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CHAPTER 3

A very British revolution

It was the totalizing ambition of his [Beveridge’s] report that made its proposals so striking; the complete coverage against risks for all people. All for one and one for all. The Three Musketeers meet the Government Actuary.

Peter Baldwin, ‘Beveridge in the longue duree’, York Papers, Vol. A, p. 30

A LAYMAN READING the Beveridge report today is likely to be impressed not just by the way it provides the blueprint – if one that was far from entirely followed – for the modern social security system; nor only by its trumpet calls for the creation of the other giants of the modern welfare state. Even more striking, it contains almost all the key arguments that have raged about the welfare state since its publication.

You could almost believe, listening to the debate about its future down the years, that despite very changed circumstances there is nothing new under the sun. Indeed, from one of the many faces of the prism through which the report can be viewed, its proposals for social security may best be seen not as a great innovation but as an attempt at a knife-edge balance between competing and quite possibly irreconcilable goals. Beveridge also confronted a series of issues that neither he nor anyone in the succeeding fifty years has managed satisfactorily to settle. Chief among this group were: the seemingly easy question of what is meant by poverty; how to cope with housing subsidy; and the treatment of women within the social security system. Chief among the competing goals were the desire to provide security as of right, set against incentives for work and saving; and the balance between individual freedom and compulsion – compulsion for the good of all and for the good of the individual.

It may be a truism, but before you can abolish poverty you have first at some level to decide what you mean by it. Poverty was not a word Beveridge used. Throughout the report he settled for the then common synonym ‘Want’. It was his bold claim that Want could be ‘abolished’ which gave the report much of its popular appeal. As Tom Wilson put it, ‘the general public understood what was intended, and that was enough to win their enthusiastic support.’¹ But poverty has to be defined, and a minimum income quantified, if it is to be avoided.

Beveridge’s answer was a ‘subsistence’ income, a term he defined as meaning ‘benefit adequate to all normal needs, in duration and in amount’.² He instantly conceded that there were ‘unavoidable difficulties’ in putting cash figures on such a concept. He had, none the less, to do so; and to set his benefit rates Beveridge drew extensively on the work of Seebohm Rowntree, the British Medical Association, a League of Nations study, and figures from the government-run Family Budget Survey which covered food, clothing, fuel, light, household sundries and rent. In several places the report suggests that the benefit levels he recommends are scientifically based,³ and he specifically criticises the levels of benefit set before the war precisely because ‘none of them were designed with reference to the standards of the social surveys.’⁴ But his report is also full of the uncomfortable recognition that any definition of poverty is subjective. The science behind his benefit levels gave them some justification, but it remained an imprecise and subjective science.

Plainly a homeless, shoeless, starving figure in the December snows is poor. Victorian England had plenty of those, and many more people living at standards not much better. Rowntree and Booth in the 1890s did much to categorise and quantify what was only too plainly to be seen. Move much above that level, however, and poverty becomes subjective and relative. Even the precise amount of food needed to avoid poverty is open to argument, and it would be hard to contest that the poorest Edwardian slum dweller was not better off than the starving victims of Somalia’s or Rwanda’s wars in the 1990s. It was the rediscovery of this blindingly simple concept that was to put one of the final nails in the coffin of John Moore’s career as Secretary of State for Social Services forty-seven years after Beveridge wrote his report.

Beveridge was well aware of the problem. ‘Determination of what is required for reasonable human subsistence is to some extent a matter of judgement,’ he conceded early in the report. ‘Estimates on this point change with time, and generally, in a progressive community, change upwards’⁵ – the very point with which John Moore was to have such difficulty. Equally, Beveridge conceded that neither could ‘any single estimate, such as is necessary for the determination of a rate of insurance benefit, fit exactly the differing conditions of differing households’.⁶ For all the evidence he cites for arriving at his cash benefits, there is no real attempt to hide the essential arbitrariness of the exercise. Time and again he uses phrases such as: It is reasonable to put the allowance for clothing as …’⁷ or ‘It is suggested that [a particular sum for other items] … should be adequate.’⁸ The argument about whether his benefit scales, or those introduced by the Labour Government, actually provided a subsistence income, and whether mere subsistence – freedom from physical want – was in itself a sufficient goal, was to rage on long after his report was published.

There were other difficulties. People on his subsistence income might not necessarily spend their money with ‘complete efficiency’. The basic calculations, he said, assumed that the recipient ‘buys exactly the right food and cooks and uses it without waste. Some margin must be allowed for inefficiency in purchasing, and also for the certainty that people in receipt of the minimum income required for subsistence will in fact spend some of it on things not absolutely necessary.’ He thus threw in a margin of 2s. od. for a couple and 1s. 6d. for a single adult.’ In addition he touched on an issue which would grow in importance as even the full employment enjoyed in the post-war years failed completely to wipe out long-term unemployment.

Strictly the figures for clothing and one or two minor items relate only to short periods of unemployment and disability, during which expenditure on renewals can be postponed; more will be needed in prolonged interruption of earnings. On the other hand, there should be room for re-adjustment in such matters as rent or retrenchment in the margin [the margin referred to above which allowed for inefficient or inessential spending]. On the whole, it seems fair to balance these considerations against one another and make no change in the benefit as between short and long interruption of earnings during working years.¹⁰

Beveridge, to be fair, stated quite openly that he was designing his system to cope with ‘normal cases’, a phrase he repeatedly used. He was bringing Churchill’s ‘magic of averages’ to the average person. Insurance could not in fact cope with everything, and beneath the insurance plan there had still to be a safety net — National Assistance, or what later became income support. That would still be needed ‘to meet abnormal [my italics] subsistence needs’.¹¹ Under Beveridge’s assumption of full employment, long-term joblessness would be abnormal.

Then there was rent, an issue which resolutely refused to be normal. In 1947 owner-occupiers made up just 26 per cent of households. A mere 13 per cent of households were council tenants, the remainder renting privately in one form or another.¹² Then as now there were wide variations in rent for the same quality and size of housing – more than a tenfold difference. Beveridge struggled with whether to pay an average allowance for rent. The effect of that would be to leave those in more costly homes below subsistence level once they had paid it, and those in cheaper homes than the average better off financially. The alternative was to pay rent in full for pensioners and the insured unemployed as already happened for those on means-tested national assistance. That, however, raised problems of incentives, about which Beveridge was particularly hard-nosed when it came to the elderly. If rent was met in full for pensioners, ‘it will appear indefensible that those who just before retiring have been able to secure good accommodation at a relatively high rent should thereby retain this advantage for the rest of their lives, in kind if not in cash, as compared with those who have been less fortunate or less foreseeing. On the other hand, if those who are already drawing pension on the basis of one rent are free to move to more expensive accommodation and have their pension increased accordingly, pensions will come to look like subsidies to landlords.’ Had Mrs Thatcher’s government in the 1980s taken a similarly tough view, it would not have designed the poll tax specifically to take account of little old Tory ladies rattling around on their own in large houses from which their children had fled; and history might have been different.

Rent was one of three ‘special problems’ Beveridge identified, and after many hours of work and nine pages of discussion in the report, he recognised that he had failed to solve it – that it involved bigger questions such as housing policy and the distribution of industry. Beveridge went for a flat rate allowance within unemployment benefit,¹³ admitting he was having ‘to make the best of a difficult situation’. The Labour Government in 1948 dropped that idea and instead met actual housing costs, subject to a means-test. How housing costs should be handled was to remain a permanent thorn in the flesh of the welfare state.

Women also posed problems, given the scheme Beveridge had devised. Indeed in his original ‘heads of a scheme’ he acknowledged: ‘The treatment of married women is one of the most troublesome problems in social security.’¹⁴ Feminist writers (and not only feminist writers) have bitterly attacked Beveridge for his views and recommendations. There is some justice in that, but only some. The assaults tend to ignore that Beveridge was of his time and that if he failed to foresee radical changes to come, then that foresight was also denied to many others. In fact his recommendations did much to improve women’s position. Before his report single women enjoyed virtually the same right as men to unemployment benefits if in work, but only means-tested assistance if they had never worked or had not paid enough contributions. On marriage, women became ‘adult dependants’ on their husbands and, apart from the maternity grant, they had no rights under the health insurance scheme. ‘None of these attitudes is defensible,’ Beveridge declared.¹⁵

By the time he was writing, women were pouring into the workforce: an extra 1.8 million were recruited into industry alone between 1939 and 1943, in addition to those who joined the armed forces and took other work. In 1940, the qualifying age for their pension had been dropped to 60, to encourage them to undertake war work. It was the start of a dramatic change in women’s role and status. But Beveridge shared the widespread assumption that after the war, as after the First World War, women would simply go home to be housewives. The 1931 Census (the most up-to-date figures Beveridge had available) showed that more than seven out of eight married women did not work. As he told the committee, ‘provision for married women should be framed with reference to the seven rather than the one’;¹⁶ so he assumed in the report that ‘during marriage most women will not be gainfully employed’.

Beveridge also shared another common concern. Britain was seen to have ‘a population problem’ – not as in the 1970s of potentially too many people, but of potentially too few. During the 1930s the birth-rate had fallen. In fact by 1942 it was rising, a product of a record number of marriages on the eve of war and a sharp rise in illegitimacy,¹⁷ but Beveridge was not to know that. ‘In the next thirty years,’ he said in the report, ‘housewives as mothers have vital work to do in ensuring the adequate continuance of the British race,’¹⁸ adding later: ‘with its present rate of reproduction, the British race cannot continue; means of reversing the recent course of the birth rate must be found.’¹⁹ He not only expected married women to be housewives, he also wanted incentives for marriage and child-bearing. He therefore recommended a marriage grant (that was never implemented), maternity grant, maternity benefit for thirteen weeks for those in work, family allowances and widow’s benefits; and in addition women and children were to fall within the ambit of the new, free, national health service. The package as a whole ‘puts a premium on marriage, in place of penalising it’, he declared.²⁰

In addition to the cash that was to be paid as family allowances to ensure ‘subsistence’ both in and out of work, Beveridge also wanted to keep tax allowances for children. In that decision lay the seeds of the great Child Benefit battle. He in part wanted them retained because he held mildly eugenidst views. Although he did not say so in the report, he believed the tax allowance, which is worth more to the better off, would encourage the middle and professional classes – ‘the more successful’ in society, as he put it – to have more children.²¹ (Similar reflections about the desirability of who should do the breeding were to sink Sir Keith Joseph’s chances of leading the Tory party thirty-three years later.) He thus clothed his recommendations for women in pro-marital and pro-women rhetoric. Marriage gave women a ‘new economic status’ and they should thus begin ‘a new life in relation to social insurance’.²² Recognition that housewives performed ‘necessary service not for pay’ even led Beveridge, after much agonising about whether it would encourage family break-up, to recommend a rather unsatisfactory separation benefit to be paid when marriages broke down – unless, of course, the woman was the guilty party. This, too, was never implemented.

Beveridge did not formally oppose married women working. Indeed, he proposed benefits for those who did through a special lower rate of national insurance contribution which they had the choice of paying – although it produced lower unemployment and disability benefits as it was assumed that the husband would already be providing a home to live in. But work by married women was likely to be ‘intermittent’, Beveridge believed, and he did not see the income from it as a crucial part of the household’s financial survival. All this stemmed from his view that benefits should provide only a basic income and that man and wife were ‘a team’. Thus the woman’s pension, and her entitlement to benefit during her husband’s unemployment and disability, came from her share in that partnership. This even stretched to the old age pension being notionally cast as a pension for a couple that was reduced for single people, rather than being seen as a single person’s pension to which extra was added for a dependant. Beveridge disliked the concept of wives as dependants, and he argued that his proposals ended that. The description ‘adult dependant’, he said, should be reserved ‘for one who is dependent on an insured person but is not the wife of that person’.²³

His concept of the married woman’s role – and crucially his rhetorical recognition that she derived rights from her ‘vital unpaid service’²⁴ – proved in tune with the times. Mass Observation recorded 70 per cent of women giving the report, with its recognition of the value of unpaid women’s work, unqualified support.²⁵ Some did see through the rhetoric, recognising that the improvements Beveridge’s proposals undoubtedly brought did not fundamentally change the married woman’s position. Elizabeth Abbott and Katherine Bombas, for example, in a 1943 pamphlet for the Women’s Freedom League, argued that ‘the actual proposals … leave her as before, a dependant and not a partner’.²⁶

In fact the framework Beveridge had chosen – a work-based scheme, founded on employee contributions – inevitably left women who did not work dependent on their husbands’ contributions. The other failures of the scheme included its inability to deal adequately with the large post-war rise in single parenthood, divorce and separation, but to blame Beveridge for that is a little like blaming medieval armourers for not foreseeing the effects of gunpowder. In 1938 there were just 10,000 divorce petitions. By 1945 the number had increased two and a half times, but still only to 25,000²⁷ – a tiny fraction of their twentieth century peak of 183,000 in 1995.

Disability, too, presented difficulties. For those injured at work a separate industrial injuries scheme could be created. And for those not injured at work who simply became disabled, unemployment benefit was available if they had paid sufficient contributions. Others, however, would have to fall back on means-tested national assistance and local authority services. Carers do not feature in the report, in part because if married women are not expected in the main to work, they are there for other ‘vital duties’. And Beveridge could not have foreseen the extent to which medical science would preserve life among many more people who acquired their disability at birth or in childhood and so never had the chance of qualifying for non-means-tested benefits through insurance contributions.

If these were the chief issues Beveridge failed to resolve – issues that are with us still – his report also reflects vividly the conflicting goals that ran through the debates about social security both before and after its publication. Throughout, he attempted to balance rights with duties, incentives against security, and individualism against collectivism. Thus he wanted as far as possible to have benefits paid as of right, without the means-tests which he said made help available ‘only on terms which make men unwilling to have recourse to it’.²⁸ But he balanced that with the duty of having to contribute.

Benefit in return for contributions, rather than free allowances from the State, is what the people of Britain desire. This desire is shown both by the established popularity of compulsory insurance and by the phenomenal growth of voluntary insurance against sickness, against death and for endowment, and most recently for hospital treatment. It is shown in another way by the strength of popular objection to any kind of means test. This objection springs not so much from a desire to get something for nothing, as from resentment at a provision which appears to penalise what people have come to regard as the duty and pleasure of thrift, of putting pennies away for a rainy day. Management of one’s income is an essential element of a citizen’s freedom. Payment of a substantial part of the cost of benefit as a contribution irrespective of the means of the contributor is the firm basis of a claim to benefit irrespective of means.²⁹

There was another reason why Beveridge went for an insurance system rather than a tax-based one. In the 1940s liability for income tax started much higher up the income scale than it does now. Many in the working class did not pay. As late as 1949 a single man did not start paying income tax until he was earning 40 per cent of average manual wages, while a married man with two children under eleven had to earn fractionally above average manual earnings to pay any income tax at all. Over most of the next fifty years, under governments of all colours, the income tax threshold fell as government spending – not just on the welfare state – expanded. By 1992, the equivalent percentages were down to below 25 per cent and 29 per cent respectively.³⁰ It is one factor that led lower earners progressively to question the value of the welfare state.

Beveridge was clear that he did not want a ‘Santa Claus’ state which appeared to give something for nothing, and in the 1940s a tax-based social security system would have been chiefly paid for by business, the then much smaller middle class, and those above them. What the less well paid did already have to find, however, were the existing national insurance contributions for the health and unemployment schemes. Unlike income tax, they were used to paying these. Indeed, Beveridge went to some lengths to suggest, with questionable accuracy, that the contributions he proposed amounted to ‘materially’ less in aggregate than the sums already paid out for national insurance contributions, for voluntary policies covering sickness, death and endowment, for hospital treatment policies and for medical fees.³¹ It was another reason why he wanted ‘Benefit in return for contributions, rather than free contributions from the State’. In suitably Thatcherite terms, he also argued that citizens ‘should have a motive to support measures for economic administration’ and ‘should not be taught to regard the State as the dispenser of gifts for which no one needs pay’.³²

Furthermore, Beveridge worried about incentives to work and to save and to encourage people to take responsibility for their own lives. ‘The State in organising security should not stifle incentive, opportunity, responsibility; in establishing a national minimum, it should leave room and encouragement for voluntary action by each individual to provide more than the minimum for himself and his family.’³³ Indeed, in harsher words later in the report, he said that ‘to give by compulsory insurance more than is needed for subsistence is an unnecessary interference with individual responsibilities’.³⁴

Thus his whole scheme was built on a minimum income to provide subsistence, not on the model followed in most of Europe of providing earnings-related benefits. What Beveridge built was a platform on which everyone could stand, with a safety net below it in the form of means-tested national assistance for those who lacked the contributions to qualify. It was, however, a platform down to which anybody who was slightly better off fell if they became unemployed or disabled. He did not, as the continental countries did, attempt to build a system which maintained the individual’s economic place in society, if only for a time. It was to be a minimalist, not a maximalist provision, one that left in Beveridge’s word ‘room’ – in practice incentives – for those who could afford it to provide for themselves over and above the state scheme.

In addition, this minimum provision was to be based on flat-rate contributions in return for flat-rate benefits. Critics have since divined in this the basic flaw in Beveridge’s grand design. He wanted to provide something that took people off means-tested benefits. But because he pitched his insurance benefits at subsistence level – a level that would only meet ‘reasonable human needs’ and even then only for ‘normal’ cases – the amount paid was little different from the sums provided by the safety net of means-tested national assistance. That had to be the case, unless those on national assistance were to be given less than enough to live on – too little to prevent Want. As a result, there was little in financial terms to make national insurance benefits more attractive. Their attraction lay in their being paid by right, without a means-test.

On top of that, however, Beveridge wanted not just flat-rate benefits, but flat-rate contributions in which everyone paid the same for the same cover. That meant the contributions had to be pitched low enough to be affordable by the low-paid. Such contributions, however, were simply not able to generate enough cash to pay benefits at well above the national assistance rates without either a large Exchequer subsidy, which did not appear politically achievable, or much heavier contributions from employers, which would simply be passed on in either lower wages or higher prices. In this way, the very solidarity Beveridge sought – everyone paying the same in return for the same benefit – helped undermine his aim of abolishing Want.

Beveridge’s insistence on a minimum also came about because the man who once believed the unemployed needed the ‘whip of starvation’ to ensure economic advance,³⁵ still worried about work incentives. He in fact favoured, without listing it in his recommendations, a minimum wage. But at the same time he believed that ‘the gap between income during earning and during interruption of earning should be as large as possible for every man.’³⁶ Again, this reinforced the argument for a minimum standard of benefit.

In line with his attempt to balance rights with duties, but also to keep people in touch with work, he recommended both a training benefit and arrangements that would be recognised by those who in the 1980s and 1990s called for American-style Workfare for the unemployed. He did so, however, in a context which was not implemented. For Beveridge recommended that unemployment benefit should be paid without time limit, not just for the first six months as was the case before he reported, nor for the twelve months that was actually implemented in 1948. To reduce someone’s income just because they had been out of work for a certain period was ‘wrong in principle’, Beveridge said.³⁷ Most men would rather work than be idle. But the danger of providing adequate benefits indefinitely was that men ‘may settle down to them’, adding that ‘complete idleness, even on an income, demoralises’. Thus he said men and women should be ‘required as a condition of benefit to attend a work or training centre’ after six months, the requirement arriving earlier in times of good employment and later in times of high unemployment. The aim would be twofold: to prevent ‘habituation to idleness’ but also ‘as a means of improving capacity for earning’. There was a dear precursor here for the gradual tightening of entitlement to benefit and the requirement for training and Re-start programmes that Lord Young, Patrick Jenkin and their successors were to introduce in the 1980s and which Labour was to adopt with far greater vigour at the turn of the century. Attaching such conditions to benefit, Beveridge also noted, would unmask malingerers, and those claiming benefit while working.

For young persons, Beveridge said, ‘who have not yet the habit of continuous work the period [before training] should be shorter; for boys and girls there should ideally be no unconditional benefit at all; their enforced abstention from work should be made an occasion for further training’.³⁸ Neither of these work and training requirements was implemented: the full employment (indeed, labour shortages) of the 1940s and 1950s made them seem unnecessary. The recommendation that the young should be denied unconditional benefit would have to wait until the days of John Moore and Lord Young forty-five years later, with disastrous results for some.

In his report Beveridge attempted to reconcile a new universalism that did indeed stretch from the cradle to the grave – from maternity grant to funeral grant by way of all-in insurance – with incentives to work, to save and to take individual responsibility, while at the same time checking abuse. In so doing he redefined the social security debate, but also defined the battleground as it has been fought over ever since. The left would ever after be able to stress the universalism of Beveridge and his desire to end poverty through all standing together to help each other. The right would look at his insistence on leaving room for private initiative; that the state should not provide all, but only a basic minimum, and then in return for clear-cut duties. Each, over time, would issue calls to go ‘Back to Beveridge’: to which bit of Beveridge would depend on who was doing the calling.

The plan was indeed unconsciously eclectic in many of its underlying ideas. It contained bits of Socialism and bits of Conservatism in its liberal mix. The way in which its vision yoked together competing ideas into what appeared to be a coherent whole helps explain why it proved in the end acceptable to all political parties: it contained something for everyone. The flaws in its design, however, ensured there can never, in any pure sense, be a return to Beveridge. That is not just because he failed to design that unattainable goal, an ideal system. The rest of Europe, while taking in the main a different road from Beveridge’s very British revolution, equally failed to design fault-free systems. Their route (generally earnings-related benefits linked to earnings-related contributions, often run locally or independently of central government and often through bodies more like friendly societies than the state) also ran into difficulties. Any social security system must generate conflicts between individual and collective responsibilities, between rights and duties, between incentives and security of income. It may never be got right once and for all; the balance will endlessly shift. And it was on to such shifting sands that Beveridge’s report was launched. Before it came into effect, however, a general election had to be held.

Precisely how and why Labour won its unexpected landslide in 1945, producing the first ever majority Labour Government is outside the scope of this book,³⁹ but three quotations can explain it for present purposes. The first is from Lord Hailsham, recalling a conversation he had with a French officer in the Lebanon as early in the war as 1942, before he even returned for the Beveridge debate. The Frenchman remarked that it would be difficult after the war to avoid socialism.

‘Au contraire,’ said I, ‘il sera impossible.’

‘Pourquoi?’

‘Parce qu’il est déjá arrivé.’ In this I was not far wrong.⁴⁰

The second source is Churchill to Lord Moran: ‘I am worried about this damn election. I have no message for them now.’⁴¹ At Walthamstow, near the end of the campaign, his worries were confirmed as for once he was booed into silence by a 25,000-strong crowd demanding ‘What about jobs?’ and ‘What about houses?’⁴²

The third quotation is also from Hailsham: ‘Again and again during the 1945 elections I was greeted with voters who exclaimed to me absurdly: “We want Winston as Prime Minister, but a Labour government.” When I explained patiently that that was the one thing they could not have, they were wont to reply: “But this is a free country, isn’t it? I thought we could vote for who we want.”‘⁴³

While the electorate might have trusted Winston, they chose, with memories of the 1930s still fresh, not to trust the Tories with the reconstruction of Britain, a project that involved much more than just Beveridge and his five giants. Before Labour took power, however, the foundations of post-war education – that most political of all the arms of the welfare state – had been laid.