Five giants bar the road to progress: want, ignorance, idleness, disease and squalor. So said William Beveridge in the report commissioned by the wartime coalition published in 1942 that shaped the politics of postwar Britain, most especially the Attlee administration of 1945-51 but also the Conservative governments that followed.
Want was tackled through a cradle-to-grave welfare state; ignorance through the tripartite education system (grammar schools, secondary moderns and technical colleges); idleness through the commitment to full employment; disease via the creation of the NHS and squalor through a programme of mass house-building and higher standards of provision.
Confronting the five giants remains the meat and drink of politics, as a quick flick through the Observer shows. “Labour considers raising national insurance to fix £30bn NHS ‘black hole'”, says one headline. “Christian charity hits back over Tory attacks on food banks,” says another. A third referring to the mental health problems caused by flexible work patterns is headlined: “Supermarket shifts ’cause anxiety and insecurity'”.
So let’s assume that a far-sighted government took the view that a new Beveridge report was needed in response to the problems thrown up by the Great Recession of 2008-09, just as the original was a response to the poverty and economic stagnation of the period between the first and second world wars. What would it say?
It would start by recognising that great progress that has been made. Britain is a richer, healthier, better educated and more tolerant country than it was 70-odd years ago. Life expectancy has risen by well over a decade; university education is no longer for a tiny elite; incomes adjusted for inflation are four times higher than they were at the end of the second world war; the number of people in owner-occupation has more than doubled; people no longer live in sub-standard homes without baths and inside toilets.
But a new Beveridge would also say that there is still much wrong with Britain that needs to be put right. The life expectancy of someone born in Glasgow is 10 years lower than someone born in East Dorset; the UK is sliding down the league table of educational attainment; almost a million people are using food banks; almost four million families could not pay their rent or mortgage for more than one month if they lost their job.
Next, it would ask which of the five giants remain the most formidable barriers. Two are still alive and kicking, a third once assumed to have been slain could come back to life.
The dormant giant is disease. Spending on the NHS is 10 times higher than it was when it was founded; over the past 60 years the average increase in the budget for health has been just under 4%. So while the ringfencing of the NHS since 2010 looks generous against the deep cuts in, say, the Home Office or the Ministry of Justice, it represents the biggest squeeze on resources since 1948. This is against the backdrop of a population that is living longer and where technological advance means that prices in healthcare rise more rapidly than the cost of living generally. Britain loves the NHS and has no desire to move away from a free-at-the-point-of-use system. But unless the public is prepared to pay more, the quality of care will deteriorate. Labour’s proposed solution is an increase in national insurance contributions specially designated for health and care costs.
That leaves the two giants that already loom large. The first of these is want, as is clear from the vigorous debate about living standards in the UK. Are they going up? Is there a cost-of-living crisis or not? Who is benefiting from a growing economy?
What’s happened is this. In the past decade, pay rates have been historically low. Real pay was struggling to keep up with inflation even before the financial crisis of 2007, and has fallen sharply since. Wages buy 10% less now than they did at their pre-recession peak.
Even now, it is questionable whether they are actually rising. The government’s measure of average earnings is a mean. If pay increases are skewed to those on the better-paid jobs, the mean can increase while most workers’ pay increases less quickly than inflation. Average earnings excluding bonuses (which tend to go to those on higher incomes) are rising by 1.3% a year, which is still below the official inflation rate of 1.6%.
Some increase in earnings is to be expected as the economy grows and unemployment comes down. But the structure of the labour market means that the pick-up in real pay growth will be slow and it is likely to take until the end of the decade – and perhaps longer – to get back to pre-recession levels.
It would not take a new Beveridge report long to find the reason for the squeeze on living standards: the imbalance of power in the workplace. Over the past 25 years, the trend has been towards an atomised and casualised workforce that has little or no bargaining power. The Britain of today is a land of secure workers on good incomes but also of gangmasters, zero-hours contracts, domestic servants and the self-employed scratching a living. Under the Labour government of 1997-2010, tax credits were used to top up low pay, but austerity means they have become less generous. There are now more people in poverty who are in work than there are who are workless.
Unless the state is willing to act as the guarantor of a living wage through the tax and benefit system, there are only two possible outcomes. One is that the labour share of national income will continue to fall, leading either to a reduction in aggregate demand and/or higher indebtedness. The other is that the bargaining power of labour is increased through full employment, stronger trade unions and collective bargaining.
The other giant is housing. Owner-occupation, which rose steadily in the 20th century, is in decline. House price inflation coupled with low earnings growth means that a quarter of young people aged between 20 and 34 live with their parents. In the more prosperous parts of Britain, there is a mismatch between housing supply and demand.
This is not a new problem. A decade ago, the report prepared by Kate Barker for Gordon Brown said 210,000 new homes a year were needed in England to avert a housing crisis. Since then 115,000 homes a year have been built.
Result? A housing crisis, for which the only solutions are a successful regional policy that moves people to where the empty homes are, or builds lots more houses where the jobs are.
The final thing the new Beveridge would say is this: cracks can only be papered over for so long. In all the key areas – the NHS, living standards and housing – it is time for action.
