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Radical thinking needed on welfare state

Radical thinking needed on welfare state

Radical thinking is required to restore public support for the welfare state and get people saving adequately, former Secretary of State for Work and Pensions Lord John Hutton claims in the foreword to the SMF think tank's new publication Beveridge Rebooted.

The SMF's report outlines a new proposal for lifecycle savings accounts to restore the "contributory principle" to the welfare system, in the context of historically low public support for benefit payments.

These Lifecycle Accounts would build on the introduction of pensions auto-enrolment to facilitate tax relieved rainy-day saving. People who contribute into an Account would benefit from much greater financial support than is on offer from unemployment benefits for the first six months of an unemployment spell. Those that don't experience unemployment would benefit from a bigger pension pot on retirement.

In the foreword to the publication, Lord Hutton says of the SMF's proposal: "This is genuinely radical thinking. It stresses the role of the individual as opposed to the state. It lays the emphasis on people saving for a rainy day, rather than asking others to do this for them. Both are going to be necessary in my view if we are to return to a concept of sustainable welfare which commands public confidence and support."

Hutton argues that the SMF's proposal "could be a helpful way...to lock in middle class support for the concept of a welfare society".

In Beveridge Rebooted, the SMF advocates that a network of family and friends "guarantors" back the lifecycle savings accounts as a way to strengthen work incentives and allow unemployed people time to find better job matches. Where people are unable to pay back money drawn down from their accounts by getting back to work, guarantors would be liable for a proportion of the money, giving them a strong interest in helping their friend or family member to find work. This proposal, which the SMF has dubbed ‘Facebook Welfare', draws on academic research and practical evidence on the superior ability of social groups to help people back into work.

On this proposal, Lord Hutton said: "The authors break entirely new ground with their proposals for ‘Facebook Welfare'. These draw on the principles behind micro-finance in the developing world to put social connections, rather than anonymous government agencies, at the heart of the benefit system. Their aim to strengthen recipients' sense of obligation to their peers is an intriguing avenue for policymakers to explore, even if the practicalities of it are challenging."

Beveridge Rebooted is in four parts:  parts 1 and 2, by Ian Mulheirn and Jeff Masters, explore the crisis of legitimacy in the welfare system and the shortcomings of the orthodox approach to welfare; parts 3 and 4, by Ian Mulheirn, examine the political barriers to a state-led contributory welfare system and propose the lifecycle accounts and Facebook Welfare solutions. The publication is sponsored by the Joseph Rowntree Foundation.

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George Bailey