Cameron’s welfare speech: why the critics are so upset


Tax and Fiscal Policy
Everyone remembers this situation from their student days: You are in an oral exam. Until just now, you felt reasonably well prepared. But now you realise that all the questions are about those sub-topics that you haven’t understood. How do you react?

Well, you awkwardly try to steer your answers towards your comfort zones.

David Cameron’s welfare speech has left many in a position not unlike that exam situation, and they have responded in the way just described. Cameron has addressed some of the ways in which the sense of reciprocity in welfare has been lost, and how this is particularly unfair towards low-earners who are doing their best. There is a lot to be criticised in that speech, but it has very strong passages, and the best aspect is that the issues are presented as matters of principle, rather than necessary responses to the budget deficit.

Cameron makes the case for a welfare system that expects more from its recipients; not because there is no money left, but because it is fair to those who are not that much better off. And this is precisely what so infuriates some of his critics. They generally consider fairness their issue, but in this context, it is clearly territory on which they are extremely uncomfortable. Can’t we talk about bankers’ bonuses instead? You know, the tax dodgers, the millionaires, the corporations, the speculators, the plutocrats, those who caused the crisis, the 1% – that kind of stuff?

Watch Polly Toynbee: ‘His speech hits every button, stirring up those on quite low incomes against those on very low incomes, dividing and ruling, distracting from the lifestyle of the rulers.’

On this issue, there is an abysmal gap between the Toynbeeites and the majority of the population. The former do not necessarily deny that abuse of the welfare system exists (although the poverty lobby generally does); they just consider it unimportant. For them, the real issue is what happens at the top of the income distribution, not the bottom. Yes, some recipients may act in a self-interested way, for example by making claims that they could have avoided. But they only do that because they see ‘the elites’ doing the same, and compared to the latter’s greed and moral corruption, it’s all peanuts anyway. The bonus culture, they claim, is infinitely more corrosive than the entitlement culture.

Yet for most people, the one does not excuse the other. Most people evaluate behaviour in absolute, not in relative terms.

Ultimately, the Toynbeeites assume that much higher moral standards must be applied to wealthy people than to poor people. This became clearest after last summer’s riots, when for some commentators the fact that the violence was concentrated in low-income areas was excuse enough. If you are not rich, you are not really responsible for your actions; you deserve pity, not blame.

If everybody shared those assumptions, the imbalances in the welfare system which Cameron talks about would not be a problem. But it is well-established (see here, pp. 110-130) that for most people, a sense of reciprocity in welfare is extremely important, and when it is damaged, the system becomes unstable. Many refuse to understand this, and resort to media-bashing: It’s all the tabloids fault; if only they stopped writing about welfare fraud, all would be well. Can’t they write about bankers’ bonuses instead?

But a welfare system must go with the grain of people’s legitimate desire for reciprocity, and therefore, it must be based on conditions and expectations. This would produce a much more stable welfare system, which could really help those who need it, rather than fostering resentment against them.

Dr Kristian Niemietz is the IEA's Head of Political Economy. Kristian studied Economics at the Humboldt Universität zu Berlin and the Universidad de Salamanca, graduating in 2007 as Diplom-Volkswirt (≈MSc in Economics). During his studies, he interned at the Central Bank of Bolivia (2004), the National Statistics Office of Paraguay (2005), and at the IEA (2006). He also studied Political Economy at King's College London, graduating in 2013 with a PhD. Kristian previously worked as a Research Fellow at the Berlin-based Institute for Free Enterprise (IUF), and taught Economics at King's College London. He is the author of the books "Socialism: The Failed Idea That Never Dies" (2019), "Universal Healthcare Without The NHS" (2016), "Redefining The Poverty Debate" (2012) and "A New Understanding of Poverty" (2011).