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Assumptions on expected welfare cuts incorrect, says social policy expert

Peter Taylor-Gooby, Professor of Social Policy at the University, has suggested that assumptions underlying expected cuts to welfare spending in today's Budget are incorrect.

He said: 'The further cuts to welfare I expect to be announced in today's Budget are no surprise. Most people assume that the welfare state in its current form has a bleak future. The mass services - NHS, education and pensions - are popular, but we can't afford the cost as the population ages and expectations rise; the minority services - welfare benefits, social housing - are unpopular and it's hard to persuade tax-payers to vote for them. Both these assumptions are incorrect.

'The big three services (health care, education and pensions) account for more than half of all state spending and something like a quarter of GDP each year. Eighty per cent of health and social care and all of pension spending is directed towards older people. The best estimate of the Office for Budgetary Responsibility (OBR) is that population ageing will increase government spending by nearly a sixth over the next half-century. Most notably, health care spending will increase from 9 to 11 per cent of GDP, social care from one to two and pensions from six to eight per cent.

'Looked at from another perspective, these figures are less worrying. The OBR's assumption is that the economy will revert to pre-2007 growth rates over most of the next half-century. If it doesn't we face a truly catastrophic situation requiring fundamental change in our whole conception of what the state can do for us. Spending an extra two per cent of GDP on the NHS and on pensions and one per cent on social care over a long period when the resources available are expanding may not be too difficult.

'In fact it is exactly what happens most of the time. In the two decades before the 2007 crisis, including the Major government’s cuts and New Labour’s initial constraint and later expansion, spending in these areas grew by 4 per cent of GDP. In addition individual spending on private health care, education and pensions grew by nearly a further 1 per cent, showing that people will choose to spend in these areas when they can. In this context finding the money needed to meet demographic pressures may be less taxing than we think.

'The European Commission's projections are roughly similar to the UK government's. They show that the UK is rather better off over the next half century than most European countries, mainly because we spend rather less on these services than they do.

'Welfare for the poor is a rather different issue. Benefits for unemployed people and low-waged families cost much less (about six per cent of GDP, one sixth of all state spending) but are at the centre of political debates and concerns about work incentives and the welfare spending burden. The Child Poverty Act target of eliminating child poverty (as currently measured) by 2020 is widely seen as unobtainable.

'This may be accurate. The cost would be about £10bn, 0.7 per cent of GDP, hard to find in the current climate of austerity and spending crisis. Again however, a longer-term view indicates that the situation may not be so intractable. Spending on the poor and on families grew by three times that amount over the three decades before 2007, under the very different governments of Callaghan, Thatcher, Major and Blair. Assuming that growth returns, eliminating child poverty over a decade, perhaps by the mid-2020s, may well be feasible.

'These points are cause for optimism about the future. The future of the welfare state, like so many other institutions, depends on a return to stable growth. There is no strong reason to assume that the British welfare state is unsustainable, provided we continue to spend in roughly the same way as we have done in the past.

Peter Taylor-Gooby is Professor of Social Policy within the University's School of Social Policy, Sociology and Social Research. His arguments on welfare spending are developed in his new book, The Double Crisis of the Welfare State and What We Can do About It, published next month by Palgrave Macmillan.


Story published at 12:13pm 20 March 2013

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Last Updated: 12/06/2013