APPENDIX 7
Letter to Clerk of the Committee from
the Friendly Societies Parliamentary Committee (CP 2)
Thank you for your invitation to submit evidence
to the committee on the Contributory Principle.
The Association of Friendly Societies has for
many years advocated a significant change of policy in the field
of Social Insurance and has commissioned various pieces of research
to explore and develop its proposals. In this response I have
sought to summarise our views on the issues that will be addressed
in the Committee's enquiry. However, if you feel it would be helpful
I will happily provide you with copies of the recent reports we
have published.
The experience of the past, in particular when
friendly societies were the primary delivery agents of both state
and private welfare provision, suggests that people have a strong
sense of ownership when they are able to make their own decisions
about the amount they set aside for welfare protection and with
which provider. This extends to a sense of indignation if members
of the same financial pool abuse by fraud or exaggeration claims
upon the common funds. The approbation suffered by antisocial
conduct in communities where common ownership existed was sufficient
to ensure a standard of conduct that can only be dreamed of where
the anonymity of state systems convinces people that they have
discovered the victimless crime.
When welfare was community based, (defined in
many different ways), the relationship between claimant and contributor
was very much closer. Society has changed enormously since 1948
and the growth of a massive impersonal benefits system has served
to damage this cultural relationship and reduce the sense of ownership.
The use of means testing to control public expenditure
has proven a failed policy in that many people on the margins
contrive their circumstances to ensure qualification of the benefit
they seek. Nor has this policy been conspicuously successful in
curtailing welfare expenditure. It has also been the unwitting
cause of the steady decline of the self help movement.
The use of social insurance to deliver income
redistribution has also clouded the issues, once clear cut, for
most low income class families. Saving and insurance for many
contingencies is now counter productive for many people who earn
below the average income for society as a whole. We have long
promoted a policy of separation of tax and benefits as a first
step of welfare reform. Distortion of the market is the main
consequence of current taxation and means testing policies. Thus
it is impossible to discern value by acquiring assets or insurance
cover. People have not been slow to learn this lesson.
In our view, based on our considerable experience
of serving low income groups with welfare benefits and protection,
present policies are unlikely either to control public expenditure
or to change the present culture in favour of personal self help
and reliance. The works we have published set out a comprehensive
and, we believe, well argued case for a radical change of direction
which returns responsibility to the citizen for his own welfare
needs in a well regulated but competitive marketplace for financial
protection. Mutual ownership would act as a deterrent to poor
social behaviour and competition would encourage improved standards
of both products and services.
Perhaps most important of all is the long term
implication of involving the population in its own welfare requirements
rather than abrogating it to local authorities and or the state.
Our society is ageing. That will put great strains
on the physical delivery of welfare which is highly labour intensive.
This is especially true in respect of those aged over 85 who require
much greater support and who are destined to become an increasing
number whose needs may be costly and varied.
We argue that an organisation with both a social
and financial dimension is best suited to integrating services
through its membership, often on a voluntary basis, and can be
more efficient and cost effective in the long term. We refer to
these new organisations as "Approved Welfare Providers".
AWPs may also be seen as a vehicle through which civil society
and community could be fostered. The needs and services required
by members could be identified and prioritised by them and supplied
or purchased (perhaps in bulk) according to their own judgment.
Any institution—not just friendly societies—could
establish an AWP, including trades unions, employers and or their
organisations, other affinity groups, as well as financial services
companies and other kinds of commercial enterprise. Indeed we
see choice as a paramount prerequisite in delivering the quality
and range of services that will be necessary. Our only caveat
to this universal opportunity is that the organisation should
use all its surpluses exclusively for the benefit of members.
We believe that that is essential in gaining public support especially
as both state welfare and the financial services market are widely
perceived as either defective or unreliable and expensive.
To enable appropriate expertise to be available
to the "Approved Welfare Providers" we suggest that
they purchase services from the commercial market much as pension
scheme trustees do today, whether it be actuarial, investment
or legal advice. If such a model were adopted the highest standards
of service would be available to all in a competitive market which
permitted and encouraged innovation and participation by the members.
Against the background described above I now
turn to the specific points you mention in your letter as being
areas of investigation by the Committee.
The contributory principle
We understand the contributory principle to
mean that a direct and obvious relationship exists between the
contributions made and the benefits received by an insured person.
This relationship has been increasingly eroded
by the introduction of means testing and the use of the welfare
system as a redistributive instrument of government.
Public awareness
In its most obvious form public awareness is
expressed in the conduct people follow. This is evidenced by the
degree to which people of modest means are motivated to acquire
protection or savings voluntarily to ensure their standard of
living in time of sickness, unemployment and old age. Over the
past 50 years there has been a dramatic decline in friendly society
membership for these contingencies. A recent example of detrimental
public policy is the withdrawal of state sickness benefit where
insurance income is over £50 per week. It is simply impossible
to justify the sale of a protection contract where it reduces
or eliminates entitlement to state benefit and closes the gateway
to other benefits to which the resourceless have access.
Wider social consequences
The moral and economic consequences of the policies
of recent years are all too apparent. For people on low incomes
the sharp lesson has been to rely upon the goodwill of society
at large. It has been a sensible and correct interpretation of
the rules. For so long as the country could be seen to afford
it, politicians have allowed the system, with all its recognised
flaws, to continue unreformed. However, because of increasing
demand and the inability to raise taxes, (without electoral risks),
to fund the ever increasing numbers of persons qualifying, or
trapped within, the benefit system, compounded by fears of long
term demographic trends, this option is not a sustainable one.
A recent survey on levels of saving found that
half of the adult population have cash or other accessible savings
of less than £500 and a quarter of those had no resources
at all. So far as we are aware no detailed survey has been carried
out recently on insurance protection, but the insurance industry's
global statistics suggests that only 15 per cent of the population
has any insurance cover for sickness and disability, and that
the vast majority of that is provided through group employer schemes.
Thus only about 5 per cent of eligible and vulnerable people purchase
such protection not withstanding the level of borrowing and other
expenditure commitments undertaken.
Alternative models
The Association of Friendly Societies have developed
a comprehensive welfare model which meets the defects of the current
model and provides for transition. We believe that model will
become the subject of the reform process although we accept that
it may take some catalyst, as yet unknown, to cause a radical
policy shift. For the time being the Treasury seem wedded to the
concept that means testing delivers value to the tax payer and
efficiently controls public expenditure. Until that delusion is
dispelled there is little prospect of a radical change of heart.
I trust that this outline will enable your committee
members to appreciate that the Friendly Societies have been at
the van of new ideas in this field and have something unique to
offer the debate. If you wish us to attend the committee hearing
to give a more detailed account of our proposals we should be
pleased to do so.
Peter Gray
20 April 1999
| 
