Labour's welfare reforms are too little to stop Britain's imminent bankruptcy

Telegraph

18-03-2025

Forgive me if I don't subscribe to the apotheosis of St Keir the Convert, who won the Labour leadership just five years ago on an avowedly Left-wing platform. I simply do not believe he has suddenly morphed into a neo-Thatcherite, small-state, low-tax, regulation-hating, enterprise-friendly, economically liberal politician and, to be fair, neither does the prime minister himself.
He remains an old-style collectivist driven towards public sector reform by the need to find savings in parlous fiscal circumstances, not an apostate ready to abandon his cherished socialist nostrums. Those who detect a rightward shift in Labour's approach to welfare reform and the NHS need to define what they mean. Sir Keir believes the answer is more 'active government' while many of his backbenchers don't want any cuts.
But there are some signs that a burning bush was encountered on the road to Islington, or rhetorically at any rate. Talking about welfare reform in moral and not just economic terms is long overdue. While cutting the amount paid out in benefits is essential it is not sufficient because the underlying causes of the expansion will not be addressed. That requires a complete rethink of what the welfare state is for, what it does and who it is meant to help.
Labour tried this before, 25 years ago. The late Frank Field MP was famously tasked by Tony Blair to 'think the unthinkable' about welfare reform only to be sacked when he did. The debate is always framed in terms of how people 'trapped on benefits' really want to work but are prevented from doing so by lack of training opportunities, suitable jobs or poor qualifications.
This may well be true in many cases but everyone knows that large numbers are living on benefits because they provide enough money to make working in a low-paid job make little sense. If you pay people not to work then they won't.
While there are people unable to work because of physical disability or severe mental impairment – what in a far-off day were called the 'deserving poor' – others are gaming the system to avoid doing so and it is naive or wilfully misleading to pretend otherwise, though Ms Kendall continues to do so.
Field, a man of deep Christian faith, wanted a system that harked back to the contributory principles that underpinned the Beveridge report on which the welfare state was built. He believed strongly that people should not get something for nothing but was not thanked for saying so in a world in which rights and entitlements were tenets of the new religion.
He argued that if welfare was to be contained, the contributory insurance principle must be restored to the National Insurance system. If you did the right thing you would be supported through an insurance-based system, with a clear relationship between paying your dues and obtaining help when needed.
Field foresaw that the time would come when voters were no longer prepared to pay for welfare if the costs continued to soar, yet even the Kendall reforms will make little difference. They are supposed to save £5 billion by 2030, assuming Labour MPs do not block them, but that is just a drop in the ocean set against the overall £100 billion.
Half a century of rampant welfarism has had enormous consequences, both societal by creating a sense of entitlement that allows generations to live without working, and economic. The main reason why we have run an almost permanent deficit since the 1960s has been the explosion of entitlements following the break with the something-for-something contributory principle espoused by Beveridge.
The state gives money to people because of who they are rather than what they need, irrespective of what they have put into the system. Once these commitments are made they are set in stone and cannot be undone without a monumental political fight.
Almost everyone accepts the need for a safety net to help people when they get into difficulties or cannot fend for themselves through no fault of their own. But this largesse does not extend to people who are perceived to be abusing the system.
We have lost the old belief that to take something out you should be willing to put something in unless you are simply unable to do so. Once, the incentive to do so was an overriding desire to avoid the disapproval that society would direct towards those deemed to have behaved fecklessly. Rights were always balanced by duties and responsibilities. Today we are reluctant to pass judgment on others and are paying a high price for our reticence.
Over time entitlements have supplanted contributory benefits and given rise to resentment among the people who pay the taxes to fund them, who are in turn dissatisfied with the standard of services they receive from the state. If Labour were truly radical it would introduce insurance-backed savings schemes in which contributions from employers and employees are held in individual accounts which can be invested to fund retirement or hospitalisation costs.
People could get better schooling for their children and higher levels of health and social care for themselves if they could spend more of their money on what they wanted rather than what they are given. The state would spend less as a proportion of national wealth but would be able to direct more help to the poor and needy.
We have spent the past four decades relentlessly cutting the things the state is supposed to provide, like defence, policing and infrastructure, while being locked into a political arms race to see which party can promise more people more things they could and should do for themselves.
Yet depressingly, we learn that four in 10 young people say they might give up on work and live on welfare, while one million foreign nationals are claiming benefits even though immigrants are supposed to be able to fend for themselves without being a burden on the state.
This was a once-in-a-generation chance to do something about this mess but Labour ducked it. The current taxpayer-funded provision of benefits is unsustainable and Ms Kendall's technocratic reforms will barely scratch the surface of a problem that will eventually bankrupt the economy.