Frank field is many Conservatives' favourite Labour politician. He thinks freely about the future of welfare. For that reason he has never been embraced by the Labour front bench, but has been reduced instead to a lone voice in the wilderness of left wing social policy. This may be changing. He has more access to Tony Blair than to previous leaders. His latest book Making Welfare Work (Institute of Community Studies) advocated what he calls "stakeholder welfare" and influenced Blair's flirtation with the language of stakeholding.
Because of Field's reputation, the reaction to his ideas in Making Welfare Work has been respectful rather than critical, interested rather than analytical. The book does indeed have one great strength-Field understands, as few on the left have understood, that a large scale social security system shapes people's behaviour and must be subject to moral scrutiny. Social security is not a dry technocratic subject: it is about ethics and character. This insight sharply distinguishes him from the leading socialist social policy thinker of a generation earlier-Richard Titmuss-whose view was, in Field's words, "that welfare should be given as a right and free of any restrictions or stigma. The delivery of benefit should not suggest that individuals were responsible for their circumstances." It is because Field disagrees with this approach that he has been so out of tune with the modern Labour party.
However, Field's worry about the moral effects of welfare leads him to a more conventional Labour conclusion: he is opposed to current means tested benefits and wants to replace them with a more ambitious social insurance model based on "stakeholder corporations." Let us look first at his critique of means testing and then at his proposed stakeholder schemes.
The proportion of the population living in households receiving an income-related benefit has gone up from 20 to 30 per cent since 1979. Much of this increase is accounted for by the rise in the real level of benefits. But there are three other factors. First, there has been an increase in the number of unemployed people who have not built up a contributions record or who have exhausted their contributory entitlement. Second, there are more single parents, and a higher proportion of them are dependent upon Income Support. Third, more people receive means tested assistance with their rent. The relevant chapter of the Beveridge Report was entitled "The Problem of Rent" and it has always been difficult to work out the right way of helping with that cost.
Field is worried about the impact of these changes. He suggests that the way forward is a more wide ranging contributory system paying out benefits on a non-means tested basis. But he offers no detailed account of what these benefits would be, who would receive them, and how much they would cost. His book is sadly lacking in even the most elementary costings which would make it possible to assess what he is proposing. It does seem odd that he should criticise the spread of means testing on cost as well as moral grounds when a shift to a universal system would inevitably cost far more.
This may sound rather abstract, but the debate on means testing ties in to two areas where the Labour party is currently reviewing its policy. One of the means tested benefits which Frank Field has always criticised is Family Credit, which boosts the incomes of low paid working families. But it is an exceptionally well targeted measure. The model we had in mind when we introduced Family Credit was the American Earned Income Tax Credit, which is, in effect, a higher personal tax allowance for someone in low paid work, withdrawn as their income rises.
Tony Blair's recent speech in Singapore included a passage attacking Family Credit. Labour likes to argue that it costs too much and that it encourages employers to get away with paying lower wages than they otherwise would. These attacks on one of the most well targeted and efficient of our benefits are rather odd. After all, Family Credit goes with the grain of the labour market and helps people back into work. But Labour are driven to oppose it by the logic of their support for the minimum wage. Their argument for the minimum wage has to be that people cannot receive an income on which they can keep a family unless the state intervenes and obliges employers to pay it. It is inconvenient for them that the state already has a system to top up the incomes of low paid families. Family Credit must therefore be attacked.
The minimum wage transfers some of the costs of meeting social policy objectives on to employers. The damage to jobs from such a policy is obvious. And as it would stop many people from working at all, the minimum wage would end up with a higher public expenditure cost.
Labour's critique of means testing sits rather oddly with the party's only other known social security policy, which is their interest in what is called a "guaranteed minimum pension." This is an ingenious term to describe a policy of aggressively extending means testing for pensioners. The idea is that you fix a guaranteed minimum income for pensioners above current income support levels with every pensioner guaranteed such an income-so far, so good. But in order to finance this there would be a "tax taper" for pensioners' incomes above the minimum. This could be seen as either increasing the tax rate for pensioners or, alternatively, as means testing the basic pension. If you are receiving an occupational pension on top of your basic state pension the effect of the taper could well be to leave you with little income on top of what you are receiving from your occupational pension. It is a device for ending the commitment to the universal contributory pension, disguised in the language of a guaranteed minimum.
It is odd how the Labour party both criticises means testing in an area where it seems to work rather well, and at the same time wishes to extend it in an area where it would conflict with the elementary principles of contributory benefits which Frank Field claims to support.
There is, however, a genuine puzzlement among many people who are concerned about welfare: how to target limited welfare resources without a large increase in means testing with its attendant traps and disincentives. Peter Lilley has been steadily working through this problem. His approach is to define categories of benefit recipient with great care so that they get assistance which is well targeted without necessarily being means tested. Ensuring benefits go to the right categories of claimants is far more sensible than Frank Field's attempt to extend contributory benefits.
So far we have focused on Labour's critique of means testing, but Field's book also sets out the case for what he calls "stakeholder corporations." He envisages two such schemes. The first corporation in effect takes over our current social security provision and puts it all on to a contributory basis. But unlike Beveridges's scheme, you can be a contributor even if you do not have a contributions record of your own-because the Exchequer will pay. The purpose of the system is to pay more generous social security benefits to more people with less means testing. The fact that the mechanism to pay for this is to be called a "contribution" to a "stakeholder corporation" should not disguise the fact that this is an increase in public spending on benefits-the bill either coming in the form of paying Exchequer contributions at the beginning or paying unfunded benefits later on.
As the Exchequer would pay contributions in respect of everyone who was not working, it becomes a completely universal system and it is not clear how it would differ from basic income schemes which are notorious for their high costs and the high levels of taxation needed to finance them. And if everyone belongs, whether they can contribute for themselves or not, will there really be the beneficial moral effects which Frank Field wants?
The second "stakeholder corporation" is to operate a compulsory second pension scheme. The aim is to build up a pool of savings for pensions of the sort which Tony Blair was admiring when he visited Singapore. The aim is to "universalise private sector provision." But it suffers from several obvious defects.
It rests on the assumption that Britain's problem is that we do not have a large enough pool of savings on which people can draw in their retirement. But compared with just about any other advanced western country, Britain has done conspicuously well in accumulating genuine private funds for pensions. It is the economies of Continental Europe where the next generation of pensioners will have their pensions financed by ever higher rates of taxation. Britain has over half of all European pensions savings, so we have much less need to look across to Asia for compulsory savings schemes. Indeed, in Britain most employees do have a compulsory second pension, because if they have no occupational or personal pension, they are obliged to participate in the state earnings related pension scheme (Serps) to top up their basic state pension. It is a further paradox that Labour's policy of a guaranteed minimum pension, with means tests for those above it, would itself deter many people from saving for their retirement.
Field argues, however, that not every person in Britain is participating in this second pension arrangement. If you have a very low income-below the lower earnings limit for National Insurance-then you are not necessarily in Serps. Field wants people who fall through the net to accumulate a second pension, too. But it is unlikely that people in such financial circumstances are going to be able to save out of their own income to accumulate a second pension. The Exchequer has to pay their contributions instead, which means that a new spending programme has been invented: state payments into private pension schemes for the low paid.
Occupational pension funds are genuine private pension schemes. Their funding decisions are taken by normal commercial criteria. They do not belong to the state and are not directed by the state. But Frank Field has other plans. His stakeholder corporation which is to take over the management of private pensions is, in the strict sense of the word, "corporatist." He envisages votes being allocated to the government, to trade unions and to employers, and the corporations running the schemes and directing funds as they think fit.
Any Conservative looking at the Singapore model of compulsory savings into a state scheme would believe from basic free market principles that the state could not make as good a job of directing investment as the private sector does. Fortunately the facts support the theory. Since 1980, British occupational pension funds have earned an average annual rate of return of nearly 10 per cent, whereas the Singapore funds have earned a rate of return of approximately 2 per cent a year. At the moment, Singapore has a relatively young population and they may not recognise that their savings are not earning a genuine commercial rate of return. But when this generation comes to retirement, they will find that the pensions which they can command have not kept up with the growth of their economy. They will either have to settle for much lower incomes in retirement than they had expected, or they will exert pressure through the political system for a tax-financed top-up to their pension. It is easy to design an attractive looking welfare system for a young population. We have yet to see whether the Singapore model can really work as its population ages.
Field has suggested another line of attack on private occupational pension schemes. He would like to see them compulsorily broken up so that each individual can own his/her own savings in the scheme. He sees this as the 1990s equivalent of the Conservatives' successful sale of council houses in the 1980s. But he overlooks one fundamental difference. Council houses were public sector housing which had failed. They belonged to the public sector and the public sector was entitled to dispose of them. Occupational pension schemes are genuine private contractual arrangements, structured under trust law. They are not the personal property of the employer or employee putting money into the scheme, or the pensioner receiving an income. They all have legitimate interests which are protected in law, but no one has direct "ownership." Trying to break them up compulsorily, contrary to the trust deeds which have established them, would be a fundamental challenge to property rights.
Tony Blair has commissioned Chris Smith to "think the unthinkable." Frank Field is one of the few Labour MPs to be thinking at all in this difficult area. Because he is such an engaging person and so morally committed to addressing the problem of poverty, his ideas escape the scrutiny which they should receive.
The arguments set out here do not rest on highfalutin' theories. They are arguments which have been tried and tested in political debate before. Harold Wilson came to office in 1964 committed to something rather like the "guaranteed minimum pension." He was going to integrate taxes and benefits, particularly with a view to improving provision for poorer elderly people. He was also going to set up new funds in which savings would be invested to pay for pensions in the future. The then Tory opposition called them the "monster funds." After years of wrangling, they were eventually abandoned. Richard Crossman, a sadder and a wiser man, described their failure. One wonders if anyone in Tony Blair's entourage has read his account.
