THE WELFARE STATE
Discussion Document
Wilfred Aspinall
(Without Prejudice put forward for further Consultation and Member Comments)
Member of Hitchin Conservative Association
Former Chair – Forum in the European Parliament for Construction
Former Member of the European Economic and Social Committee
wilfredaspinall@me.com
The following Discussion Paper was first released to the CPF in late 2023 and although there have been added political points the statistics need to be revised
Introduction Factual Analysis
In the fiscal year 2023-2024, the total cost of the UK’s welfare state is substantial. The overall public spending, which includes central and local government expenditures, is projected to be around £1,155.9 billion. Within this, welfare spending specifically is estimated at £157.8 billion. This covers a wide range of benefits, including pensions, healthcare, and various forms of social support
Public spending statistics: February 2024 – GOV.UK
](https://www.gov.uk/government/statistics/public-spending-statistics-release-february-2024/public-spending-statistics-february-2024) [oai_citation:2,UK Central Government and Local Authority Spending in 2025 – Charts](https://ukpublicspending.co.uk/numbers).
To break it down further, social protection, which is a major component of welfare spending, accounts for about £321.5 billion in 2022-2023, reflecting its significant share of the public budget
Public spending statistics: February 2024 – GOV.UK
](https://www.gov.uk/government/statistics/public-spending-statistics-release-february-2024/public-spending-statistics-february-2024). This includes expenses on state pensions, disability benefits, and other social security payments.
These figures illustrate the extensive financial commitment of the UK government to its welfare programs, highlighting the importance and scale of social support systems in the country.
INTRODUCTION
As we consider the future we need to discuss priorities that are required to satisfy the electorate’s views in relation to the Welfare State. The whole subject is very complex
ASSESSMENT FOR THE FUTURE
Any reform, review, potential changes to the Welfare State cannot be implemented within a short period of time. Some issues may be implemented quickly if they are bureaucratic in nature and these should be drawn up. Other more systematic and cultural issues may take a decade to bring in. Government could initiate changes which could be set out in the next General Election Manifesto. It does need to be done
SOME FACTS
There remain over 2.8 million people who are inactive because of long-term sickness and disability (this is rising). … the proportion of people going through a work capability assessment who are being given the highest level of award and deemed to have no work-related requirements at all has risen from 21% in 2011 to 65% last year.” (Mel Stride, Work and Pensions Secretary, 5 September 2023)
Just over half (51%) of families in the UK received a type of state support in the three years to March 2021. Nearly half of all state welfare spending is on people of pension age (47.8% in 2021/22), most of this being accounted for by state pensions. The next largest proportion is spent on working-age benefits such as Universal Credit (30.9%). In July 2023, the number of people claiming Universal Credit stood at a record 6.1 million, including 2.1 million with ‘no work requirements’. Disability benefits and Child Benefit account for 10.7% and 4.7% of state welfare spending, respectively.
Several factors show that the number of pensioners is expected to continue increasing relative to the number of people in work. These include people living to older ages and increasing numbers of 50-64 year-olds deciding to retire early.
• The number of people aged 65 years and over increased from 9.2 million in 2011 to over 11 million in 2021. The proportion aged 65 years and over rose from 16.4% to 18.6%.
• By 2042, a quarter (24%) of people in the UK are expected to be aged 65 or older.
- One-in-forty (2.5%) older people were living in care homes in 2021. In addition, there were almost 1.2 million unpaid carers aged 65 years and over in England and Wales, just over 1 in 10 of the older population.
The current UK state pension age of 66 for both men and women is higher than the average for developed economies. It is legislated to rise to 67 between 2026 and 2028 and to 68 between 2044 and 2046. Despite this, as the House of Lords Economic Affairs Committee has observed, “The UK stands out among developed economies in having a growing inactivity rate and not reverting to its pre-pandemic trend” and “The biggest contributor to this change has been an increase in early retirement.” As the Lords’ report cautions, this all “damages growth in the near term” and “reduces the revenues available to finance public services while demand for those services will grow.”
DISCUSSION PAPER
The State benefit system has become a massive business in itself and is very costly. The objective must declare that benefits should only provide a safety net to those who are in need. We seem to have some people whose main job is to be on benefits. To change that culture will be a crucial political event – even a cultural change and will take more than a parliamentary term to sort out.,
We should encourage personal responsibility by reducing public expenditure (by the State) and at the same time reduce the taxes claimed off employees (at all levels). The high taxes currently in force gives no incentive to take on a working position. The tax thresholds should be increased to put more money directly into the hands of people.
I can remember a Labour government introducing such high taxes that those earning high incomes simply shifted their residence abroad. At that time we saw a top tax of 98% resulting in many going to live in the United States defined as an attractive destination. It was not until a Conservative government took over that high earners felt attracted to return to the U.K.
OUR tax system is reaching that point where our public sector funding will become unsustainable and taxes will rise out of control
The Conservative Party should set out a clear pathway to bring taxes for all workers (high and low income earners) down during the next parliament. The tax thresholds which remain frozen until 2028 now possibly 2030 (except for pensioners) should be increased in a steady manner. It is a proven fact that the exchequer gains more revenue when taxes are low. All this suggests that more administration should be available for HMRC to investigate, charge and prosecute those earners who are avoiding taxes. (Similar powers that the Post Office had – and still have). Instead the tax system should be reviewed to make U.K. earners and any residents coming to live here no need to try and find a loop hole to avoid tax.
We should aim for a low tax society and by doing that bringing more investment into the U.K. We should investigate whether a ”flat rate” could apply and meet exchequer expenditure
If you remember some observers during the Brexit debate were concerned that the U.K. would be set up to act as a tax haven. Well I am not suggesting that but the current orthodoxy is going in the wrong direction. High taxes discourage earners to strive for a higher income and business to resist making sustainable investments.
This issue is not going to go away and during the next parliament the Conservatives could initiate a clear revolutionary vision to fulfil a policy for the U.K. to be a low tax country. WHY NOT
During the past year it is stated that 15,000 millionaires have exited the U.K. following the Non Dom being abolished.
That could equally happen when middle and higher income earners (working people) find their tax increasing without any obvious benefit to them. These professionals are mobile, motivated and aspire to have the best in life.
Let me now address the idea of abolishing NIC which is a tax on jobs. A supplementary tax on every worker. They are taxed a percentage of their earnings at source and also taxed within specified tax thresholds a fixed percentage on income. It is suggested that this double taxation should be weaned away and a single tax system exist.
Let’s look back at why national insurance contributions were introduced. Was it not the objective for earners to pay NIC to contribute for their future pension and health care but we all know that the NIC funds were just absorbed into the general taxation income. Pensions therefore come out of the total tax take and this is where we have a problem. The current welfare spend on pensions takes up XXXXXXX.
To make matters worse the older generation are living longer and the next generation to claim a state pension will potentially live even longer. As an added issue many cashed in their private or occupational pension rights and at their early retirement are not paying towards a retirement funding through either private or company funded schemes. Many are inactive and not earning therefore not paying NIC. This bubble will burst.
If we are going to promise to scrap NIC the provision of pensions must be examined
We should invest considerable funds in Artificial Intelligence to ascertain exactly who is on State benefits and to measure the implications if there is a large percentage that could be weaned into work (where they would pay their taxes and NIC). This point is controversial as there is an implication that there are some whose work practice is to claim benefits even if they don’t really qualify. In the first instance we need full disclosure of information in order to make that decision
We need to discuss the position of the pensioner who will have been paying NIC and taxes all their working lives and therefore deserve to be financially provided with a pension. The basic pension is £156.20 per week = £8122 pa :: the new state pension is £203.85 per week = £10600 pa. This is well below the minimum living wage that is recognised as being required to have a decent standard of living. The pension paid is calculated and depends on the NIC contributions that each person has made during their working time. We explore the anomaly where pension payments for the elderly comes out of direct taxation and not from an accumulated amount based on their earlier contributions and based on actuarial calculations.
For the future. People working should save for their retirement. Occupational pensions appear to be of the past yet insurance based retirement plans should be encouraged. Fiscal incentives and relief should be considered.
The non voluntary pension arrangement where the employee pays in 5% of their salary, the employer 3% and state 1% is based on out of date actuarial figures. This needs reviewing to increase the contributions to meet a reasonable pension entitlement on retirement.
There also needs to be a levelling out of pension contributions between the public and private sector’s. Currently employer contributions are totally disproportionate
For future generations there is a case to establish a G.B.State Pension Fund to which all should contribute. Scrap the NIC. Fully owned by the State and controlled on strict actuarial funding and investment requirements. These funds to be invested basically under the same insurance regulations applicable in the private sector. This arrangement would be self supporting and independently managed – the funds invested to boost the fund and actuarially calculated.
Both employees and employers would contribute to this fund
This proposal will not prevent individuals from continuing to join private pensions
Another way of saving is be to encourage the well used method to purchase a house, prepare for the time of retirement and if necessary down size their dwelling to release equity or take out some form of equity release if they wish to remain in situ. (A problem with equity release is the compounding interest charges)
If we encourage social housing and council house occupation the rent continues after retirement potentially requiring a back up from the Welfare State. This latter approach seems to be favoured by political thinking as a short term solution to the current housing crisis. We need to build more houses as a programme of growth with fiscal incentives provided to get people buying and selling houses (bank mortgage schemes, tax relief, stamp duty reform, planning reform).
The economic and social implications are massive and the government should provide every fiscal incentive. House building is in demand.
The potential 9m inactive people seems to have increased since the furlough scheme was introduced. Life at first hard but they adapted to part time activity – many not declaring their total earning
We must be prepared to reduce the mind set of obtaining benefits and reward those who are in actual work.
Taxes at an all time high must change if we are going the get a proportion of the 9m inactive people back into work, why work to be taxed if you can get benefits to just live on.
The current tax thresholds must change and become an incentive to earn more. The tax rates must be as low as possible. It has been demonstrated that when taxes are low the amount raised from taxation increases. We need a complete reform of how the taxation process works to make it sustainable.
VAT could be lowered to allow the market to function on a better competitive basis. (Remember there is no need now to pay over a percentage of all VAT to the EU . (Member States contribute a standardised 0.3% of their total VAT income).
We need to ask ::
WHAT IS THE WELFARE STATE –
It currently costs £347 billion per year. We know it includes pension payments to the elderly :: benefits to those out of work : benefits to those having a hard time :: credit to be able to bring those in or not in work up to a certain level of income :: universal credit :: tax credits :: job seekers allowance :: employment and support :: disabled allowance :: carers allowance :: help with heating and housing allowance and other living costs :: financial support for those on low pay :: local housing allowance :: cost of funeral expenses for certain low paid. Providing housing for the vulnerable :: Care facilities for the aged population. (Many more schemes)
These are in some cases self standing with separate application procedures.
:: We have “separate” funding for the NHS of £172 billion :: £27 billion for local authority adult social care (it appears some of this has been diverted to health care services) :: £116 billion for Education :: £56 billion for Defence :: £108 + billion for debt interest :: £365 billion for other subjects :: There are all sorts of additional benefits that a good housekeeper could no doubt identify. All these benefits need to be examined to ensure that they only fulfil the “safety net” criteria. These are some of the links:
A major issue confronting public expenditure is Defence spending. The system has been hollowed out based on complacency that the U.K. will not be involved in a major war. The government has a principle duty to defend the realm from our own resources. The government has a responsibility to choose how that objective should be fulfilled.
The recent agreement that the U.K. will provide funding at 5% of GDP needs to be addressed as it will take a decade to achieve that level of funding to become fully operational. That mean increase in spending now (see separate Note on how this can be done not just to comply with the criteria of 5% of GDP but as part of our growth and levelling up strategy)
A more detailed analysis is set out in this link prepared by the HoC Library
Government Spending (HoC Research)
Benefits
Work Capability Assessment
Autumn Statement
h t t p s : / / a s s e t s . p u b l i s h i n g . s e r v i c e . g o v . u k / m e d i a / 6 5 6 8 9 0 9 c 5 9 3 6 b b 0 0 1 3 3 1 6 7 c c /E02982473_Autumn_Statement_Nov_23_Accessible_Final.pdf
DRAFT SOLUTIONS FOR DISCUSSION
The previous Conservative government introduced a new procedure in their 2023 Autumn statement where a person entered the “Restart” process then after 18 months and they had not found a job they would be allocated a placement – eventually leaning towards closure of the claim if they were still not prepared to take the job.
We should support the main thrust of the DWP consultation set out in the 2023 Autumn Statement. The initiative to review the “work capability assessment” is a first step to understanding the issue of why we have 2.8m inactive people claiming sickness and disability benefits.
The initiative announced in the Autumn Statement will only work if it is practiced in a uniform way.
The Universal Credit Scheme has worked well but whereas the idea was to simplify the welfare system there are massive opportunities beyond Universal Credit where benefits can be separately claimed online
The minimum wage has now increased to £11.44 per hour (many small establishments will have problems in making this payment on a full working week). Full time employment on the minimum wage equates to £21,670 per year. (Remember the lower tax threshold is £12,571 therefore tax will be paid on the difference). If a person is claiming benefits these will also be taxed. Will those on minimum wage only want to work up to a figure of £12,500 annually – claim benefits – also work “on the black”.
Fiscal Drag affects all those in work regardless whether they are low or higher paid. There is a case for a deeper examination of the tax thresholds to provide a fairer system of taxation. This review needs to be done. Having said that we should not go down the route of higher taxes on the middle and higher paid to pay for the Welfare State (Middle income earners are suffering as much cost of living problems as other wage earners. Everybody is a worker. The tax system should act to incentivise people to work. In addition as mobile professionals if tax deductions become unsustainable they will move from the U.K.
Welfare State reform of ALL benefits should be on the basis of a “safety net” culture.
Any Welfare State Reform must include both – Care Home Strategy and the NHS. The NHS has a massive work force and this must be examined to ensure there is both productivity and value for money. The total amount budgeted for the NHS is £168 billion.
There is a case for breaking up the NHS making it easier to manage and control. It is said that small is beautiful. A better way to manage funds to cater for demand.
The Labour 10 year plan rather than devolving decision making to local centres is doing so by combining unrelated Areas under new designated Integrated Care Boards, frankly a bureaucratic money spending nightmare.
Social Care Services remain underfunded and no framework is offered to examine the future care especially with an ever growing aged population that will require increased facilities for the elderly. Care should be taken out of Local Government control (they do not have the expertise nor capability) and instead integrated into new Local Health Centres covering both the current activities of the NHS, GP Surgeries, Care Homes (perhaps Social Services).
We also have to take into account that national debt is rising, now annual interest payments of £105+ billion on which high interest has to be paid.
There has been a culture to constantly increase the size of the public sector with the result that the budget has become in the view of some – unsustainable
Another area for discussion is the “working from home” culture especially in the public sector.. Is this the best way to provide a service to the public – or with access by the public to the services direct – face to face application. Think about the mental health of those employees working from home :: productivity by a measure – whether home working provides the best service for the public when the public demand better services.
We hear that a 4 day working week should be allowed – as is being suggested by Local Government employee representatives. This should be rejected.
The ONS (Office of National Statistics) are to conduct a new pilot survey on “Time Use for the Public Sector”. ( the private sector is moving away from working at home).
The current funding of the Welfare State comes from general taxation which puts immense pressure on annual budgets. The percentage cost against GDP has increased considerably since funding sustainability was last considered
Let us now discuss the position of the pensioner the majority who will have been paying NIC and taxes all their working lives. The basic pension is £156.20 per week = £8122 pa :: the new state pension is £203.85 per week = £10600 pa. This is well below the minimum wage that is recognised as being required to have a decent standard of living. The pension calculation depends on the NIC contributions that each person has made during their working time. The “triple lock” is a means of trying to bring the pension up to a living wage. At present pensions do not meet that criteria. The suggestion that pensioners should not receive the benefit of the triple lock would be most unfair. If they were in a representative organisation they would be seeking a much higher annual increase than offered under the triple lock. This does not say that pensions should be excluded from the debate.
The figures above are worth repeating. The number of people aged 65 years and over increased from 9.2 million in 2011 to over 11 million in 2021. The proportion aged 65 years and over rose from 16.4% to 18.6%. The benefits currently paid out to over +/- 7.5m inactive people – and it appears many are of working ages – must be examined as their potential to be paid from income taxes, NIC is not being utilised to fund pensions and other welfare state schemes. The analysis of what percentage of those inactive are under 55, do not have a pension :: the millennial age group who often find themselves on temporary contracts.
We should initiate a plan to provide an insurance based scheme to enable those in work to join a “United Kingdom State National Pension Scheme” run by the State Utility on a separate independent basis whereby pension payment’s could be phased in using a specific age at which this should start. Actuarial assessment should be possible to provide funding each year for a period of time from government budgets.
This is not a privatisation project operated by individual insurance company’s but a scheme totally under government control and funding, well regulated in which All workers would be obliged to join.
As stated above the whole benefits funding comes from taxes and NIC as the system was set up to run that way. With an ever increasing demand from various quarters the funding from current direct taxation has become unsustainable and not controllable. All funds in the new scheme could be invested to provide additional income
Clearly those pensioners who have contributed their taxes should continue to receive a pension based on best actuarial figures and funded from current taxes and NIC. The “triple lock” continue to level up the pension payable. We have to consider whether from a specific time a new fully funded scheme should be introduced for all which is financially and actuarially sustainable for younger ages. In other words fit for providing that safety net originally catered for and where the funds are invested to take into account growth on a modern actuarial basis
Is the civil service providing adequate provision of excellence or has it become Europeanised and able to frustrate the overall wishes of the public through influence on Ministers. For decades legislation has been initiated by the EU European Commission, scrutinised by EU Institutions such as the European Parliament (Elected member state representatives) :: European Economic and Social Committee (nominated by member state governments) :: European Committee of the Regions (nominated by member state governments) :: Council of Ministers working groups (consisting of Appointed member state civil servants)’ :: Council of Ministers (member state Ministers appointed to specific high level councils) :: European Council (Heads of State from individual member state governments).
The U.K. has but implemented these EU directives and regulations with minimal oversight conducted by the U.K. Parliament.
Now outside the EU Ministers are responsible for initiating policy legislation assisted by their civil servants. Parliament has a different function. Could we say the U.K. has become apathetic and lazy in its ability to manage legislative and policy detail.
Is the civil service too large. Not controllable. Does it need reform. Yes it does.
Devolution Policy
With the trend to create Unitary Councils (based on individual UK County Council boundaries) and Super Combined Authorities (some or both with an elected Mayor) is this they’ve right to examine whether on certain public expenditure policies (and therefore expenditure) should be devolved. A cultural change bringing decisions about services into devolved administrations and closer to those demanding certain levels of service. The creation of County Alternative Local Taxes – CALT. Whereby more Transparency and Democracy existed.
More consolidation of services run by a Unitary and / or Combined Authority reducing bureaucracy costs and giving the local population more control over service expenditure.
THE TOPIC 