headmasters are often appointed in their 30s and rewarded with merit pay if they do well but moved on quickly if their schools underperform
• The quality of Singapore’s civil service is exceptional, with those at the top being paid US$2 million or more
• There is a welfare safety net to cover the very poor and sick, but much greater reliance on personal and family resources.  Lee Kuan Yew once said that the only thing that would hold Singapore back would be the development of a Western welfare state.

Micklethwaite concludes:

… arguably the place that should be learning most from Singapore is the West. For all the talk about Asian values, Singapore is a pretty Western place. Its model, such as it is, combines elements of Victorian self-reliance and American management theory. The West could take in a lot of both without sacrificing any liberty. Why not sack poor teachers or pay good civil servants more? And do Western welfare states have to be quite so buffet-like?

By the same token, Singapore’s government could surely relax its grip somewhat without sacrificing efficiency. That might help it find a little more of the entrepreneurial vim it craves.

Neither Hong Kong nor Singapore have significant natural resources.  Their geographical position has not altered: Hong Kong grew rich while China was still poor.  They do not have great natural environments but there’s not much they can do about that.  Their prosperity underlines the lesson that the institutions and policies a country adopts basically determine its success in the modern world.  Singapore has an admirable focus on its own interests; one hears little about ‘leading the world’ on climate change, for example.

Many New Zealanders are sceptical about the idea that New Zealand could catch up with Australian living standards.  I have put the question the other way round: would any competent economist not think that New Zealand could overtake Australia if it moved towards the kind of economic framework of Hong Kong and Singapore?  So far none has come forward to take this position.

Capitalism, caring and Canterbury

Last week in an article titled The Real Meaning of Welfare I noted:

…the compassion, generosity and big-heartedness New Zealanders show to their fellow human beings when tragedy and hardship strike.

It’s the same instinct that gave rise to New Zealand’s welfare system in the 1930s and we have seen it at its best this week in the actions of countless individuals, community organisations, businesses and the government in seeking to relieve the suffering of those stricken by the disaster.

While Christchurch’s tragedy has pushed the Welfare Working Group’s final report onto the back-burner, it is at such a time that a well-functioning welfare system is at its most needed and important.

Yesterday, in a great post on capitalism, caring and Canterbury, Cactus Kate wrote about the role of the welfare state at times like this:

The cost of the earthquake may never truly be known. Right now businesses in Christchurch have no premises for their employees to work from, sole business owners have their families to look after rather than their clientele. Company records have been ruined, buildings are in a questionable state of safety and even if employees can make it into town over broken roads, through broken streets and broken churches, how broken are the poor souls to start productive output so soon after their trauma?

This is what the welfare state should be about. Providing temporary assistance to those who need it for acts truly beyond their control. Welfare for Christchurch doesn’t even need a question. The answer is “yes”.

Welfare isn’t to subsidise earnings of those on the top tax rate due to WFF. It isn’t to pay for those to breed more children into the world when they cannot afford it. It isn’t to pay for interest free student loans to children of those who can most afford to assist their children through a University education. It isn’t for lifestyle choices of knowing the taxpayer will always prop them up no matter what. Or state housing for life in areas most New Zealanders can’t afford to live.

She also describes the critical role of private enterprise and endeavour in helping people and their businesses get back on their feet and keeping the rest of the country running while the government rightly focuses on spending to support those hit by the disaster.   She notes in particular the huge generosity of Business Roundtable member Owen Glenn:

… entrepreneur Owen Glenn who has dipped into his pocket equaling a donation of $1 million with that of New Zealand’s largest protected corporate Fonterra….

and that many others – individuals and firms – will follow with equally generous donations.  While New Zealanders are willingly contributing to the costs of the earthquake, she points out that:

The EQC and private insurances should cover a lot of it. As should prudent government spending and years of “saving for a rainy day”.

Tragically, as Cactus Kate notes, our excessive welfarism of the past few decades, administered to so many who are quite capable of supporting themselves, has destroyed New Zealand’s ability to prepare for “this rainiest of days”.   Read the full post here.