Select Committee on Social Security Minutes of Evidence

Examination of witnesses (Questions 100 - 119)




  100. Good morning, ladies and gentlemen, and may I welcome our friend, Martin Barnes, the Director of the Child Action Poverty Group. Thank you very much for your written submission. We have had a surprising volume of written submissions. The quality is, as usual, high and we are particularly grateful to you for crystallising some of your own current thinking on the future of the contributory principle. I wonder if I could start by asking one or two very preliminary questions. We have tried to get everybody that comes to see us and give us oral evidence to try and flesh out and define what they actually mean by the contributory principle because we are finding it means different things to different people and maybe that should not be a surprise to us, so I would like you to do that, but, in doing that, your evidence describes the principle as being slightly outdated, so can you just tell us a wee bit about that as well and why you think it really should remain valid because one of your main conclusions in your summary is that it should be extended rather than anything else. So perhaps you could give us a wee bit about definitions and the validity of what you think the contributory principle can contribute.
  (Mr Barnes) I think the first thing to say, if I could in terms of opening comments, is I think in terms of the context and the timing of this inquiry that the traditional boundaries between different types of benefits and different definitions are becoming blurred. In terms of the contributory principle, putting it in a fairly bullet-point way, it is clearly a relationship with paid employment and that is essentially what is the core of the benefit entitlement and that is primarily why we feel that there is scope to update and strengthen the principle. The CPAG clearly does support the current move towards encouraging employment and removing the barriers to employment and we do feel that benefit entitlement based on employment still has a role to play, but at the same time to look at other forms of participation that could even lead to employment or that could add value to employment later on, such as voluntary work, care work or part-time employment as well.

  101. What do you think the Government's current attitude is? Could you summarise what the CPAG actually believe the Government's current attitude is to the whole question of the contributory principle?
  (Mr Barnes) You have to see it in the context of the wider agenda on social security reform and tackling poverty. I recently described the Government's approach to social security as being somewhat inconsistent on the basis that there is a lot of good news, there are a lot of positive developments, particularly clearly in the areas that concern the Child Poverty Action Group, concerns about child poverty and the commitment to abolish it and the benefit system is being changed hopefully to accommodate that, but at the same time we do see, as we have said in the briefing, what is an extension of means-testing. Now, I do not actually subscribe to this as a conspiracy approach, but there have been views expressed, for example, that the Treasury wants to undermine the contributory principle because it wants to pave the way for the tax credit and tax benefit integration—to shift it across. I do not really subscribe to that. I think the concern is that the Government perhaps did not when it started on the reform process sufficiently tackle, for want of a better word, the core values, and there were gaps in the Green Paper last year, so when we then get the proposals in the Welfare Reform Bill, which is about the cutting back of some of the contributory benefit entitlements and extending means-testing, then I think people are right to be anxious about what appears to be a trend and the lack, I would suggest, of explanation as to where the Government is going in the longer term. So I would not say that the Government is anti the contributory principle, but my worry is that because it is not yet clear or open about where it sees the social security system ought to be going, it is stumbling towards an extension of means-testing and undermining the principle more by default than by conspiracy, I would suggest.

  102. Perhaps you can be more pragmatic than that. If you have Alistair Darling in The Guardian recently on 16 June saying that it does not matter whether it is insurance-based or means-tested, but it is just about whether we can get people back to work and improve their lives, they are agnostic. They seem to me to be agnostic on the contributory principle and, therefore, if they just, tackle individual sets of circumstances as they arise, in the long run Beveridge is as dead as a dodo.
  (Mr Barnes) Alistair Darling has said that they are approaching social security reform on an ad hoc basis. Now, that is not quite consistent with what the intention of the Green Paper last year was about; it was supposed to be setting the principles, the parameters. I am going to do a bit of PR for the Government at the moment because they are not just focusing on people moving to work. We saw in the Budget, for example, an increase in means-tested benefits for parents on income support and quite a substantial increase where the child is under 11, so I think we need to step back from the rather soundbite approach that some Ministers adopt. Nonetheless, I would still take the view that their approach is consistent, though sometimes contradictory, and, as I say, to use a better word, I think they are stumbling towards undermining the contributory principle and extending means-testing because I do not think there is a grand design as yet on the table. I think the other issue is that perhaps the Treasury and the DSS need to talk a little bit more about quite what they perceive as the ultimate vision of the welfare reform and the social security system as a whole because we have the move towards the tax credits, the possibility of housing costs going over as well, we have the possibility of extending tax credits to people over the age of 50 and then possibly to single people with low-paid work and at the same time we have got rather an ad hoc approach to welfare reform at the moment and that is why I think the picture is confused and there is some bad news as well as good news.

Ms Buck

  103. Whilst on the subject of Beveridge, Beveridge's original view was that you rewarded people who worked and made contributions and you, therefore, made the insurance-based benefits more desirable than means-tested benefits, so to what extent now in 1999 do you actually think that that principle remains, that people who have been able to work and make a contribution actually deserve to get a higher level of benefit?
  (Mr Barnes) The first thing to say, is that obviously the level of contributory benefits because of the change in the 1980s, the abolition of SERPS, is not always that high. Let me be clear about some of the context in which we are approaching it. My concern at the moment is that the Government's approach to welfare reform is an extension of means-testing at the expense of contributory benefits and the principle that that plays. That is why we feel that it is important to look at the core values of the contributory principle and actually say, "Yes, there is still a role to link entitlement to employment" and what we would like to see is that updated to also recognise the important roles that society would recognise in terms of inclusiveness and look at issues such as part-timers not being included, the fact that caring credits do not sufficiently extend to guaranteeing entitlement to those benefits. So going back to Beveridge, I think the link with employment is still an important one, but it does need to be updated to reflect changes in the labour market and also the fact that care roles, voluntary work also need to be recognised.

  104. That is fine, but if one of the objectives is the tackling of poverty and indeed inequality, is that best served by pursuing a Beveridgean notion that if you started off in a sense fortunate enough to be in work and able to make a contribution, the consequence would be that when you fall on bad times, unemployment or whatever, you continue to have a high level of benefit? That is really the point I am interested in your view on?
  (Mr Barnes) Contributory benefits do help prevent poverty and this is the danger with means-testing, that it traps people in employment traps; it is stigmatising; take-up is low. So to continue to link entitlement to benefit with some form of the contributory principle, where the entitlement is not means-tested, but is based on a past employment record is core to an anti-poverty strategy. It is also the basis on which you can involve more people in a social security system, and this is the strength of the contributory principle, as I am sure everybody who has given evidence so far has said, that because of the idea that you pay in and then take out, it does actually add to the popularity of it and keep that principle going, and I think in the current climate where there is uncertainty and lack of direction, to preserve those sort of values I think is important.

  105. Frank Field in his memo to the Committee said, "What Beveridge saw very clearly was that welfare impacted on character. In his view, thrift, prudence and hard work could all be best encouraged by an insurance scheme". To what extent do you think different welfare schemes influence character?
  (Mr Barnes) I think we are on dangerous ground here. I do not quite share Frank's view on behaviour in terms of means-testing and the sort of corrupting influence it has. We approach means-testing in a different direction because of the fact that it does trap people in poverty, the stigma, the cost; the reasons have been well rehearsed. I really think that there are dangers in putting too much emphasis on the way that the benefit system affects behaviour and I do not think the evidence is really there. For example, we have been prepared to engage on the debate on fraud. In our view, the estimates of fraud are too high and we are not satisfied with the way that fraud is estimated. We accept that there is some fraud in the system, but then to claim that there is a lot of fraud because of the way the system is designed and that creates bad behaviour and disincentives, there might be some merit in that, but I think it can get overblown and I think that is partly my concern about Frank's approach. We share his concerns about means-testing, but do not go quite as far in terms of the behavioural consequence.

  106. There are certain ways of distinguishing behaviour from character and would it be true to say, for example, that the existence and the level of contributory benefits might influence behaviour, say, within a potential two-earner household where means-testing benefit is the only option if one person is likely to influence the working behaviour of another?
  (Mr Barnes) At those sort of levels, clearly yes, and it is more an issue of the difficulties of means-testing because it is based on a household test, it is not always to the advantage of the family if someone is on means-tested benefits and then somebody works part-time, so this is why we are concerned about the move towards means-testing in that respect. On your previous question, I was more thinking in terms of the level of fraud and the argument that Frank Field has given on that, but yes, clearly means-testing does act as a barrier sometimes to encouraging participation in the labour market and limits people's choices which again is the strength of the contributory system, that it is based on entitlement, it guarantees a form of income and it really is a core of guaranteed value and it is important, therefore, to an anti-poverty strategy.

  107. I have one specific sub-question on that point about character that Frank laid such emphasis on. What about savings which comes through quite strongly?
  (Mr Barnes) Yes, again means-testing does not encourage people to save, but the other approach is that a lot of people simply cannot save because they do not have sufficient incomes and behaviour is often about lack of choices because of poverty, but yes, means-testing is not the preferred system if you want to encourage savings in the long term.

  108. Going back to Beveridge, he argued that contributory benefits should be paid for from the fund and that if this proved to be inadequate to maintain a decent level of contributory benefits, then contributions should be raised. To what extent do you think that is currently feasible and are people prepared to pay higher contributions?
  (Mr Barnes) I think one of the issues that we might need to look at is the upper limit on contribution payments. We think it should go and for a long time we have argued that. The upper limit on national insurance contributions is unfair and if you want to increase revenue, there is scope to do that. The price might be that perhaps if people pay more contributions, because of that perhaps there should be entitlement to some higher rate of benefit. This is where we are in the current debate, that we need to look at what is happening to national insurance levels and if they are being raised, we want to see the limit abolished and try and take a look at the picture as a whole.

Mr Leigh

  109. I did not understand your answer about benefits not affecting behaviour. I thought that everybody recognised that although means-tested benefits may be necessary to relieve poverty, they also do reflect behaviour and if you are a low earner with children and you are faced with the choice of doing a deadly boring job and being kept away from your family and the things you want to do and losing most of your benefits for doing it, you are not going to do the job, are you?
  (Mr Barnes) Well, as I clarified I think, because of having seen previous writings of Frank Field, and in terms of the description of behaviour I was trying to counter the perhaps more realistic approach that is sometimes used in the debate on means-tested benefits, but yes, means-tested benefits, because of the fact that the disregards are so low, the fact that it is based on a household test can sometimes be a disincentive for people to take opportunities of work, but the issue is more the fact that sometimes the jobs available are extremely low paid. Now, the minimum wage is helping that, but, nonetheless, we do accept that means-tested benefits do create those sorts of problems.

  110. We all know that governments constantly are faced with the problems of balancing the budget and the social security budget is one of the largest, if not the largest, in government. Over the years we have cut SERPS, cut the link between the pension and earnings and phased out invalidity benefit and replaced it with incapacity benefit, et cetera, et cetera, so would you say that there has been a general failure or collapse of trust in the word of government to meet these commitments to people who have paid for the system over the years?
  (Mr Barnes) I think I will step back a bit and obviously challenge the argument that is often made, particularly by the previous Government, that we cannot afford social security. If you look at the reasons why the social security budget has increased in the last 20 years, it is primarily because of the social costs of two very deep recessions. We have seen mass unemployment and we have seen an increase in incapacity and sickness partly related to the stress that individuals and communities have undergone. If you look at the more recent time-frame, five to ten years, the increase in social security is well within the growth in the economy, it is affordable and social security spending at the moment is flattening out and is actually turning out to be significantly less than was even estimated two or three years ago, so the assumptions upon which some of the debates on the contributory principle are based I think need to be challenged, but in terms of contributory benefits, the current evidence is showing that in fact contributory payments are more than paying for the current system of benefits. Clearly for the long term there are concerns about the cost of pensions and how that can be afforded, but as far as I am aware from what is in the DSS figures, the contributory benefit system at the moment is self-funded in the sense that it is not requiring top-ups from the Inland Revenue.

  111. So your response really to all this talk about the contributory principle being in internal decline is, "Crisis? What crisis?" really?
  (Mr Barnes) No, the benefits are in decline because they have been attacked and cut, particularly in the last 20 years, by consecutive governments and that has been the problem. That is why confidence in the system has been undermined, because people pay their national insurance and they have seen that government cuts back the scope for the entitlement to benefits. That is where the crisis is, but I believe the commitment to the idea of paying in and then taking out is still very sound and it is not in crisis because of issues of affordability and that is certainly not the message from the DSS figures at the moment.

  112. Well, whatever you say, there is a limit to how much one can trust governments faced with the need to deliver attractive tax cuts before general elections and all the rest of it and so can I put this to you: that is not one way out of this to try and buttress the contributory principle by having more funded schemes so that people, particularly young people coming into the market in the future, will know that their contributions that they are required to give by law, a percentage of their salary, do not just go into a pot which can be raided by governments in the future, but is theirs? Have you got any sort of philosophical objection to that kind of concept of a personal funded scheme, albeit in the state sector, not in the private sector?
  (Mr Barnes) I think the important thing is that you do maintain fairness and equity in the system. As I said earlier, if there is, for example, the removal of the upper limit for national insurance, there could be a case for saying that people who do pay more in because of that might perhaps have a right to a higher rate of benefit. What we would not want to see happen is some sort of withering on the vine where those that contribute less get less over the longer term, so some degree of redistribution and flatness in the system has its advantages. Coming back to what you say, I think the more that a system can be protected from shifts in government policy or knee-jerk reactions on welfare reform, the better, and that is why I said at the outset that I think it is important that in the debate on the contributory principle it does still become wider in terms of what is happening across the board of welfare reform and how this fits into that longer-term strategy. It is very difficult to prevent future governments from changing policy in law obviously, but the strength of the contributory principle which is why those benefits are still there and what has protected, I think, further cuts is because of this idea that you pay in and you take out and the principle itself, I would suggest, has made it more difficult for governments to make cuts in the social security system which is why we say that we defend it, but let's update it.

  113. So you do not have any particular objection to the personal pot idea as long as there is some sort of redistribution within it and that the people who cannot maintain their contributions are helped out by government? Is that right?
  (Mr Barnes) Yes, I think that is it.

  114. Do you have any personal objection to more and more people taking out private insurance schemes? Do you think that affects the contributory principle? After all, they are presumably saving the state, so do you object to that concept?
  (Mr Barnes) I would not object to people exercising choice to take out a private pension. Our concern would be that you create a push factor, that you cut those benefits that people expect to receive on the basis of the contributory principle and they are, therefore, anxious about the ability to provide for themselves and their family if they are unemployed or if they are sick and that is where we would be concerned about the move towards privatisation, not people exercising a choice because they want better, but a choice because they are frightened, they are anxious about what sort of protection they are going to receive from the state and I would suggest that that has been the pattern for a number of years, that the interest in private insurance is because the public is not daft and they see the system being cut back.

Mr Pond

  115. You were saying in response to Edward Leigh that one of the advantages of the contributory system is that it makes it more difficult for governments to make cuts in benefits. Whilst we all know the history of what happened under the previous Conservative Government with very big cuts in national insurance benefits at a time, as we have heard, when contributions have been going up dramatically, is there really that safeguard there or is that just a mythical safeguard?
  (Mr Barnes) That is a big question and clearly there were significant cuts to the social security system made by the previous Government, but I think the context has moved on a bit now. I think, to put it bluntly, with the reaction to the proposals in the Welfare Reform Bill and the change to incapacity benefit, I think the Government was surprised at the strength of feeling about those changes and I would suggest it is in part informed by the voters that these are contributory benefits that people receive, they are paying in and when a government then moves the goalposts for reasons which I would suggest are not always consistent and coherent, then it does raise concern and a degree of anger about them, so I think the debate has moved on and I think it does still act as some degree of a buffer between further undermining the benefit system because of its strengths. It is the same with child benefit. Child benefit is popular because it works well and the contributory principle is popular because I think people see that it works well and that is what needs to be maintained.

  116. I think we could have an interesting debate there, but it is probably not a good time, as to whether or not the Welfare Reform Bill strengthens or weakens the link with the contributory principle, but let's leave that to one side for the moment. When we have been talking to previous witnesses and, in particular, the TUC, they have presented to us an apparently contradictory situation in relation to public attitudes to the contributory principle. On the one hand, people say that they do think it is important that they pay in contributions and they get something out at the other end, but at the same time they say that national insurance contributions are just another form of tax. How do you think we square those two different positions which the public seems to hold at one and the same time?
  (Mr Barnes) I would not always worry about two seemingly inconsistent positions; it is possible to have them. Clearly the fact is that it is a reduction from the pay packet and people do see it as a form of payment to government, but, nonetheless, there is a connection between the national insurance payments and the entitlement to benefit and I think that is where this inconsistency is explained so that people see the link there. At the same time obviously you want to pay less out of your wage packet rather than more, but where it is paid out towards the contributory principle, towards those benefits, then I would suggest there is clear evidence that the public supports that.

  117. I suspect that one of the reasons why there is this ambivalence in the public mind about the national insurance system is that the contribution system of course is pretty regressive as a form of taxation, and you mentioned the upper limit only a few moments ago, and also the payment of benefits, because it is based very much on contribution records does not help people who are often in intermittent or low-paid employment, the groups you mentioned before, the carers, et cetera, who perhaps are credited in certain circumstances and not in others. Is national insurance really such a simple and straightforward system in comparison to means-tested benefits which we all know are very complex?
  (Mr Barnes) It is a lot simpler than means-tested benefits, I can assure you. Having contributed to CPAG's handbooks and seen the difference between the section on means-testing and the section on national insurance, I think it speaks for itself. I think you need to look at the national insurance system which is why we have raised the issue of the upper earnings limit, for example. There is the issue about the alignment now with the level at which you pay national insurance, the lower earnings level, and the level at which you pay income tax. What the Chancellor has said is that he will protect the entitlement for people who would otherwise miss out because of that raising, but that is going to simplify the system. I think that is why there are some commentators who, therefore, take the view that there has been a conspiracy going on because ultimately what we could be heading for is more tax integration, a move towards the tax credit system. As I said, I do not quite share that view. Yes, you can simplify the national insurance system, but it is considerably easier to understand the means-testing.

  118. Let's just turn to means-testing again for a moment. We have covered quite a lot of ground on that and I think all of us in this room would accept that means-tests have a huge number of disadvantages. In your submission, paragraph 2.4, you referred to Martin Evans' rather, I think, clever illustration of social security as an ambulance picking up the casualties of social, economic and ideological change and pointing out that it would be perverse to blame ambulances for road accidents simply because they were there at the same time. Is there a case for arguing that means-tested social security certainly in the short term is the equivalent of the motorcycle paramedic in that where you have got a real and urgent problem of poverty, there is a role for means-testing? We know that there is going to be an extension of means-testing through income guaranteed for pensioners, for instance, or the fact that families on income support will be able to keep part of the increase in child benefit and that inevitably means an extension of means-testing. Is there a role for means-testing in that context?
  (Mr Barnes) Before answering that, I think it would be easier to answer it if we had a clearer picture about perhaps where the Government is going on its overall strategy, so if we took the view that in the short term there could be a role for means-testing, where ultimately are we heading? Now, the CPAG, for example, when we heard in the Budget that there would be an increase in the level of income support where there is a child under 11 and a very significant increase as well, we are looking at a boost of £6 to £7 a week over the next year for a family living in poverty now, I am not, as Director of Child Poverty Action Group, going to turn around and say that because that is an increase in means-tested benefits, that is a bad thing. It is a positive thing because it is cash in the pocket of that family. Now, I think in the debate on means-tested benefits, you can separate it. Where there are currently means-tested benefits in place, and we have supported the argument for making those benefits more generous, that is welcome. The issue at the moment though is whether means-tested benefits are being extended because of cuts elsewhere in the social security system, for example, the restrictions on incapacity benefit, the changes to widows' benefits, and that is the concern. A means-test extension there is bad, but where there are currently means-tested benefits in payment, we cannot but applaud an increase in benefits for those families and, as I say, with a £6 to £7 a week increase over the next year, I am surprised that the Government has not trumpeted that a bit more. Perhaps they have not because it is going to people not in work, but it is for the CPAG to say that actually this is a positive boost to those families.

  119. I have one final point because we have talked about whether or not there is a Treasury conspiracy to push towards tax credits and the TUC in their evidence, if I remember rightly, suggest that this really was a third way. On the one hand, you had means-testing and, on the other hand, you had contributory benefits, and tax credits were a third alternative. Do you see them as an alternative for means-tested benefits, for contributory benefits or both?
  (Mr Barnes) I think it is too early days to say whether or not the extension of tax credits beyond what is coming in this October is a good thing. We know, for example, that the Treasury wants to shift housing benefit across to the tax credit system. We have not seen any proposals yet. We are concerned about that because if they do do it, it is quite likely to be based on flat rates and when you base an entitlement on flat rates, you will always have people missing out and there will be gaps, holes in the safety net system. CPAG has supported the introduction of the working families tax credit, although there are faults with it, there are problems, but it is an increase in the support for families with children and it is replacing an existing means-tested benefit, and I think that is the important division to make on this debate, that if you are looking at means-testing and improving that, that can be positive. Means-testing becomes a greater issue if it is being extended because other benefit entitlements are being cut back or undermined and it is an entirely different issue. When the Chancellor announced in the Budget that he wanted to introduce a new payment for families with children, an integrated, seamless payment, we knew that in some way it was quite likely to be linked to the new tax credit system, but at the same time it gives the opportunity, building on the acceptance of increasing child benefit, to make the case to boost yet again the support for families with children, so, on the one hand, there is a risk of the Trojan horse, if you like, with more means-testing through this link with the tax credit system, but at the same time we have a commitment to provide more support for families with children and that is why we are prepared to enter that debate, not at the expense of cutting child benefit, but if you want to direct more support to families with children, if the political price is that you do it more with tax credits than always through increasing child benefit, we need to look at that. CPAG will always say child benefit first, but the debate has moved on and it is much more complex, so I would not quite endorse the TUC view for saying it is a third way and, therefore, that is fine because it is too early to know. I come back right to what I said at the beginning, that it is not yet clear enough what the core principles are and the overall direction and that is why we are stepping back a bit and not entirely endorsing that as the right way to go forward.

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries

© Parliamentary copyright 1999
Prepared 28 July 1999