Rt Hon Lord Lilley

    Demos Lecture
    It is a privilege to be invited to give the first of your series of lectures about ?The Welfare Society?.

    This series arises out of the Phoenix Centre conference in Birmingham earlier this year on ?Building Communities of Hope?. I have read with great interest the papers presented to it as well as the exceptionally stimulating report produced by Dick Atkinson. And I recently paid an immensely valuable visit to Bromley-by-Bow, to see one of the new social enterprises featured in that conference.

    Importance of the Issue

    The issues raised by that conference could not be more important. Because they concern people who are at the bottom of the pile, those issues ought to be at the top of our agenda.

    The challenge facing all of us who are in politics or concerned with public policy – and it ought to be our first priority – is how to extend hope, opportunity and well-being to those who feel mired in despair, dependency and deprivation.

    I pay tribute to the Phoenix Centre and Demos for giving that challenge the prominence it deserves.

    Part 1 – The Problem

    When the Welfare State was set up after the Second World War, it seemed like the complete answer to the problem of Want – as well as the rest of Beveridge?s five giants – Disease, Ignorance, Squalor and Idleness.

    Undoubtedly it has relieved an immense amount of poverty and suffering over the half century of its existence. But it has not eliminated need or social problems in the way its designers hoped and expected.

    Far from it.

    The Welfare State has grown remorselessly. Its budget has grown exponentially as the numbers of people dependent on it has steadily increased And social problems, new and old, have mushroomed. The State has effectively monopolised provision of welfare and social security – as well as of education and health. And increasingly the sheer size, centralisation and near monopoly exercised by the Welfare State are seen as part of the problem rather than the solution to our social ills.

    In the 1970s, we found in the economic sphere that a burgeoning state crowds out private sector activity. Now we are learning that the in social spheres much the same is true.

    An over-expansive state crowds out voluntary activity

    – It erodes community

    – It undermines families

    – And it removes personal responsibility.

    In his striking contribution to the Phoenix Conference, the Chief Rabbi, Jonathon Sacks, analysed from the perspective of his own family and community what had happened over the last fifty years.

    He said, ?For the very best of intentions, we created a welfare state mechanism which, quite rightly, said people need help, lets give it in the most efficient uniform way, lets do it through the state. One by one, the responsibilities that families and communities themselves had shouldered were taken away and given to a very impersonal body called ?the government?. This was, I think, right for the time. But it did rob those local institutions and voluntary organisations, those neighbourhood associations and families of any real function. Bit by bit, as they had nothing to do, they began to fall apart.?

    He continued: ?When there is nothing between you and the State, then you become a very naked individual, you become very dependent, and under those circumstances you can give way to despair. It is human interaction and inter-dependence which is the basis of hope. It is impersonal relationships that are the genesis of despair. That?s why I felt that while the Welfare State has done a magnificent job for a particular period in history, it now needs to be replaced by a much more personal approach to community problems. We need to rebuild those local neighbourhood networks, sometimes round a local congregation, sometimes around community groups, sometimes through a school, there are many possible ways forward. But, whichever route is chosen must bind people together in interlocking networks of mutual responsibility.?

    The Conservative Tradition

    I quote the Chief Rabbi at length because no-one has put the issues more clearly. Dr Sacks rightly stands above the party battle and it would be wrong for any party to seek to appropriate his views.

    I am certainly do not attempting to do so. But his views ought to find resonance among Conservative. The Conservative tradition has always been based first and foremost on belief in obligation to others – especially to those in need. We have always believed in personal responsibility rather than in individual rights. We prefer voluntary co-operation rather than coercion. And we have long been suspicious of the state exercising a monopoly.

    When I became Secretary of State for Social Security, I quoted as my mantra the great Tory, Samuel Johnson?s, dictum: ?the true test of a civilised society is decent provision for the poor?.

    Johnson certainly didn?t believe in leaving that duty to the state. His own household was a mini-welfare state of frail and unfortunate people on whom he spent the bulk of his income.

    And Edmund Burke famously emphasised that a true love of humanity

    is only possible if rooted in the personal loyalties of the ?little platoon?.

    Over the last two decades, we Conservatives failed to emphasise that tradition enough. As a result we let ourselves be caricatured as at best a purely economic party; and at worst a party alleged to believe in self-interest and greed.

    Those criticisms are utterly false. But we have only ourselves to blame for failing to spell out our true principles and showing how they inform our policies.

    Last month at Bournemouth, I set out my ?Ten Commandments? for our future policy renewal.

    The second commandment was that ?the overall thrust of our policies must prove beyond doubt that the Conservative Party is generous and caring?.

    So we shall be giving high priority to the policy issues I am discussing here today.

    The Growth of Welfare Provision

    Because of a modern tendency to equate the State with society, it is often assumed that before the State stepped into the field of welfare there was little or no collective welfare provision in this country.

    Nothing could be further from the truth. There was a rich profusion of spontaneous and voluntary welfare provision long before the Welfare State was thought of.

    Individuals who fell on hard times have always in the first instance looked to their families for help and support. They were also able to look beyond the family to friends and neighbours; to church, charitable and voluntary groups and to mutual savings and insurance schemes which enabled them to reduce risks by pooling them.

    Inevitably such a fabric of voluntary provision could not be comprehensive. And those who fell through its gaps could only fall back on the meagre and demeaning regime of the Poor Laws. Nonetheless, in 1871 less than five per cent of the population were dependent on poor relief. And as recently as 1961 there were still only the same proportion (five per cent) relying on National Assistance.

    Yet nowadays 17 per cent of the population are on income support. And no fewer than twenty-seven per cent rely on means tested benefits.

    Two historic events above all precipitated the move away from voluntary/co-operative welfare provision to the effective state monopoly we have today.

    The first was the 1930s slump. Industrial workers had learnt to cope with recessions over the decades. But they had never before had to face such a long, deep and extensive period of unemployment. Neither individual savings nor collective insurance (through trades unions and Friendly Societies) could cope with such a prolonged period without work. And given the heavy concentration of unemployment in certain geographic areas, it was unreasonable to rely on neighbours, family and friends. Many of them would also be unemployed or nursing their resources against that risk.

    People concluded that only the state could easily transfer the resources from the more prosperous areas to those hard-hit by the slump.

    The second event was the War. Britain emerged militarily victorious.

    It was natural to apply the successful military paradigm to tackling the problems of peacetime. That is one reason Britain?s welfare is such a centralised, uniform, unitary system. Other countries who had experienced defeat were less mesmerised by the military model. They tended to develop welfare systems based on their existing voluntary arrangements.

    When Beveridge set up the Welfare State there was immense optimism. Far from leading to inexorable growth in demand for benefits, the new Welfare State was expected to reduce the causes of dependency. And far from undermining voluntary provision, it was intended to promote a partnership between the statutory and private sectors.

    Beveridge wrote ?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 that minimum for himself and his family?.

    Indeed, Beveridge spoke in the Lords Debate in 1949 of ?the necessity of private enterprise for improving society…….That is voluntary action for social progress?.

    However, his brainchild has not developed in quite the way he hoped. Since it was established in the 1940s, our Welfare State has grown inexorably – twice as fast as the economy. It has taken an ever-rising share of national income. It has crowded out other public spending. And it has been the principal factor driving up the burden of taxes and charges on those in work.

    That growth has reflected mainly an increase in dependence – more people, claiming more benefits for longer periods. Inevitably, that has given rise to debate about the extent to which the existence of the Welfare State has itself generated growing dependency. Cynics say ?a ?100 billion honeypot is bound to attract a growing swarm of bees?. Economists argue that ?if you subsidise idleness and family breakdown, you will get more unemployment and broken families. And if you pay for it by taxing working families you will end up with fewer intact working families?.

    The reality is more complex.

    One major reason for the growth in the number of beneficiaries is a matter for rejoicing: more people are living longer. Another major reason, which I have discussed at length elsewhere, is the loss of manual jobs for unskilled men over recent decades. This is a change affecting most mature industrialised countries – not a specifically British phenomenon. Previously, even unskilled men could earn significantly more than the benefit level and enough to support a family. Now they find it harder to do so. This economic change interacts with the benefit system to make both marriage and work less attractive.

    Whatever the causes of growing benefit dependency, some consequences are clear.

    First, the longer people stay on benefit, the more they become dependent on benefit. Long periods on benefit can undermine morale, motivation and employability. Health, both physical and emotional, can suffer. Reliance on social housing and housing benefit reduces mobility in search of work.

    Second, where men depend on benefit or can earn in work little more than they could get on benefit and mothers can rely on housing and lone parent benefits – the economic cement of marriage is dissolved. So more children are raised in lone parent households.

    Third, in areas where a high proportion of people are dependent on benefits their problems are likely to be compounded. New businesses are less likely to be attracted to areas where few people have skills and motivation has been dampened. Successful role models are harder to find. It is all too easy for an area to sink into what Dick Atkinson calls a ?community of despair?.

    Facts and Figures

    When I was Secretary of State for Social Security, I asked my officials to analyse the extent to which social problems were concentrated in specific areas. Compared to England as a whole, people living in wards where over 75 per cent of households lived in social housing in the [1991 census] were:

    – 3 times as likely to be unemployed

    – 4 times as likely to have been out of work for over a year

    – 3 times as likely to be a lone parent

    – 5 times as likely to be a teenage lone parent

    – 1.3 times as likely to suffer a long-term illness

    – 1.3 times as likely to die

    And a study of the 320 most deprived estates in England in 1995 showed that:

    – 43 per cent were on income support: 2.5 times the national average

    – 3 times as many people were victims of contact crimes like common assault

    – 30 per cent of young males (between 16 and 29) claimed to have taken drugs in the previous month

    – and 10 per cent of pupils left local school without a single GCSE

    Although in these depressed areas most people suffer some form of social deprivation, it is wrong to assume that most socially deprived people in Britain live in these areas. For example, in areas where most people live in social housing, 42 per cent of people are on income support. Yet fewer than 5 per cent of people on income support in England live in such areas. The factor which is most concentrated of all is educational failure. A fifth of all the pupils in England who leave school without a single GCSE went to just 203 low-performing schools – the majority of which were within 2 miles of the most depressed estates.

    Part II – The Solution

    So we have created a Welfare State which has not turned out entirely as its authors hoped.

    It does do an enormous amount of good. It provides indispensable help for nearly all of us at certain times in our life and particularly for those who are most vulnerable. But the system seems to grow inexorably. It sucks people in but it won?t let them go: too many remain trapped in its tentacles. It undermines voluntary activity, the family and personal provision. It blights whole neighbourhoods. And it costs nearly ?100 billion – equivalent to ?75 from every working person every working week.

    How can we reform the Welfare State to preserve and enhance the good it does whilst curbing its social, personal, civic and financial costs?

    First, how not to do it. The worst way to try to cure the problems created by a costly, centralised, monopoly Welfare State, would be to make it responsible for tackling these problems; and to increase its powers and its budget even further.

    Yet that seems to be the direction in which the government is now heading. Although Tony Blair claimed ?New Labour is about cutting the welfare bill?; in practice, he has shied away from serious welfare reform since the rebellion over lone parent benefits.

    Since then, nearly all the government?s main reforms involve expanding the role of the Welfare State, its cost and dependency on it. The New Deal and the Working Families Tax Credit will add billions to the budget. Few would begrudge extra spending on these schemes if they were likely to get people off welfare into jobs.

    Indeed, if these schemes did work, they would not involve extra spending – since the savings on paying out benefit would cover the costs. But they are not expected to work. Even the government does not expect them to work. That is why the government itself expects the huge costs by far exceed any benefit savings.

    The reason their schemes don?t work is that they do not create a single extra job. They simply reallocate the available jobs between different categories of unemployed people. And most of the subsidy goes on people who would have got jobs anyway.

    Costly schemes like these have to be paid for out of taxation. The argument that the resultant taxes make it harder for taxpayers to provide for their own welfare needs often sounds a bit indirect.

    In this case, however, the connection is direct.

    The government has chosen to raise the extra taxes to finance higher spending by imposing a ?5 billion annual tax on Pension Funds. So more state provision for welfare means less private provision for old age.

    More Welfare Not Less

    It is a mistake to try to solve the problems of the Welfare State by extending the role of the State even further. But the aim of reform should certainly not be to reduce welfare provision.

    People need to cover the risks and uncertainties of life. And as society gets richer, we should be able to provide more of that help for ourselves and others, not less.

    What we need is more Welfare, but less State.

    New Supply Side Revolution

    In the 1980s reining back the role of the State in the economy produced a supply side revolution. Now we need a second supply side revolution – this time in social provision.

    That too will require limiting the role of the State.

    We need to abandon the idea that the state should have a near monopoly of responsibility for welfare provision. We need to recognise that the more the State takes over responsibility from citizens, the less responsibly they will behave.

    So we need to encourage:

    – personal responsibility

    – private provision

    – stronger families

    – voluntary action

    – and social entrepreneurship

    Targetting benefits on those in genuine need; making benefits conditional on effort to get into work or acquire skills; enforcing those conditions effectively; rooting out fraud; and above all promoting self-provision will all help generate a supply side response.

    Of course, the State will maintain its major role. But we need to introduce more of the ethos of the private and voluntary sectors into the way it operates.

    To achieve that we need to do three things.

    First, delegate decision-making locally. Since Beveridge, Britain has had one of the most centralised and uniform benefit systems in the world. That means local provision cannot be tailored to local circumstances. It becomes harder to bring local knowledge to bear on the delivery of benefit. It is harder to mobilise local pride to generate positive alternatives to welfare dependency.

    Switzerland is at the opposite extreme to us. There some 3,000 local communes are responsible for deciding on benefits for the poor. There are self-evident disadvantages to such a system. But the Swiss have combined the most generous rates of benefit with one of the lowest levels of dependency.

    Delegation of decision-making to a local level can certainly make a huge difference in other state services like education and policing. Local management of schools and grant maintained schools have already brought benefits in this country.

    We may have much to learn from the more radical delegation of decision making and choice in East Harlem. This district used to rank bottom out of New York?s 32 districts. But then they launched a revolution. Vast impersonal schools were subdivided so that two or three operated on the same site. The schools were given freedom to offer different styles of teaching and different curricula. Parents were given free choice between the 52 different schools in the district. Within less than a decade this ghetto area was in the top half of New York districts on most measures of performance.

    In policing, too, New York may have lessons to teach – not from mouthing slogans about zero-tolerance but from delegating responsibility. Each precinct was made responsible for reducing crime and held accountable. They were able to adopt whatever approach they found most appropriate. Local police chiefs who did not succeed were replaced. In general, they found that you could not have law without order. Serious crime fell when they cracked down on hooliganism and vandalism which create the climate in which crime flourishes.

    Second, we must, where possible, give more discretion within our Welfare State to those who make decisions. In practice that is only possible if decision-making is delegated locally. For example, I was able to give local authorities some discretion to give extra housing benefit to cover an above-average rent, by giving them a delegated budget. They might want to pay a higher rent to enable an elderly person to live near their family who could offer support.

    The alternative would be to force the old person to move to a lower-rented area – but in practice they would go into a retirement home at far greater cost to the community.

    So discretion saves the tax payer money and keeps families together.

    Third, we need to encourage the emergence of a new creature – the social or community entrepreneur. This new breed spans the gap between the public and private sectors. Some perform the even more difficult task of cutting across the previously unbridgeable divisions between different Departments of State.

    At Bromley-by-Bow, I saw – mirabile dictu – a health centre, linked to a community centre, linked to a nursery, centred on a church and allied to a school.

    To achieve that requires real enterprise. Social entrepreneurs consciously learnt from the Thatcher revolution. They recognise that to be enterprising is to be creative. They hate the waste and inefficiency they see in the public sector. They know that, in the words of Thomas Sowell, ?reality is not optional?. It is better to face up to harsh realities than to complain about them or try to wish them away. They believe that being tough-minded is not incompatible with being warm-hearted. They recognise, too, that enterprise requires leadership. They know that good leaders motivate, communicate and involve everyone in their team. But they have no truck with the egalitarian pretence that everyone should participate collectively in all decisions. That leads to what one called committeeitis – a recipe for paralysis.

    Social entrepreneurs have emerged to challenge the lethargy of huge bureaucracies. They have no intention of creating something equally inert. And they are producing impressive results.

    We need to encourage them.

    But to do so there are problems which need to be overcome. Social entrepreneurs and voluntary organisations need public resources. Encouraging them means entrusting them with public resources.

    That gives rise to two dangers. Either these resources will be hedged around with bureaucratic controls to ensure propriety. In which case we would end up bureaucratising the voluntary sector.

    Or, alternatively, government has to stand at arms length from the social enterprise while giving it our backing. Unfortunately, the State is not very good at backing winners as we saw in the economy.

    The single regeneration budget was one device we introduced to help overcome this dilemma. We will need to see whether its procedures can be made simpler and more flexible.


    The paradox of the Welfare State is that where it does most good, it also does most harm. We see that most clearly in the deprived areas of our inner cities. That is where there are the most people in genuine need.

    They deserve the help they receive. It is indispensable. And it is by no means overgenerous. Yet many become trapped on benefit. It affects the whole local culture and dampens the aspirations of the rising generation. And the remote, impersonal, bureaucratic structures leave people feeling alienated and helpless.

    The supreme challenge all parties face is how to revive the civic culture, local organisations, and the can-do approach, which are essential to restore hope to these communities.

    It is a challenge we will not shirk.