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International Socialism, April/May 1970

Jim Kincaid

Life Under Labour 3

Social Policy and the Labour Government

From International Socialism, No.43, April/May 1970, pp.21-32.
Transcribed & marked up by Einde O’Callaghan for ETOL.

The second point I would make on this – it is, again, a very simple point, is that, as in so many other things, we Socialists are merely pupils of the Tory Party.
Peter Shore, November 1967 [1]

It is a widely held opinion that the Labour Party leadership, whatever its other defects, is seriously committed to the defence of the welfare State.

Partly, this is because most people regard the modern welfare State as the special creation of the Attlee administration. Historians can point out that the Tory-dominated Coalition government of the war years substantially accepted the programmes of social reconstruction devised by Beveridge and other planners. Or that many of the key elements of the contemporary welfare State were in fact instituted during the war, or at any rate before Labour took office in 1945 – abolition of the household means test, improved social security benefits, free secondary education for all children, public control of most of the hospital service, and the introduction of family allowances. Nevertheless, in the popular imagination, it is the welfare legislation of 1946-48 which is seen as marking a decisive break with the past, and this view is consistently upheld in Labour Party rhetoric.

In the period since the early 1950s the welfare State has remained an important preoccupation of the Labour Party, but increasingly the reform of the social services has been seen as a special issue, isolated from the more general range of aims and strategies to be adopted by a Labour government. During the 1960s in particular, the efficient management of the mixed economy in the interests of productive growth became more and more clearly identified as the central objective of the party, to which all other considerations must be subordinated. As part of this process, the ‘socialism’ of party tradition and propaganda was progressively redefined to mean little more than a concern to make the welfare State more humane and more efficient.

The two years which followed electoral defeat in 1959 were loud with disputes about the proposal to drop the commitment to wholesale nationalisation embodied in Clause 4 of the Labour Party Constitution. Little attention was given to a further revision of party doctrine which was more tactfully carried through in those years. For the first time a sharp break was made between policies designed to revitalise the welfare State, and the more general determination, by taxation and other means, to lessen the degree of social class inequality in Britain. Previously in Labour philosophy, the issues of welfare and of social equality had always been seen as completely interdependent. Where else should the resources for better welfare services be found, except from redistributive taxation of the higher income groups? How could equality of medical treatment, or housing provision, or educational opportunity begin to be guaranteed, except by a more equal distribution of resources and status in the community at large? For 50 years or more, the answers to these questions seemed self-evident to practically everyone in the Labour Party.

Throughout the early 60s, as economic growth became the overriding consideration of policy, Labour leaders were correspondingly concerned to emphasise the inadequacies of the existing social services, and their determination to repair the deficiencies. Welfare reform had become the sugar on the pill of economic rationalisation, the bleeding heart prominently worn on the technocrat’s sleeve. What was relegated to ‘insignificance in Labour’s scale of priorities was an attack on the inequalities of wealth, income and social environment which had been rapidly accumulating under Conservative rule. In this way, tne existence of widespread poverty, the deterioration in standards of medical care, regional and social class inequalities in educational provision, the spread of the slums, racial and class inequalities in the administration of the legal system – all these and more were defined as isolated ‘social problems’, unconnected with the whole structure of society. It was recognised by policymakers within the Labour Party that substantial extra resources would have to be channelled into the social service sector. But, tentatively under Gaitskell, then decisively under Wilson, it became Labour policy that extra resources for welfare would be found, not by redistributive taxation, but out of the proceeds of economic growth. [2] Many loyal Labour Party supporters are under the impression that the failure of Mr Wilson’s government to reverse the trend to greater social inequality is to be explained by economic difficulties since 1964. What should be more widely appreciated is the prior, and fundamental, devaluation of social equality in the political philosophy of the party leadership.

This essay examines Labour’s record since 1964 in a number of key areas of social policy, in particular, taxation, the low wage sector, the extension of charges and means tests for a wide range of social services, and, finally, the new earnings related system of social security. In each of these areas the government have adopted strategies which minimise the redistribution of resources from higher to lower income groups. By refusing to recognise that better welfare and greater equality are inseparable, Labour have allowed the social services to remain at the mercy of an undependable rate of economic growth, and hence starved of urgently needed resources.
 

Taxation of Income

Taxation policy is a crucial test for any government which claims to be moving society in the direction of greater fairness and equality. In every advanced industrial society the proportion of national resources directly controlled by public authorities is now so enormous that even apparently small changes in the incidence of taxation can have considerable effects on the social distribution of income and wealth. For the present Labour Government there have been special opportunities since they have been raising the overall rate of taxation with quite exceptional speed. Between 1964 and 1967, central and local government taxation rose from 36.2 per cent of gross national product to 41.5 per cent. The State has been drawing in extra purchasing power amounting to about £600 million a year. [3] Had tax increases of this magnitude been made primarily at the expense of the wealthier groups in society, their impact on the pattern of social class inequality would have been substantial. Yet nothing of the sort has occurred. Rather, it has been those social groups, mainly manual workers, with incomes at or below the average national wage level, who have borne the brunt of Labour’s fiscal attack on living standards.

The best evidence is provided by an official study of the incidence of taxation, published in 1969 by the Central Statistical Office. The definition of taxation used is a comprehensive one, and includes not just income and expenditure taxes, but also local rates, television licences and national insurance contributions.

Table I illustrates a startling degree of unfairness in the British tax system. For both years, the figures indicate only very small differences between high and low income households in the percentage of income paid in taxation. The widely accepted theory is that in Britain the tax system is progressive – i.e., the higher the income, the higher the rate of taxation. The facts show otherwise. Between £16 and £50 a week – the range in which the vast majority of incomes fall – the proportion of income paid in tax remains virtually uniform. Only in the very highest category of income for which information is available – £60 a week and upwards – is there any indication of a steepening of tax rates. And in 1967, the 39 per cent of income paid by the group with the highest earnings is still only marginally above the overall average of 35 per cent taxation. At the other end of the scale, in the lowest income group, as much as one-quarter of wages or social security benefits is lost in tax.

The same official report also provides separate information about the taxation of old age pensioners, a group containing over 7 million people with very low average incomes. Single pensioners in 1967 had an average total income of £6 4s each – and had 20 per cent of it removed in taxation. Married pensioners had an average total joint income of £9 14s and paid 22 per cent of it in tax. Since very few retirement pensioners have incomes large enough to require payment of income tax, and do not pay national insurance contributions, the substantial taxation of these groups illustrates the heavy weighting in the British fiscal system of regressive taxes such as local authority rates and expenditure taxes.

Table I also suggests that the degree of unfairness in the fiscal system considerably increased during the first three years of Labour administration. Overall the average proportion of household income taken in tax rose from 31 per cent in 1964 to 35 per cent in 1967. However, it is plain that the impact of these tax increases fell most heavily on groups in the middle and at the lower end of the income scale. For men with between £16 and £19 a week (three out of four of these were manual workers) there was a 5 per cent increase in taxation – but only a 1 per cent rise in the band of incomes above £60 a week. At the other end of the scale, people on £5 and £6 a week had their taxation increased by 3 per cent and 2 per cent respectively. For only one group – £7 to £9 a week – was the burden actually lightened.

So far, I have been discussing the impact of taxation on the whole population. Table 2 provides the same information for two particular types of household, married couples with one and with two children. These groups form a largish part of the tax-paying population, and Table 2 refers to a total of nearly 5 million families. Here the pattern of fiscal inequity is even more marked than for the entire population. It is hard to think of evidence that would be more damning to the socialist pretensions of a Labour administration.

In Table 2, the columns referring to 1967 show that in both types of family, it is the group with the highest income – over £50 a week – which paid out the lowest proportion of that income in taxation. In both cases, it is also the lowest income group – £11 to £13 a week – who pay tax at the higher rate. In between these extremes, tax rates hardly change as income rises.

Secondly, it is ‘apparent that the more dramatic inequities in 1967 were substantially produced during the period after Labour took office. For both types of family, by far the steepest tax increases in these years fell on the very lowest income groups. Between 1964 and 1967, the taxation of groups with £11 to £13 a week went up by 9-10 per cent of total income. The next biggest increases fell on the £16 to £20 a week group, 6-7 per cent more in tax. This last is the category which was earning about the equivalent of the average wage for manual work in industry, which was £17 17s in 1964 and £21 a week in 1967.

At the top of the scale, it was the higher income groups who came off best, and in one case – the £35 to £41 a week group in families with one child – the tax burden actually diminished slightly over the period.

The overall pattern is thus that the incidence of taxation is about the same for all groups, except that the very poor pay proportionately more tax than the average, and the highest income groups for which information is available pay rather less than average. Second, that a large part of the increasing inequality of the tax system has occurred since Labour came to power.

How does it arise that the tax system in Britain is so regressive and inequitable? Partly because a big part of government income is produced by the national insurance and national health contribution – about one-sixth of total revenue in 1968. The cost of the weekly national insurance stamp is made up of two elements:

1. the employee’s contribution, in which virtually the same amount of money is extracted from all wage earners alike irrespective of income. For example, throughout 1968, a man (not contracted out) earning £30 weekly was paying a total social security contribution of 26s 5d a week. But a man with half that income, £15 a week, paid only 3s 8d less for his stamp,
2. the employer’s share: Economists quarrel about whether this is in fact paid for by workers in lower wages or is passed on to workers as consumers in the form of higher prices. [4] But no one argues that the employer’s contribution is paid out of managerial salaries or business profits.

A further, and major, part of government income is derived from expenditures taxes – 30 per cent of total Exchequer receipts in 1968. Expenditure taxes are especially broad in their incidence. The tax on motor oil and petrol enters as an element of transport costs into rhe prices of virtually all goods and services. Purchase tax is levied on a wide range of household necessities; for example, there is currently a 27.5 per cent purchase tax on things like washing machines, light bulbs, electric kettles, television sets, cosmetics, toys and clocks. Tobacco and alcohol may be officially designated as luxuries, but in taxation terms they lean hard on wage earners. Households with about the average wage for manual work lost 4.4 per cent of their total income in tobacco tax in 1967; but for the group with £3,000 a year and over, the corresponding loss was only 2.7 per cent of income. [5]

The same regressive pattern holds for local authority rates. Partly the criteria used in establishing the rateable values of houses tend to undervalue many of the superior features of houses occupied by the wealthy. But in addition, and contrary to the mythology cherished by owner-occupiers, a large part of rates income is derived from council tenants. Rates took 2.8 per cent of the income of the average household with £22 a week in 1967, but only 1.9 per cent in the case of households with over £3,000 a year. [5]

In theory it is income tax which is the great fiscal leveller, and certainly this used to be the case. However, currently a comparatively small part of government receipts are derived from income tax and surtax combined – 30.9 per cent of Exchequer income in 1968, ie, only fractionally more than the total from expenditure taxes in that year.

More important still is the fact that income tax is rapidly losing its progressive, redistributive capacity. By far the largest part of government receipts from income tax is supplied by taxation at the standard rate, which Callaghan raised by 6d to 8s 3d in the £1 in 1965. There are a variety of exemptions and tax allowances which free people with low incomes or family responsibilities from having to pay tax on part of their income at the steep rate of 8s 3d in the £1. But money incomes have been rising fairly fast in recent years, mainly because of inflation. In April 1964, for example, the average wage for manual work was £17 12s a week. Five years later, in 1969, it was £24 a week. Yet the money value of tax-free allowances has been held virtually constant by the government. A wife was worth £120 a year clear of income tax when Labour took office in 1964. Five years later, her fiscal value remains exactly the same – or a good deal less in fact, given the sharp fall in the purchasing power of the currency over the period. Similarly, there have been no increases in the money value of tax-free children’s allowances; these remain as in 1964 at between £115 and £165 a year of income freed from tax, depending on the age of the child. The personal allowance for the taxpayer himself has been increased, but only from £200 to £250 a year. The upper income limit for special relief for taxpayers with exceptionally low incomes has been left, unbelievably, at the same level of £450 a year set by the Tories in 1963.

The effect of keeping tax allowances fixed, while money incomes rise, is that increasingly people with below-average incomes come into the standard rate category. And once in that category, of every extra £1 of earned income, the government takes about one-third. The freezing of tax allowances means that income tax is reaching further and further down the income scale. Increasingly groups with low wages that are scarcely enough to provide a minimally adequate living are finding themselves paying out an increasing part of their wage in income tax. Although it is the massive increases in expenditure taxes, especially on alcohol, tobacco and petrol, which attracted most public attention during Labour’s term of office, it is in fact income tax which has produced the biggest extra return to the Exchequer, and this extra has been drawn disproportionately from groups with average or below-average earnings.

On the other hand, Labour have pursued a consistent policy of fiscal tenderness towards the rich. Surtax has been left at the relatively low levels to which it was reduced in 1961 by a Conservative Chancellor. Surtax has never at any time had quite the redistributive savagery attributed to it by the Tory press, and even less so during the ‘60s. The top rate of surtax remains as impressive as ever at 10s in the £1, paid on top of the standard rate. But in 1961, Selwyn Lloyd sharply raised the minimum income levels at which surtax begins to bite into earned income. Since then, for example, a single man earning £6,000 a year pays only £98 10s of it in surtax [6], and if married with three children, would pay only £39 16s a year in surtax. Even for unearned investment income, the tax is still fairly mild in its incidence, taking, e.g., a not very swinging 10 per cent from someone with £5,000 a year of unearned income.

In recent years there has been a rapid increase in the numbers of people with really high incomes. In the financial year 1963-64 there were 15,900 households with after tax incomes of £6,000 a year and over; three years later the tally was 25,400. In the same period the total of people with after tax incomes between £2,000 and £4,000 went up from 433,000 to 620,000. These are far more rapid rates of increase than could be explained by economic growth or the decreasing real value of the currency. What is clearly happening is an increasing concentration of more income in the hands of a more numerous upper middle class, at the expense of other groups in society.

Despite the rapid rise in the numbers of the rich, and in their individual richness, it is still the case that surtax produces less of a financial return to the government than before the 1961 Budget. In 1961-62, 461,000 households paid a total of £242 million in surtax. By 1966-67 only 358,000 people paid surtax, and the return was 10 per cent less at £215 million. Compare over the same period a rise of 80 per cent in total government revenue.

At only one point in time did the Labour Government make a temporary alteration to the surtax system. During the first economic crisis faced by the administration, Callaghan imposed a fearsome-sounding 10 per cent surcharge on supertax – to ensure equality of sacrifice from all classes of society at a time of national peril, etc. This surcharge operated for one year only (1965-66) and raised only £26 million. In the same year the total income of all people assessed for surtax was £1,900 million.
 

Capital Ownership

The past five years have been bonanza time for owners of capital. During the last five years of Tory rule, total company taxation amounted to 3.4 per cent of gross national profit each year, but has fallen to only 2.7 per cent; per annum under Labour. Unearned income has been rising as rapidly as earned income; the capital value of property has continued to appreciate with enormous speed. The government duly introduced a Capital Gains Tax in 1965. But so far its effectiveness in reducing inequalities has been negligable. In its first three years the tax produced a combined total return to the Exchequer of £70 million. Even by 1969-70 this tax will account for only £136 million out of an expected total of £15,000 million to be raised in all forms of taxation. Labour ministers have continually postponed the attempt to introduce any form of wealth tax, although Britain is distinguished among advanced industrial societies by an exceptionally unequal distribution of property ownership, and therefore inequality in the distribution of the social and economic power which wealth confers. The most reliable estimates remain those published by Revell in 1963.

Table 3 suggests that during the 1950s there was an increasing concentration of wealth in the hands of the richest 10 per cent of wealth holders, and that by 1960, 75 per cent of assets were owned by only 5 per cent of the population. This, despite the fact that the definition of wealth in these statistics is a very comprehensive one. Furniture, houses, bank deposits, cash in hand, insurance policies – all are included, in addition to land, stocks, shares, etc. Figures published in The Economist [7] indicate that the 88 per cent of the population who own less than £3,000 have an average holding of no more than £107 each.

It is not likely that this pattern has altered much during the 1960s. Labour have made Estate Duty slightly more inconvenient to avoid, but have also reduced its incidence. It was announced in the 1969 Budget that estates valued between £5,000 and £10,000 were now to be exempt from this tax. Even before this change, death duties were becoming increasingly insignificant in their redistributive effect. Between 1964 and 1968, the return to the Exchequer from estate duty increased by 6 per cent in money terms, while the money returns from all other forms of taxation rose by 63 per cent. Given inflation, a money increase of only 6 per cent in four years conceals a fairly sharp decrease in the real impact of estate duty. The rich can call on the services of an increasing and skilful army of tax evasion experts to help them exploit the many loopholes in the fiscal system.

The general conclusion must be, then, that Labour’s taxation policies have added further inequalities to the previously established pattern of financial privilege. The rich have been allowed to consolidate their position. The poorest sectors of society have shared equally in a general rise in taxation. The average wage earner, and groups with a few pounds less than the norm for manual work, have experienced above average increases in taxation.
 

Low Pay and Poverty

Since the earliest phases of the incomes policy, the government has never defended it solely on economic grounds. Certainly a cut-back in the working-class standard of living was proclaimed as the indispensible precondition for obtaining a favourable balance of payments, the effects to work through two interconnected chains,

1. Lower wages —> higher profits —> more investment —> lower unit costs —> cheaper exports; or
    
2. lower wages —> less consumer purchasing power —> lower imports and manufacturers forced into export markets.

But incomes policy has been defended also as an instrument of social justice. The government explained again and again that only by holding back advances in the real wages of the mass of workers would it be possible to improve the economic position of low-paid groups. It was not explained why redistribution in favour of low wage earners could only be at the expense of the higher-paid sections of the working class, and not of other groups. Furthermore, the definition of ‘lower paid’ was left carefully vague both by the government and the Prices and Incomes Board. Nor was there to be any attempt to intervene positively on behalf of groups of workers with weak bargaining power. However, if pay claims were submitted on their behalf, these were to be considered with special sympathy. In the event, even this modest undertaking has not been fulfilled.

At the 1964 Election, Labour leaders had offered a tar more dramatic prospect. The impression was given that on gaining office they would introduce a guaranteed minimum income which would set some limit to poverty among lower-paid workers, as well as the hundreds of thousands of old people, unemployed, fatherless families, etc, who were living below subsistence levels because of the inadequacy of national insurance benefits. In a pre-election television interview, Mr Wilson struck a bold note:

What we are going to do now – we are going to do it early because it is urgent in the first weeks of a Labour Government – is to provide a guaranteed income below which no one will be allowed to fall.

This proposal aroused widespread popular support. It looked as if, at long last, the key objective of the Beveridge Report of 1942 was about to be implemented. That objective had been specified by Beveridge himself in the following terms:

The central idea of the Beveridge Report is the subsistence principle, the guaranteeing to every citizen, irrespective of needs or means, of an income in unemployment, sickness, accidental injury, old age, or other vicissitudes, sufficient without further resources, to provide for his basic needs and those of his dependents. This central idea was that which most caught the public imagination: without this, the Report would have been no more than a rationalisation of existing services. [8]

It was an integral part of this plan that the subsistence income guaranteed by national insurance to the non-employed should be extended also to low wage earners via the family allowance system.

It has become a traditional claim within the Labour Party that a Beveridge scheme of social insurance was introduced into Britain in the post-war years by the Attlee administration. But in fact at no time since the passage of the first National Insurance Act in 1946 has the level of State insurance provision been anything but well below the poverty line used by the National Assistance Board to determine need for income supplementation. It was for this reason that Beveridge himself in the end disowned the scheme set up in his name. [9] A welfare system which many in the Labour Party believe to be the very epitome of socialist planning has never achieved the level of minimum provision thought essential by a card-carrying liberal like Beveridge.

From its inception in 1965, the Prices and Incomes Board were encouraged to assume that wage increases were not the most useful way of alleviating poverty among the lower paid. A characteristic formulation can be found in the 1966 White Paper announcing a period of complete standstill in wages:

As in practice the needs of individual workers are largely determined by the extent of their family commitments, the government will continue to give high, priority to measures specifically designed to meet family needs. [10]

In plain language, what they meant was that many workers are below the poverty line, not because their wages are too low, but because they have too many children. Therefore, increase family allowances, not wages. And after a two-year delay family allowances were in fact improved in 1968.

The government had thus fallen back on the convenient theory that sees fertility as the major cause of poverty. This view, though still widely accepted in middle-class circles, and energetically advanced by the influential academics in the Eugenics Society, was discredited yet again by a government survey carried out in 1966. This inquiry indicated 125,000 families (including about 450,000 children) with fathers in full-time employment, and yet below the official poverty line. In the whole group of families, the average number of children was less than half a child above the national norm. [11]

Despite these findings, higher family allowances rather than the selective benevolence of the Prices and Incomes Board remained the major weapon chosen to reduce poverty among wage earners. Not since 1956 had there been any increase in the level of family allowances. When Labour added 10s for each younger child in 1968 (the eldest child continued to get nothing) this increase was no more than enough to restore the relative value of the allowance to its initial 1945 level. For a family of three children the total allowance equalled 8.2 per cent of the average wage in 1968; the comparable figure was 8 per cent in 1945. In practice the current level of allowances is worth a lot less than 25 years ago. The Coalition Government in 1945 had introduced the family allowance at only two-thirds of the level recommended by Beveridge. [12] They argued that food subsidies plus free school meals and milk would make up the difference. In the intervening period, successive governments have dismantled much of the system of subsidised nutrition used to justify the original low level of family allowances. In 1956 the Tories cut the subsidy for bread and reduced it for milk. The abolition of free milk for secondary school children was part of the post-devaluation attack on living standards announced by Wilson in 1968, and his government have increased the price of school meals by 75 per cent. [13]

The 1968 increases in the family allowance were not large enough to bring more than one-half of the original 125,000 families above the official subsistence level [14], and no provision was made for protecting the allowances against the effects of subsequent rises in prices, already 5.4 per cent up in the 12 months ending December 1969. This miserable deal on family allowances provoked the unhappy resignation of the Minister of Social Security, Margaret Herbison. She was replaced by Judith Hart who understood more clearly the requirement that socialism must, in practice, be subordinated to technocracy.

AS for the guaranteed minimum income, the proposal had been sunk without a trace shortly after Labour took office in 1964. The key policy document of 1965, the National Plan, dismissed it in one brisk sentence. ‘An income guarantee would not contribute to economic growth.’ The guaranteed income had not, however, been dreamed up as a casual enticement in the stress of a closely-fought election campaign. For several years before 1964 it had been the subject of much solemn debate by the Labour Party leadership. The plan had been proposed that, in addition to taking money away from people as income tax, the Inland Revenue might be converted into an instrument of succour. People identified by their income tax return as below the minimum income would automatically receive from the Inland Revenue the necessary cash. Armed with this. proposal, in the three years up to 1964, Labour leaders conducted a vigorous campaign against means tested welfare as run by the NAB and the local authorities. Such means tests, they pointed out, are degrading and an affront to human dignity, and inefficient as well, since many people would rather go without than apply for charity on such terms. The income tax return, though scarcely popular, is at least in its way a badge of citizenship. Labour spokesmen explained enthusiastically that PA YE was going to be supplemented by RAYN (Receive-As-You-Need) though more far-sighted observers usually referred to the proposal as the NIT scheme (Negative Income Tax).

The outcome did not show the new dynamic technocracy at its best. Mr Douglas Houghton had been the chief proponent of NIT within the Labour Party, and after the 1964 Election he was made Welfare Overlord with the major responsibility for implementing NIT. Since he had been Secretary of the Inland Revenue Staff Federation from 1922 until 1960 it was assumed by his colleagues that he would know, at least in a general sort of way, how the income tax system worked. Here they were mistaken. [15] If a poverty prevention programme is to be run on the principle of the absolute minimum government expenditure – and nothing more generous was ever contemplated – then for large categories of recipients, the authorities would need to make week-by-week checks on family circumstances and household income. Since it was excluded that the scheme should be run in an open-handed way, and since the Inland Revenue works on the basis of fairly infrequent assessments of tax liability, it followed that NIT would require a really drastic reorganisation of Inland Revenue procedures. The government were not prepared to undertake an administrative upheaval on the necessary scale and the officials of the Inland Revenue were highly disenchanted with the prospects of becoming a welfare agency. Besides, the government began to realise that the income guarantee would be a good deal more ‘expensive’ (i.e., redistributive of income) than they thought desirable. The upshot was RIP to NIT.

Although the Prices and Incomes Board were mandated to exempt low wage categories from the full rigors of freeze and standstill [16], in practice that body did no such thing. A crucial test case was offered in 1966 by the proposal of the Retail Drapery Wages Council to increase the minimum wage of male drapers from £11 3s to £11 18s. The PIB recommended that the line be drawn at £11 15s. [17] In 1967 the PIB also gave sanction to a decision by the Agricultural Wages Board to allow a minimum wage increase for farm labourers working a standard 44-hour week; but then the increase proposed was only 3 per cent – to bring the rninimum wage up from £10 10s to £10 16s. The precedent set in these two cases was followed in numerous other instances.

When dealing with joint claims involving various higher paid grades of workers in addition to some low pay categories, the PIB adopted a rather different technique. The low-paid could have a rather bigger percentage increase than the national norm allowed, but only if the total joint wage claim remained within the specified limit. Thus redistribution of income became confined within particular categories of workers in particular industries, and the interests of higher- and lower-paid workers set directly in opposition.

More recently, in 1968-9, even the formal statement of special consideration of claims by low-paid workers has been increasingly submerged beneath the productivity principle. Above average claims by any group, however miserable their wages, are allowed justification solely on the basis of a deal to increase output per head. As Mrs Castle explained to the 1968 Annual Conference of the Labour Party:

You know I have never said I did not want the busmen to have their pound. By heavens I think they deserve it. All we have ever said is that the pound must be linked, as in other deals, with increases in productivity. [18]

In March 1968 the PIB were asked to consider the pay of nurses in the context of an increasing shortage of labour in that occupation. On pay, the Board proposed increases restricted to 3.5 per cent annually in the years 1967-70. Most of the recommendations were concerned with ways of getting more work from nurses without making wages adequate. The PIB suggested a younger age of entry, more part-time married nurses, an extention of shift working, and no reduction of hours of work. [19]

For the vast majority of lower paid workers, to make higher productivity the sole acceptable criterion for above average wage increases leaves them with no claim whatsoever. Being weakly organised at the point of production, they will generally have little in the way of ‘restrictive practices’ to sell. Many are in service industries where productivity concepts are often meaningless. If a nurse has to look after more patients simultaneously, does that increase her output of care?

Meanwhile, the government moved towards an increasingly explicit and public acknowledgement that the Prices and Incomes policy was, and always had been, designed to restrict all wage incomes, without distinguishing the lower-paid in any serious way. On March 26, 1969, Harold Walker, Joint Parliamentary Under Secretary to Mrs Castle, told the Commons:

It is not a primary function of the government’s Prices and Incomes policy to redistribute income. Social and fiscal policies have their role to play in this and they are doing so.

The Minister did not go on to specify exactly what social or fiscal policies, nor to explain the precise nature of their role.

These shifting definitions of aim and justification reflect some of the government’s tactical difficulties in enforcing an incomes policy. On the one hand, unless occasionally some concessions are made to at least some lower-paid groups, it becomes progressively more difficult to pretend that incomes policy is in any way an instrument of socialist planning. On the other hand, at least in part, the British wage system is determined by what the lower-paid get at the bottom of the pyramid. A principle of differentials – more money for extra skill, more demanding work, etc – is frequently invoked in wage bargaining. If the floor rises, the consequent narrowing of differentials may help to focus wage militancy on the part of groups higher up in the hierarchy of pay. Secondly, given that well organised, economically strategic and higher-paid groups of workers may break through the wage freeze barrier, their success can be anticipated and its effects for the whole incomes policy minimised by a tougher crack-down on claims from weakly-organised sections of the working class.

At last, in the second half of 1969, it became evident that workers themselves were beginning to struggle towards the only effective solution to the ‘problem’ of low pay. There were signs that broad sections of lower-paid workers were mobilising their organised strength as never before. There were successful strikes by dustmen, ambulance men and gravediggers. The nurses launched a campaign of demonstrations and protest. More encouraging still, higher-paid workers are showing themselves increasingly prepared to take direct industrial action on behalf of groups at the foot of the wage scale. The prolonged strike at Port Talbot in the late summer of 1969 was fought primarily to uprate the £12 a week wage paid to a section of blastfurnacemen. Better pay for surface workers was a prominent demand during the wave of mining strikes which followed shortly after.

But the road will be a long one. Some measure of the distance that remains was provided early in 1969, when the government published the results of the first detailed survey of earnings carried out in Britain since 1906. The earnings levels indicated in Table 4 are for adult men doing a full week’s work, and are inclusive of all overtime and bonuses.

Welfare Expenditure: Appearance and Reality

The last five years have seen an unprecedented rise in the potential demand for social and welfare services of all sorts. Partly this is a consequence of long-term demographic change. The total population rose by no more than 1½ million (2.8 per cent) between 1964 and 1969. But much faster increases were registered both among the young and the old. Children under 15 increased by 6.1 per cent and people over the age of retirement even more rapidly – by 8.6 per cent. These two age groups are by far the heaviest users of the major social services – health, education and social security. Certain other social trends have combined to increase the need for welfare even more rapidly than the demographic figures would suggest: A higher percentage of children staying on for more years of education. A continuing trend towards earlier marriage, affecting particularly the need for extra houses. A decrease in the percentage of people who go on working after the age of retirement. A sharp increase since 1967 in the numbers of the unemployed. A big increase in claims for industrial injury and sickness benefit, reflecting, in part at least, the intensification of work in British industry over the past few years – speed-up, reduction of safety standards, more shift work, etc.

Given these developments, any government in power would have found it necessary to increase the volume of expenditure on the social services, if only to prevent an electorally fatal deterioration of standards. Table 5 indicates that extra need has to some extent been met, with the exception of housing, where the record by any standard is pathetic.

Table 5 shows a total increase of expenditure in the services indicated from 18.6 per cent to 22.6 per cent of gross national product. This record may seem uninspiring compared with the euphoric 50 per cent rise in social service expenditure claimed by Labour ministers. What they do in their speeches is quote figures in money terms, taking no account of the falling purchasing power of the £1. In discussing defence expenditure they generally discount price increases and so can show an overall decrease.

Nevertheless, if it could be accepted at its face value, this increase in social expenditure could be welcomed as a definite, if modest, advance. However, more money for the social services does not necessarily mean more ‘welfare’ as the term is generally understood – i.e., more help for groups in need. Higher salaries for doctors increase the health service budget and so do rising profits for the drug companies. As compared with the previous year, in 1967-8 alone, the bill for doctors’ and dentists’ salaries rose by 10.4 per cent; over the same period, nurses got an extra 2.6 per cent. The continued increase in the price of land is reflected on the capital side of the housing, health and education budgets. Labour’s answer to land profiteering has not been too successful. At the end of its first year of operation the Land Commission set up in 1967 had a staff of 1499, employed at a cost of £2.4 million a year; only £462,000 had been collected in levy charges, and the Commission had acquired precisely two acres of land. Higher interest charges of £108 million accounted for 82 per cent of the increase in housing expenditure by local authorities in England and Wales from 1964 to 1967. [20] Removal of houses in road-widening schemes is entered into the housing accounts just as much as slum clearance, and so are extra houses for policemen. (In 1964-7 the number of police in England and Wales rose by 20 per cent – school teachers by only 6 per cent.) The rapid spread of management courses in universities and colleges will have increased the education budget by more than improvements in the care of handicapped children.

Nor do higher contributions and bigger flows of income through the social security system necessarily mean any increase in the redistribution of income from richer to poorer. In 1966, when the government introduced a scheme [21] providing earnings related additions to flat-rate sickness, unemployment and widows’ benefits, social security expenditure was thereby increased quite sharply. But the effect of this scheme on income redistribution has been virtually nil, since entitlement to earnings related benefit is exactly determined by the previous level of contributions. The benefits paid take no account of family size. A man with £12 a week gets a supplement of £1 in sickness or unemployment. Anyone with over £30 a week gets a supplement of £7 a week.
 

Towards the Means Test State

Since 1964, the basic level of social security benefits has been raised on three occasions, and despite sharp price increases, the purchasing power of benefits is now somewhat higher than in the final years of Tory rule. However, in relative terms, which are what matter, pensioners, widows, etc, remain exactly as they were; the single person pension is now just on 20 per cent of the average industrial wage, as it was in 1948 – and in 1938 as well. Furthermore, the level of benefits still remains below the official poverty line, and the number of people compelled to apply for a means-tested income supplement has continued to rise – from 1.9 million householders in 1964 to 2.6 million in 1968. In addition, the numbers in need who do not apply to our Supplementary Benefits Commission (i.e., NAB as rechristened in 1966) are still enormous, e.g., probably about 400,000 old age pensioners at present. In any case the poverty line itself is still abysmally low, rent plus £4 16s for a single person in 1970. If the line were drawn only £2 a week higher, then three-quarters of all pensioners in the country would qualify for an extra allowance on the flat rate pension. Even a £1-a-week increase in the poverty line would qualify four out of five of all widows over 60 for an income supplement.

This situation, plus the rising need for extra expenditure in other sectors of ‘the Welfare State’, has involved the government in growing difficulties. At the same time, welfare policy has become increasingly important not just in its own right, but as an adjunct to the incomes policy. At any time, millions of people depend for a living directly on the social security system. Their purchasing power needs to be held back too, or a major breach appears in the incomes policy.

In the search for a way out of this dilemma, Labour ministers came increasingly to accept the doctrine of selectivity in welfare which, in its contemporary guise, was being elaborated in the 1960s by the free market theoreticians on the right wing of the Conservative Party. [22] The core of the selectivist argument is simply that the State should stop providing equal services and benefits for all, irrespective of need, and instead should concentrate resources on providing help where need is greatest. Selectivists, even of the Tory stripe, frankly admit that desperate poverty exists in Britain, and can be prevented. What is the point, they ask, of spending limited resources to increase benefits for everyone who is sick or old or unemployed, when such increases leave such families still under the poverty line, unless they have other sources of income?

Labour leaders began to develop serious doubts about the universality principle of the Beveridge system, which previously they had regarded as the very essence of social justice. Would not the application of at least the second part of the old tag – ‘... to each according to his needs’ – mean a quicker advance to socialism? Where is the equality in equal treatment of people in unequal circumstances? Thus, instead of a determined effort to lessen the inequality of circumstances, the government fell back on the extension of means-tested benefits as an attempt to give help to the most unprotected sections of society with the minimum degree of income redistribution. Furthermore, as I have argued above, the taxation p6licy which helped finance extensions of welfare on a selective basis were such as to ensure that any redistribution which took place was not from rich to poor, but from the upper to the lower section of the working class.

What was striking was the rejection of any other version of selectivity but the one advanced by the Institute of Economic Affairs, the Fabian Society of big business. ‘There was no attempt to exclude higher income groups from benefits, or make them pay more for the universal services they enjoyed along with everyone else. Such a strategy could not be considered because it would provide no justification for any run down in the broad range of social services and benefits provided for the mass of the population. Whereas, special treatment for the very poor, however ineffective in practice, could be used as a screen to cover up failings in the universal services.

Again and again since 1965 the existence of special means-tested exemptions for the very poor has been used to justify cuts in welfare provision, increases in charges and the tightening of qualification conditions for benefit. School meals were put up from Is to Is 6d in 1967, and two years later by another 3d. In 1966 welfare milk for expectant mothers and young children went up by 2d to 6d a pint. In 1968, dental charges were increased. In the same year, prescription charges were reintroduced, at 2s 6d for each item – a total saving to the health service of £25 million a year (an official report published a few months earlier had estimated that the drug companies were making an annual profit of £37.7 million out of sales to the NHS and spending another £24 million in the packaging and promotion of their wares). [23] In 1968 free milk for secondary school children was abolished. Family Planning provision was extended, but was free only to those who passed a means test.

Between 1964 and 1968 council rents were pushed up by 54 per cent, an extra £121 million a year, all but a sixth of this money being used to meet higher interest charges. It was claimed that rebate schemes would protect low income tenants. However, by 1968 tenants were paying £346 million in rents and rebate schemes were costing no more than £9.5 million. [24] In the same year the Government accepted a recommendation of the Prices and Incomes Board that Council rents should be raised each year by up to 7s 6d a year. At that time the PIB norm for wage increases was 3.5 per cent a year; 7s 6d was 20 per cent of the average council rent in England and Wales, 42 per cent of the Scottish average. With a flourish of trumpets Mr Greenwood introduced a rates rebate scheme in 1966. Two years later with rate income at over £1,500 million – the rebate scheme was costing only £13.7 million a year.

Thus, repeatedly, the same device has been employed. A general cutback in the social services has been justified by some system of exemptions which it was claimed would give favourable treatment to the most deprived social groups.

While improvising a whole new range of means-tested benefits and exemptions, the government have meanwhile preserved virtually intact the local authority means-tested schemes they inherited from the Tories – for domestic help, day nurseries, children in care, educational maintenance, school uniform grants, residential accommodation for the aged and infirm, food and clothing for people with tuberculosis, foot clinics, and so on. For each of these services and for all those added by the present government, there is a special and separate test of the individual’s resources. Where the local authority runs the scheme, each local authority has its own special conditions for qualification. Commenting on his calculation that there are over 3,000 separate means test schemes in England and Wales alone, Mike Reddin says:

Each of these means tests requires some form of verification (usually involving the employer making a statement of the employee’s earnings over a period of weeks or months) and each applicant needs to be reassessed at varying intervals. Scales need to be reviewed, rates of charge or rates of benefit increased ... each means test has involved an independent attempt (by each department in each authority) to determine what income should be assessed, the allowances to be set against income (gross or net) for dependents, for expenses such as housing costs, hire purchase commitments, insurance contributions and so on. [25]

Small wonder that for most means-tested benefits, most of those entitled in theory to benefit never find out that they qualify or don’t know how to apply or to whom, are defeated by intricate application forms, or don’t want to trouble their employer, are intimidated by threats often printed on application forms about the penalties for giving inaccurate information, or, simply, don’t want to be stigmatised as in need of charity. For example, school dinners for three children now cost 27s a week; but many schools still have procedures for collecting the money which allow those children who get free dinners to be identified by their classmates. [26] The Ministry of Housing calculates that the number of households in England and Wales who have incomes low enough to qualify for local authority rates relief is 1.5 million. In each year since the scheme began in 1966 about half a million qualified households have not applied. When members of the Child Poverty Action Group visited 39 Post Offices in the Manchester area, and asked for the form on which a low wage earner can apply for exemption from prescription charges, half the Post Offices produced the wrong form and in only two out of the 39 cases was the correct form produced without further explanation. [27]

As these selective services are operated, the balance of power is always stacked on the side of the bureaucracy and against the claimant. The latter must make full disclosure of income and circumstances, and the penalties for giving misinformation, even if accidentally, can be severe. Stringent criteria are used in handing over money to people in need, but no expense is spared in tracking down possible delinquents. Recently, for example, the Minister of Social Security had to confess to the Commons that:

For the half-year from September 1968, £1,900 was spent in clerk’s wages alone in checking fraudulent claims for free prescriptions in Manchester. Six thousand six hundred forms were checked, 43 patients were found to be not in any of the exemption categories, and £8 was recovered for the taxpayers.
Hansard, April 14, 1969

Yet since the detailed criteria that determine entitlement were never made public, the applicant is in no position to know whether he has been rejected because of clerical error, misstatements by his employers,etc.

In many cases means-tested benefits are withheld precisely at the time when people are in the greatest difficulties. The system is shot through with rules that limit benefit in the interests of ‘social discipline’. In most local authority rent rebate schemes, people are automatically disqualified if in rent arrears. Unemployment benefit is docked if workers are sacked for any of a series of crimes classified as ‘industrial misconduct’. Over the years, the Industrial Insurance Commissioner, supposedly an independent lawyer who arbitrates disputed cases in national insurance, has created a structure of precedents offering firm support to the disciplines exercised over workers by employers and by the labour market. [28] The Commissioner has laid down that unemployment benefit can be reduced or withheld for a period in cases where employees have been sacked for lateness, drivers sacked for losing their driving licence, workers sacked for inefficiency or for refusing to take an X-ray test, for walking out of a job rather than accepting a substantial reduction in wages, or for walking out before a grievance has been put through union procedure. In a Bill presented to Parliament late in 1969, the government are increasing the amount by which unemployment benefit will be reduced for ‘industrial misconduct’.
 

Pensions: New Deal or Stacked Deck?

Within the Conservative Party, the selectivist theory of welfare was developed in conjunction with a policy of direct State support for an extension of the private market in education, housing, health insurance and pension provision. Certainly Labour have abolished or reduced more of the system of tax reliefs which help subsidise middle-class welfare. As was the case before 1964, interest paid on house mortgages is still free of income tax, and the new capital gains tax does not apply to the profits made by owner-occupiers selling their houses. Tax-free children’s allowances are worth rather less than under the Tories, but still cost the State more than twice the value of family allowances. Some of the loopholes in the tax system which help pay public school fees have been closed, but the fact that the public schools are still accorded status as charities provides them with a £6½ million a year subsidy in tax relief from income tax, rates and Selective Employment Tax. [29] Employers are exempt from tax on the contributions they make to private pensions and health insurance schemes run primarily on behalf of salaried employees. It is reckoned that the State contributes no more to the whole national insurance scheme than it does, in the form of tax relief, to the occupational pension schemes in which only half of the labour force participate, and which offer pension rights only to a much smaller proportion of workers.

Although the government have now explicitly proclaimed the principle of partnership with the growing private sectors in welfare, they have also decided on a fairly massive reorganisation of the national insurance schemes. [30] The earnings related principle, first introduced in the Tory graduated pension scheme of 1961, and extended by Labour to short-term sickness, unemployment and widows’ pensions in 1966, is now to be generalised through the whole system. The principles of the new scheme are fairly straightforward. Contributions will be raised fairly sharply for all but the lowest paid groups of workers, and will be paid as a percentage of earnings. Women are now to be treated on the same basis as men, and for the large group of married women (three out of four of them) who at present opt out of all contributions except the 9d a week for industrial injuries, the new system will mean sharp increases in the amount they pay. From 9d to 16s 5d a week out of the average wage of £12 10s for a woman working full-time.

In a number of ways the new contribution system is designed to limit very strictly the extent to which the whole scheme will redistribute income from rich to low paid. Contributions are required only on earned and not on unearned investment income. The Exchequer subsidy to the scheme out of general taxation is frozen at 18 per cent of contribution income, and the redistribution effects of even this insubstantial subsidy are in any case limited by the fiscal developments outlined at the beginning of this chapter. As at present employers will be required to do no more than roughly match the contributions made by their employees. The British system will remain exceptional among European schemes of social insurance in its heavy reliance on direct taxation of the wage packet rather than the employers’ budget. Finally, employees will only have to pay contributions on that part of their earnings up to 1½ times national average earnings. Currently the contribution ceiling would be £36 a week. All income above this limit escapes the levy on employees.

The new scheme leaves present short-term benefits virtually unchanged. [31] Benefits for periods of sickness or unemployment of less than six months remain pretty well at current levels, except of course that now all employed women will qualify. Some of the objectionable features of the present scheme are being carefully preserved. E.g., a person’s sickness or unemployment benefit will be calculated on the basis of his earnings in the previous tax year alone. Thus, however high his contributions have been in earlier years, if his earnings and contributions happen to be low in the previous year, his benefit is cut accordingly. Also, if he has bouts of sickness or unemployment in a given year these will depress his benefit entitlement in the following year, again irrespective of however good his contributions record previously. It will remain the case that a low-paid worker will not be entitled to the full earnings related supplement, for which he has paid contributions, if this would bring his total sickness or unemployment benefit above the level of his earnings in the period before going off work.

There are to be increases in long-term social security benefits, for the old, for widows and those who are sick and disabled for longer than six months. But these benefits will not be paid at the full new rates until 1992. [32] During the intervening 20 years, benefits will creep up each year but only very gradually. For example, a person with average earnings, retiring in 1977, will get a pension that is equivalent to no more than 21s higher than the level current in 1970. Even for those retiring after 1992, the average pension for a single person will be only 42 per cent of the average wage in Britain in the year he retires.

The eventual level of long-term benefits represents a distinct improvement over the existing scheme, especially as, after retirement or widowhood or disability, the benefit paid will be raised every two years in line with changes in average industrial earnings. At the same time, the scheme offers no solution to the urgent problems of poverty among existing generations of old people, the disabled or widows. No one who is now retired or widowed will qualify under the new provision. During the transitional 20 years, the increase in the basic benefit will apply only to those who retire or become widows in that year. For the rest of the century it will be the case that the older a person is, the poorer, relatively, he will be. So, for example, men retiring in 1992 will get a pension whose purchasing power is twice that of those who will be aged 85 in that year. Similarly, a man becoming disabled late in life will get a lot more than a man disabled early in his working life. Innumerable injustices and a great deal of bitterness is going to be caused by the build-up of hierarchies of income, in which the benefits paid are determined not by need, but by arbitrary factors like a widow’s age when her husband dies, a person’s age when struck by disability, the date at which a person retired. [33]

And all these anomalies and injustices, together with the exclusion of existing pensioners, etc, plus the postponement of full benefit rates for 20 levy years – all arise from the rigorous application of the contribution principle. The basis of the new legislation is that a person will get more benefit to the extent that he has contributed more money or for longer. Crossman’s scheme represents a further move away from the welfare principle that people should benefit to the extent that they are in need. Rather, what shapes the scheme is the capitalist rule that people should get only what they have paid for. It is on this basis that Crossman justifies the exclusion of those now retired. They have not handed over enough hard cash during their working lives to justify any increase in the current level of pensions. The new earnings related scheme marks a regression to the kind of contribution principle that operates in commercial insurance. The affect will be, even more than in existing provision, that the economic inequalities during working life will be projected into retirement and into periods of incapacity for work.

In one respect only the new scheme departs from a rigorous application of the contribution principle. The lower-paid worker will get a pension which will be rather higher than his contributions would justify actuarially. The higher-paid contributor will get correspondingly less. At the extremes, the difference is quite marked. Comparing two men with lifetime earnings averaging £12 and £36 a week (at 1970 levels) the former will get a pension equal to 60 per cent of his average earnings, the latter 37 per cent. The extra provision for lower-paid workers is unavoidable if very large numbers of old people, even after 1992, are not to be living on incomes below the same relative poverty line that operates in 1970. However, the £36 a week ceiling for employee contributions means that the scheme is particularly unfavourable on workers earning between £25 and £36 a week. The higher a person’s income above £36 a week the lower, absolutely, the percentage of his income that will be used to help subsidise pensions for lower-paid workers. As in so much of Labour’s current welfare policy, it is the upper-working class and lower-middle class who finance provision for groups at the bottom of the income scale. Yet in the earlier version of Labour’s new superannuation scheme [34], accepted with acclaim by the 1957 Annual Conference of the Party, the upper limit for employee contributions was set at four times the national average earnings, ie, a ceiling that would be currently £96 a week.

The new scheme has provoked fierce resistance from a number of white-collar unions, in particular the National Association of Local and Government Officers. NALGO was formed in the early years of the century with the primary purpose of pressing for better superannuation provision. This, rather than pay, has remained the main focus of its activity. This union, rightly is pressing that the redistributive element in the scheme should be financed on a broader basis, by raising the contribution ceiling and by increasing the extent to which the scheme is financed via the Treasury out of general taxation.

Secondly, white-collar groups are particularly affected by the relationship between the new State scheme and the occupational pension sector. Though 12 million workers, about half the labour force, now belong to occupational pension schemes, for many of them the pension coverage is quite inadequate. Only one half of manual workers belong to an occupational scheme. Of those retired in 1967, 20 per cent got an occupational pension of less than £1 a week and 50 per cent had less than £3 a week. Men still at work, especially in the younger age groups, can look for better rates when they retire, but should take care not to live too long after retirement, since as a rule, the occupational pension is not proofed against post-retirement inflation. The occupational schemes tend to make poor provisions for widows, and about two-thirds of occupational pensions at present being paid to men will die with them. Pension schemes organised by employers are used by them as a stimulant to loyalty to the firm, and in many schemes the employer will take back his own contribution if the employee moves to a different firm. It is extremely rare for workers or their unions to have any say in the management or even the structure of occupational schemes and generally industrial militants have too many more immediate and visible battles to fight. As between income levels, there is tremendous variation in the generosity with which the employer contributes, and of course the bigger the joint contribution made by employer and employee the larger the tax relief which subsidises the eventual pension – employees paying surtax get tax reliefs which are correspondingly inflated. It has been calculated that the 5 per cent of people with the highest incomes have superannuation provision that is 15 times as great as for the whole 20 per cent of people with the lowest incomes. [35] There are 65,000 separate occupational schemes, 64,000 of which are relatively small and therefore expensive to run; the economies of scale in insurance can be enormous. Occupational schemes now form a major sector of the British insurance business, and the financial and political role of private insurance is larger in Britain than in any comparable European country, and becoming greater with increasing speed. In recent years, insurance companies and provident societies have taken up 38 per cent of the net increase in personal savings – compared with 10 per cent in Germany and 3 per cent in France over the same period. It is likely that the equivalent of about 5 per cent of the total wage and salary bill in Britain is being paid annually into occupational pension schemes, i.e., about £1,000 million a year. Even by 1966, the total funds of occupational schemes was £8,000 million, of which £2,500 million was directly controlled by insurance companies.

. Given the vast inequalities of privilege, the key investment role and the sheer inefficiency of the occupational pension sector, any government with an ounce of socialism in it, would clearly have assimilated the State and the occupational schemes on a nationalised basis. Instead the government has chosen to declare a ‘partnership’ between the two sectors on terms which are highly favourable to the occupational sector. The private pension lobby, one of the best organised and most powerful pressure groups in British politics, has won a notable victory in recent months. Late in 1969, the government announced that under the new legislation the employer will be able to decide (without any obligation to consult his workers) whether to contracr put his work force partially from the State scheme. In this case, employer and employee contributions are to be lower, the occupational scheme having to guarantee to make up the eventual pension at least to the level to be paid by the State scheme.

Understandably, the public service and white-collar unions are raising a sharp protest about these provisions. At the time of writing, NALGO is considering whether to have a strike ballot of its membership on the issue. What such groups are facing is the necessity to renegotiate their entire pension scheme at a time when employers and the government are fighting hard against improvements in conditions and pay.

About the terms they will get from the State scheme, such groups and their employers have less to complain. The State scheme is to assume responsibility for subsidising against post-retirement inflation that part of the basic pension or widow’s benefit which the occupational scheme will be paying. Second, and more important, the terms for contracting out have been set at levels which protect the terms of thousands of inefficient occupational schemes. As Crossman explained,

‘This is really very like the Farm Price Review in the sense of what you have as a fair arrangement which gives a fair rate of profit to a small man, always gives an excessive rate of profit to a big man.’ [36]

The 6 million people expected to be partially contracted out will receive substantial subsidy from the 16 million or so full members of the State scheme. Without provision for contracting out, it was expected that, e.g., in 1977-78, income of the scheme would be £283 million greater than expenditure. On the proposed contracting out terms, this will be turned into a £3 million loss in that year. [37] Instead of building up a reserve fund which, at its maximum, would amount to £3,439 million, the national superannuation reserve fund will at no point be greater than £256 million – unless contributions go up. And to subsidise contracting out, it is expected that contribution rates for everybody will have to be raised periodically throughout the rest of the century.
 

Conclusion

As the General Election draws near, the nation will be subjected to more and more of the sort of rhetoric with which Mr Wilson favoured the Annual Conference of the Labour Party in the autumn of 1967:

In the three years we have been in office, we have ended the slide to social inequality and public neglect. We have put in hand a dramatic redeployment of resources in favour of the under-privileged, on all fronts of social action – social security, health and welfare, the housing of our people, the education of our children and our young people – the most massive ever carried through.

There is little truth in these assertions. The increase in the proportion of national resources allocated to ‘the Welfare State’ has not been substantial enough to allow any marked improvement in the availability of services, the quality of services or the relative level of social security benefits. There has been a certain appearance of dynamic activity since 1964. A great many Acts of Parliament have been passed. Numerous Commissions and Committees have made inquiries and published reports. The Ministry of This has had its name changed to the Ministry of That, and then merged with the Ministry of Something Else. But no emphatic break with the lines of policy inherited from the previous period of Conservative rule. Least of all have the taxation or welfare or economic policies of the present administration resulted in ‘a dramatic redeployment of resources in favour of the underprivileged.’

However, the prospects for the social services and for the millions of people who depend on welfare provision are now beginning to look a little brighter. Improvements in welfare do not, after all, depend solely or even primarily on the ability and determination of governments to carry out reforms. The last period of notable advance in the social services, namely between 1940-48 was exceptional in that it can be explained by the special circumstances of war and the aftermath of war, rather than because of direct working-class pressure. The historical norm has rather been that progress in social welfare occurs at times of unusual working-class militancy, expressing itself both industrially and politically. The foundations of the modern welfare State were laid by a Liberal government between 1906 and 1911 as a tide of exceptional industrial militancy broke across the country. In 1915, as a result of insurrectionary tactics by workers in Glasgow, a Rent Act was hastily passed and the protection this offered tenants against exploitation by landlords has not been completely dismantled even in 1970. In the years between the end of World War I and the General Strike of 1926, the unbroken, even if faltering, strength of the working class extracted a whole series of concessions in the welfare sector from the Wheatley Housing Act of 1919 to the first State provision of social security for widows and orphans in 1925. After the defeat of the labour movement in the general strike, throughout the following 14 years the welfare State was under continual attack.

Now, in 1970, there are some signs of the kind of working-class mobilisation which, in the past, and though often as a byproduct, has secured notable gains in the shape of better social service provision for the masses. What must be nailed as a lie, is the doctrine so convenient to ruling class interests, that the better-organised section of the working class must refrain from exercising its full industrial and political power, so that resources may be left available for increased welfare expenditure. The historical experience has been exactly the reverse. Just as in industry, low wage earners win improvements in pay and conditions at the same rate, and in the wake of advances made by higher-paid workers – so, in welfare, the same rule applies. For at least 30 years there has been an uncanny correspondence, irrespective of which political party has been in office, between the average wage paid for manual work in industry and the level of benefits paid to widows, the unemployed, the sick and the old.

It is also true, however, that social policy can be more sharply turned along lines required by working-class interests, to the extent that industrial militancy takes on a more integrated and directly political form than at present. However effectively workers are organised at the point of production, their struggles do not necessarily add up to a movement that can directly fight on behalf of the non-employed as well. And only when protected by a political mobilisation of industrial militancy does it become seriously possible for groups dependent on welfare services, or condemned to live in the urban ghettos, to begin themselves to organise in defence of their own interests.

Acknowledgements

For moral support and technical help, I am particularly indebted to my wife, Audrey. Numerous improvements to a first draft were suggested by Nigel Harris, and thanks are also due to Mr John Goldsmith.

 
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Notes

1. Commons Debates, vol.754, col.1265

2. See, e.g., the 1964 Election Manifesto of the Labour Party, on social security:

‘the key factor in determining the speed at which new and better levels of benefit can be introduced will be the rate at which the British economy can expand.’

3. Economic Trends, HMSO, February 1969, pp.xxxiv-vi.

4. See, e.g., N Kaldor: The Beveridge Report: the financial burden, Economic Journal, 1943.

5. Economic Trends, HMSO, February 1969, p.xxxvi.

6. Inland Revenue, 11th Annual Report, Cmnd 3879, 1969, p.82.

7. The Economist, January 15, 1966.

8. The Times, November 9, 1953.

9. Lords Debates, vol.182. Speech by Beveridge.

10. Prices and Incomes Standstill: Period of Severe Restraint, Cmnd 3150, November 1966, para 28.

11. Ministry of Social Security, Circumstances of Families, 1967.

12. See V.N. George: Social Security, London 1968, p.1967.

13. A school dinner cost 1s in 1964. The price went up to 1s 6d in 1968, and to 1s 9d from April 1970.

14. Commons Debates, July 24, 1967.

15. The ineptitudes of the NIT proposal were vividly recounted by R.H.S. Crossman in his Herbert Morrison Memorial Lecture, published as, Paying for the Social Services, Fabian Tract, 399, December 1969, pp.15-16.

16. Cmnd 2764, 1965.

17. NBPI, Pay of workers in the Retail Drapery, Outfitting and Footwear Trades, Cmnd 3224, 1967.

18. Labour Party Conference Report, 1968, p.150.

19. NBPI: Pay of Nurses and Midwives in the National Health Service, Cmnd 3585, 1968.

20. See International Socialism 35, Winter 1968-9.

21. For a detailed analysis, see International Socialism 25, 1966.

22. See, in particular, the publications of the Institute of Economic Affairs.

23. Committee of Inquiry into the Relationship of the Pharmaceutical Industry and the NHS. Cmnd 3410, 1967.

24. Calculated from data in Housing Statistics published annually by the Institute of Municipal Treasurers and Accountants.

25. M. Reddin: Local Authority Means-Tested Services. Social Services for ALL, Pt.1, Fabian Society, June 1968.

26. There are some suggestive details on a circular sent to schools by the Scottish Education Department in 1967. It urged that free school dinner recipients should not be given tickets of a different colour. There should be no obvious discrimination between payers and non-payers when the tickets were issued. And ‘in no case should pupils receiving meals free be required to enter the dining room by an entrance other than that used by paying pupils, to sit at separate tables, or to receive different meals’. For these, and other details, see Tony Lynes in Poverty, Journal of the Child Poverty Action Group, No.10, 1969.

27. Details in Poverty, No.11, 1969.

28. Index and Digest of Decisions given by the Commissioners under the National Insurance Acts, 170750.

29. Guardian, January 6, 1970. Workers in the building industry, for example, are not exempt from SET. The cost of houses currently includes the SET charge of £125 per year per worker employed, this being passed on by the employers to the consumer.

30. See, for example, Grossman’s Fabian pamphlet referred to above.

31. All details from Social Insurance, Cmnd 4124, July 1969.

32. See National Superannuation and Social Insurance, Cmnd 3883, 1969.

33. For further analysis, see International Socialism 36, 1969.

34. National Superannuation, Labour Party, 1957.

35. As reported by John Hughes in New Statesman, November 8, 1968.

36. In an address to a national convention of NALGO members, November 25, 1969.

37. Report by Government Actuary on the Financial Provisions of the Bill, Cmnd 4223, December 1969.

 
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