Social Security and the Changing Labour Market, by David Piachaud and Jo Webb

(Trades Union Congress, October 2001, £10, ISBN 1 85006 582 9).
Social security has an economic function, as it reduces exclusion, encourages risk-taking, and reduces the crime-related costs of inequality. The problem is the cost, and the pressure (greater as globalisation affects our economy) to reduce labour costs and thus taxes on income from labour. But Piachaud and Webb find no ‘race to the bottom’, and suggest that there won’t be one, as too many workers rely on social protection. Similarly, the authors find that there is no simple ‘dependency culture’.
The paper contains some other interesting findings: that there is no clear relationship between social protection spending and economic growth; that UK benefit levels are lower than in most European countries; and that, whilst the UK spends 27% of GDP on social protection, this has less impact on poverty than lower spending has in some other countries.
The lack of a clear relationship between social protection spending and economic growth, and the UK’s low benefit levels, between them suggest that the UK could increase benefit levels without damaging economic performance.
On ‘the family’ as the major source of social protection, the authors write: “For social protection in Britain the family remains the basic unit of account. Indeed with the extension of means testing with the Working Families Tax Credit and the pensioners’ Minimum Income guarantee the family unit on which benefit entitlement is assessed is becoming increasingly important. The promotion and subsidy of low-paid work through the Working Families Tax Credit is a key component of the strategy to eliminate child poverty within a generation. This involves a recognition that many parents cannot rely solely on universal benefits nor are they able to take full-time employment or obtain a job that pays above the poverty level. This family-focused subsidy in Britain is in contrast to the measures in many countries to ensure that all individuals have adequate social protection in their own right. ….. in many European countries this depends on extending social insurance to those who are part-time or very low paid and to those with interrupted working lives due to care of children or of disabled relatives. Britain has tended to move in the opposite direction, leaving those with little or no social insurance to depend on the means-tested Income Support Scheme. For those who do or will depend on Income Support there is little incentive to earn or save. More fundamentally the family-based means test undermines individual entitlements and serves to encourage family break-up,” (p.16).
Similarly, the authors criticise the British system for not adapting to changing employment patterns: “Where employment is changing towards short-term contracts, individually negotiated pay and conditions, portfolio working and reduced occupational welfare the result is increased insecurity and more dependence on social protection. If employment is no longer life-long, then relying on occupational welfare for protection when sick or old is less and less possible. Social protection in many countries is adapting to changing work patterns. In Britain only minor adaptations have been made and then largely as a result of adverse rulings of the European Court,” (p.17).
On globalisation, the authors suggest that, “considering the increased insecurity that globalisation seems likely to engender, the balance of political pressure will most probably shift towards improving social protection,” (p.19).
The paper calculates the cost of catching up with the rest of Europe in terms of spending, and concludes: “Globalisation presents many challenges to welfare states. Yet we have seen that it requires us to sustain our levels of social protection, not reduce them. There is no evidence that increasing social provision would harm economic efficiency, and much to suggest that it would have beneficial effects on poverty and social harmony. The experience of some of our European neighbours suggests that the twin objectives of high economic growth and low poverty rates can be achieved simultaneously. Britain would do well to follow their example,” (p.20).
The logic of the paper leads to the conclusion that the additional spending needs to be on non-means-tested, individualised benefits not linked to particular labour market statuses.