17 October 1996 - 19 October 1996

The Future of State Provision for Welfare

Chair: The Rt Hon Sir Patrick Nairne GCB MC

Our conference was prompted by the growing sense, in “informed” public perception in most if not all of our countries, that the state welfare systems which had grown up - especially in Europe - during earlier decades were now coming under intellectual challenge and financial pressure. To keep the scope of our discussion manageable we kept away from healthcare issues, but there remained a great deal to debate in respect of provision both for the retirement phase of life and for safety-net arrangements to prevent the unfortunate from falling into a degree of destitution intolerable amid prosperous national communities.

The relative dimensions of these concerns were changing in significant ways. Serious material deprivation was proportionately less widespread among the elderly than in the past; but the erosion of traditional family structures - as evident, for example, in the growth of one-parent patterns - was one of several factors casting the “safety-net” aspect into higher relief. In societies of growing general affluence poverty was in some degree a relative and perceptual concept; but however defined, its incidence - especially among geographically-concentrated underclasses whose multiple disadvantages often seemed intractable - was an inescapable concern for any humane society.

Aspects of the retirement-pension issue seemed readily, even dramatically, measurable. The support ratio - the ratio of the working-age to the retired population - was due to fall, under the combined impact of falling birth-rates, longer lives and shorter working lives, to 2.5:1 or even 2:1 in most European Union countries during the first half of the next century; in Japan the prospect was if anything even more severe. We were briskly reminded that at least one factor in such calculations - the assumption of a clear cut-off age beyond which most people would cease to make a contribution to wealth-creation - was neither economically nor socially to be taken as given or desirable; and we recognised that the weight of the problem varied between countries - the United Kingdom, for example, faced a less steep change in the support ratio and had moreover already made a significant though not-widely-noticed change in the forecast burden, through indexing state pensions to prices rather than earnings. But the general prospect still held, of post-retirement populations expecting to command an increasing proportion of available national wealth.

This prospect had been widely characterised as fiscally unsustainable, and we recognised that if the burden remained tax-financed public expenditure would indeed reach levels currently perceived as out of the question. The underlying issue however concerned society’s fundamental views about how the enjoyment of wealth was to be distributed among age-groups, and by what mechanisms. Ultimately, we knew, there was no way of depriving the working-generation majority of the power to go back on any bargain for the post-work maintenance of their predecessors. There was however much support in discussion for the view that a funded basis of provision, drawing upon savings amassed by the individual during working life, in principle more effectively legitimated and contractualised post-retirement claims than did “pay-as-you-go” concepts which financed pensions from monies levied (whether as tax or as insurance contribution) upon current earners. We reached however no consensus on whether or not the funded basis had economic merit in itself, as enhancing productive investment through greater savings and so generating higher levels of wealth to draw upon; and in any event it was very firmly judged that in some countries such as Germany (with its special memories of savings-destroying hyper-inflation) and Japan the habit and the expectation of pay-as-you-go were so deeply rooted that radical change away from it was not within the realm of political possibility - a reminder, of which our debate found repeated instances in striking differences of welfare pattern, that systems almost always reflected particular national histories and attitudes. (We were not sure whether this portended severe difficulty and distortion ahead for European Union countries.) We recognised also that even if cultures permitted conceptual shifts in pension provision, transition - with current workers asked to shoulder both pay-as-you-go burdens for their predecessors’ present benefit and funding ones (inevitably in large degree compulsory) for their own future - was very hard to manage other than gradually and even near-surreptitiously. And there would have to remain, even amid a funded system, arrangements for the current public purse to provide income, at whatever level society viewed as the socially-tolerable minimum, for the minority of the elderly who for whatever reason had not managed to save enough during working life. For the majority, we speculated about the possibility of two-tier systems comprising a state-driven minimum alongside more extensive and optional private provision for further income; but at the end we seemed to leave uncomfortably in the air the question of what was to happen in the countries where unshakeable public expectation and the limits of public-purse tolerability were apparently set for head-on collision.

Our survey of the safety-net aspects of welfare started from a recognition that though private insurance against misfortune had a part to play and perhaps merited greater stimulus, life presented a substantial volume of risks that were effectively uninsurable, such as severe congenital disability or protracted unemployment. If society wanted anything done to relieve such conditions, a measure of state-imposed redistribution of wealth was unavoidable. This said, we encountered a notable difference of traditional emphasis between the United States and most of Continental Europe, with Britain and Canada somewhere in between : the Continental European outlook, though not uniform across countries, mostly stressed social solidarity and the unacceptability of extreme disadvantage; the US outlook stressed the need for provision to be mostly temporary and transitional - springboard rather than safety-net - with a powerful built-in impulsion towards a return to productive work, and an assumption that only plainly-exceptional circumstances could justify relieving individuals of responsibility to contribute positively to society.

There was evident in our discussions substantial movement towards narrowing this difference of approach. There was little support anywhere, we heard, for concepts of a citizen entitlement to basic support regardless of contribution, and no-one suggested that the difference between working and not working should have no general effect upon income. It was widely accepted, moreover, that the arguments for shaping welfare so as to provide powerful back-to-work incentive rested on reasons of long-term human dignity as well as economics and concern for the public purse; benefits lacking incentive to escape could become a trap for the poor, and it was strongly urged that in some European countries complex welfare-benefit systems had grown up with too little attention paid in their design to their realistic behavioural effects (quite aside from the temptation to downright fraud, which in some fields seemed widespread). We acknowledged that the current scale and pattern of unemployment, with falling demand for the unskilled (especially the young unskilled male), intensified the problems; but at least some of us believed that these problems were needlessly heightened by over-narrow expectations about types of work, and that more flexible attitudes to preparation - for example in favour of “second-chance” education, or life-skills training in which older people might play a part - could also help. But largely-transatlantic differences of basic social choice persisted about how far the remedy might lie in having a more flexible - in a sense, harsher - labour market permitting lower pay and fewer non-pay benefits to maximise the employment available.

We had no hesitation in recognising serious disability as generating a legitimate and necessary claim upon public support; and we knew that its incidence was unavoidably extensive. We reached no clear consensus on whether the aim of disability benefits should be to sustain minimum standards (which might themselves be costly for some forms of handicap) or to compensate fully for the misfortune. In any event there remained factors which should discipline the provision made; just for example, serious disability did not necessarily preclude substantial social and economic contribution, and welfare arrangements should not remove incentive to that. Degree of disability was a continuum within which personal will was often a key aspect; might there, for example, be scope for partial benefit complementing partial work? We noted also as a defect in system design albeit not easily remediable, that in some countries there were temptations to use disability classification as a generous substitute in situations that really reflected unemployment or nearing-retirement-age redundancy.

We heard divergent opinions about how deep or general a problem the phenomenon and mind-set of welfare-dependency might be. Some of us suspected that, at least in concentrations of the out- of-work poor, it tended to become the community norm; others doubted whether many people truly preferred not to work. This debate carried us into the minefield of attitudes to family structures and family responsibilities - should state welfare systems imply a preference for, or try to further, particular patterns of living? We heard distaste expressed for “social engineering” (for example in arrangements bearing upon single parents with young children) but we were reminded also that large areas of necessary social welfare, like caring for the dependent aged (in some countries possibly a bigger long-term problem for the state than pensions in themselves), in practice depended on family or similar support. At the least, it was suggested, welfare-benefit and taxation arrangements should be so constructed as not actually to harm or discourage family cohesion.

Our debate brought home to us repeatedly the complex range of issues that welfare benefit raised, and we could do little justice to some important questions - just for example, the possible role and value of childcare in helping single parents towards earning, the contribution of non-governmental organisations, and the relative merits of public and private, compulsory and voluntary arrangements for pension or other insurance provision for individual needs. But some general principles about method of approach recurred: the need to focus upon real outcomes achieved rather than inputs made or public programmes executed; the value of local flexibility and judgement in welfare provision, to escape the vast complexity of system that resulted if centralised institutions attempted to cater by rule for every possible circumstance; the value, despite national differences of practice and culture, of learning and comparing experience across frontiers; the frequent usefulness of conducting experiment and pilot test of theory before large structures were put in place country-wide.

Any attempt to distil a single message from the conference would entail gross over-simplification. To one observer, there came through powerfully the need consciously to design benefit systems so as to maintain, to the maximum extent socially tolerable amid disadvantage, healthy incentive towards effective contribution to society; but it was evident that, in the end, the differences from country to country which we encountered in system design usually reflected fundamental choices about social priority and about what was necessary to maintain social cohesion and stability.

This report reflects the Director’s personal impressions of the conference. No participant is in any way committed to its content or expression.

Chairman: The Rt Hon Sir Patrick Nairne GCB MC
Permanent Secretary, Department of Health and Social Security (1975-81)


Mr Ian Green
Assistant Deputy Minister, Human Resources Investment Branch, Human Resources Development Canada
Mr Michael Mendelson
Senior Scholar, Caledon Institute of Social Policy, Toronto
Dr Michael C Wolfson
Director General, Institutions and Social Statistics Branch, Statistics Canada

Professor Béatrice Majnoni d’Intignano
Professor of Economics, University of Paris XII

Dr Elisabeth Neifer-Dichmann
Head, Social Policy Planning Division, Federal Ministry of Social and Labour Affairs, Bonn

Mr Iwaki Tabayashi
Managing Director & General Manager, Yasuda Research Institute Company Limited, Tokyo

Mr Andrew Adonis
Political Editor, The Observer
Sir Peter Barclay CBE
Chairman, Joseph Rowntree Foundation
Mrs Ann Bowtell CB
Permanent Secretary, Department of Social Security
Lt-Gen The Hon Sir Thomas Boyd-Carpenter KBE
Chairman, Social Security Advisory Committee
Mr Andrew Dilnot
Director, The Institute for Fiscal Studies
Mr Frank Field MP
Chairman, House of Commons Select Committee on Social Security
Mr Win Hutton
Editor, The Observer
Mr Christopher Kelly
Deputy Secretary, Social Security Policy, Department of Social Security
Professor Julian Le Grand
Richard Titmuss Professor of Health Policy, London School of Economics & Political Science
Ms Pamela Meadows
Director, Policy Studies Institute
Sir Michael Partridge KCB
Permanent Secretary, Department of Social Security 1988-95
Ms Loma Reith
Director, Disability Alliance Educational & Research Association
Dr Ann Robinson
Director General, The National Association of Pension Funds Ltd
Sir Sigmund Sternberg OStJ KCSG JP
Chairman, ISYS Ltd
Mr Nicholas Timmins
Public Policy Editor, Financial Times
Professor Robert Walker
Professor of Social Policy Research, Loughborough University
Mr David Willetts MP
Paymaster General - Minister of State at the Office of Public Service

Mr William Grinker
A Commissioner, New York City Planning Commission
Dr Ralph da Costa Nunez
President and CEO, Homes for the Homeless, New York
Mr David R Riemer
Director of Administration, City of Milwaukee
Dr Peter Salins
Chairman, Department of Urban Affairs and Planning, Hunter College, City University of New York
The Honorable Richard Schwartz
Senior Advisor to the Mayor of New York
The Honorable Joyce A Thomas
Commissioner, Department of Social Services, State of Connecticut
Ms Nancy E Wisdo
Director, Office of Domestic Social Development, US Catholic Bishops Conference