When politicians are setting levels of benefit payments, they must compromise between the rights of those who pay tax and those in need
Benefit payments – for pensions, unemployment, income support or disability – are intended to protect people from economic hardship. Such forms of social protection are central to a government’s role: people empower others to take decisions on their behalf in return for a reasonable opportunity to flourish. It is one of the key requirements of governance (2.1).
When setting levels of benefit payments, politicians are redistributing wealth, from those in work to those who are less well-paid or who cannot work. The categories of benefit present different political challenges:
· People who are in work contribute towards the cost of pensions, either through identifiable deductions or more generally through the tax system. They contribute in the expectation of being able to retire at a specific age with a fairly predictable income. The dramatic increase in life expectancy since the Second World War has made the cost of pensions much higher than was predicted when people were first told what to expect, though. As noted earlier (3.2.3.3), they are now the biggest element of benefit spending. Attempts to reduce the costs, by delaying the retirement age or reducing pension payments, have been politically difficult because people feel that a contract has been breached. And, since the number of pensioners is increasing, their votes are gaining in importance in democracies.
· The costs of unemployment benefits are linked to the overall performance of the economy. Increases in unemployment result in lower tax income for the government, which would increase its fiscal deficit. Its hands are tied by the need to have macroeconomic policies that deliver adequate economic growth (3.3.8).
· Income support is a form of economic protection for those who are unable to earn enough to support themselves and their families. Governments can increase the minimum wage (3.3.3.3), to reduce the need for income support, but that affects the viability of some businesses.
· Disability benefits are provided to those who are unable to work for medical reasons. The cost of these can be reduced if governments can persuade employers to employ partially disabled people, and people in that category benefit both socially and economically from being allowed to work.
Benefit payments are a burden on taxpayers. They can be a source of resentment, as shown by such newspaper articles as Benefits Street's parade of scroungers and drug addicts. Pressure groups, such as the Taxpayers’ Alliance, campaign to reduce the level of benefit payments. It should not be forgotten, though, that putting money in the pockets of the poor is a way of stimulating the economy – as described earlier (3.5.6.4).
The political system must produce a settlement which is perceived to be fair. Americans place a higher level of importance on individual freedom, and have a less comprehensive Welfare State, than Europeans. New America.org published an article in October 2010, The safety net for unemployed Americans is inadequate, and The Economist published a critique of American retirement benefits on 7 November 2015: Age may well wither them. As described later (6.7.8), many Americans have suffered from recent economic and social changes – leading to an upsurge in populism and the election of Donald Trump in 2016. They needed a better economic safety net.
(This is an archive of a page intended to form part of Edition 4 of the Patterns of Power series of books. The latest versions are at book contents).