The Future of the Welfare State:

Universal Credit, Furlough Schemes and Other Initiatives to Support Those in Need

Key Speakers

Overview

Since the start of pandemic, 9 million UK workers have received furlough payments, and consequently become recipients of the welfare state. Even as the furlough scheme is wound down, many of these workers will switch one form of state benefit for another, with increasing numbers receiving Universal Credit as unemployment rises. With over 50 per cent – and increasing – of the country’s budget spent on the welfare state and an ever-changing political, technological and cultural landscape, the purpose, size and utility of the welfare state will be up for debate.

The welfare state in most Western countries, including the UK, were forged in the fires of the Second World War, and in an era of big government, big companies and big unions. Full male employment was assumed, and welfare payments were seen as transitory. However, a new generation of automation has been predicted to render a much larger share of the population chronically unemployed, and even now, the rate of underemployment is rising. As research by the OECD last year showed that around 25% were either in a job and looking for another one, dropped out of the labour market permanently or worked volatile hours.

Ageing populations pose another challenge to the welfare state, as longer life expectancy and stagnant fertility rates have raised the dependency ratio – the productive pressure on workers by those who have left the jobs market – threatening the social contract between generations. According to the Resolution Foundation, Britain’s baby boomers can expect to receive a fifth more in benefits and services than they paid in tax, with spending as a share of GDP required to increase by seven percentage points by 2066, to over 45%, meaning higher taxes for those just entering the jobs market. In response, Denmark and Finland link state retirement ages to life expectancy, while Germany and Japan adjust pension levels to the dependency ratio.

From an immigration point of view, research shows that taxpayers are more tolerant of benefits in more homogenous areas, suggesting a link between generosity and diversity. Yet, immigration could also be a solution especially to the issue posed by changing demographics. Immigrants in the UK are net benefactors to the treasury, meaning they can fill the deficit caused by the growing number of pensioners. A much-discussed solution, especially in the face of technological changes, has been the introduction of a universal basic income (UBI). While it can take a variety of forms, at its most basic it is about replacing a plethora of means-tested benefits with a single, unconditional one paid to everyone. Recent research following Finland’s two-year trial of the system suggests that it could actually improve employment as well as well-being, however, conclusive evidence is far away as no state is yet to place UBI at the foundation of their welfare system. A more moderate version of welfare reform has come in the form of the negative income tax (NIT). Championed by Milton Friedman, the NIT means that below a certain threshold the state pays the worker. As salaries increase, tax begins to kick in, tapering the income. In practice, the difference between this and UBI, is subtle, as UBI assumes rich people would have to pay more tax. However, NIT is more efficient than UBI as it does not give the rich a stipend, that is then taken back. Versions of a NIT have been part of welfare policy in Britain and America for decades, in the form of tax credits that are paid to those working on low incomes.

The UK’s Universal Credit (UC) has been an attempt to merge six working age benefits into one. Questions about how to reform the welfare state also have to confront questions of whether it can simply continue to grow and what is its purpose. Understanding its utility and the boundaries – if there are any – will be as crucial to properly answering this question as what reform is best to undertake. This symposium will look to discuss these questions and cover diverse arguments in the search of greater insight into this topic.

Programme

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