Labour needs to bind the middle-class to the welfare-state

If the Conservative party returns to power, public spending will likely return to their lowest levels since the 1930s., which could return to 1930s levels of spending if the Conservative party  returns to power this May. Labour could continue to provide the lacklustre policy response it has until now, offering a few tasty bites of populism and gabbling about how great the NHS is- or it could do what the Conservatives are doing in reverse. It could offer a vision for the complete transformation of British welfare that could utterly change the nature of British politics and life. In order to do this, Labour needs to transform the relationship the British middle-class has with the state, and the welfare state in particular.

When I talk about the middle-class here, I’m probably not talking about what you’re thinking. The middle-class in the UK has associations of midsummer murders, Radio 4 and Richard Curtis films. In the UK, when we talk of Bankers, Accountants, Senior Managers and Lawyers being the middle-class, we are actually referring to people in the top 10% of income in the UK, a bracket to which the minimum pre-tax income is £48,300 as of 2011-12. If we want to talk about the middle-class as a social group based upon income, rather than the rather unique cultural perspective we have of it in the UK, a good idea is take the middle 50% of the working population- that’s anyone with an income between £13,500 and £32,100 (using the same data). The bottom end is just above minimum wage- the top is about 10k short of the 40p tax bracket. One thing that should stand out is that the middle-class in Britain is hardly rich.

These considerations should be in our mind when we consider these tax proposals. When discussing David Cameron’s triumphant proclamation that by the end of the next parliament, anyone on minimum wage will pay zero tax, we should consider who benefits. As it is now, taxation kicks in at around the 11th percentile of the working population- so the bottom 10% are excluded from tax. Using 2011-12, raising the personal allowance would mean that tax would only kick in at the 21st percentile (although allowing for growth it could be several points lower). This may intuitively appear of benefit to the poor, except of course this is also a decrease in tax for everyone with an income up to £120,000.  Good, right? Well, what about the bottom 10%? Remember these people are working, and have an income of £10,000 or less. Moreover, although it is a bigger tax cut proportion of income for those between the 11th and the 21st percentiles, in aggregate it is a tax cut for the middle-class, who will receive the largest proportion of the gains.

The Conservative tax plan really is a masterful electoral carrot. It appeals directly to the entire middle-class and still appears as if it’s helping the poor, because it’s benefiting those on minimum wage. Moreover, this tax cut, which many of us would rather like, was quietly combined with an increase in the threshold of the 40p tax that would only help only the richest 15% (or the ‘middle-class’ as the Telegraph bizarrely claims). A better idea to help the poor would be would increasing the threshold of national insurance, as this starts much lower and would help nearly everyone (as the Liberal Democrats are suggesting).

But is this a better idea? Ultimately, this competition is not one Labour can win, because it’s hard for social-democrats to achieve their social objectives when they’re competing to cut taxes. This is a race that ultimately weakens the capacities of the state. Even if Labour is increasing taxes elsewhere, it is not necessarily the case that reducing taxation on the poor is intrinsically a good thing. There are two components of redistribution available to government- the way it taxes and the way it spends. The most egalitarian economies in the world also have some of the broadest tax regimes, often with highly regressive consumption taxes. This is balanced out by strong social spending which more than compensates poor and lower income groups for the taxes they’ve paid. There are strong arguments to say that it is this breadth of taxation which creates a sense of solidarity in creating the welfare-state. Payment of taxation has, rightly or wrongly, long been associated with granting the right of citizenship. Creating a system one group (the poor) uses which another group (the middle-class and rich) pays for is not a recipe for any kind of sustainability, since any political will to continue such a system will rapidly evaporate.

There is a flip side to this which is expounded in Gosta Esping-Andersen’s Three Worlds of Welfare Capitalism. The basic theory is that in Britain and America, welfare-states were originally largely intended for poor relief. Welfare was ultimately stigmatizing, and to be taken out only in the utmost necessity. The middle-class therefore strenuously avoid  seeking the help of the state and instead turn to the market for a solution to their needs. This contrasts with what happened in the Nordic social-democracies. Welfare in the social-democracies was established under the principle of universalism, entitling every citizen to social rights and thus welfare benefits. Moreover, here the welfare-state was also used to crowd-out the market and provide a broad range of public goods and services that directly met middle-class needs. In this situation “All benefit, all are dependent; and all will presumably feel obliged to pay”. This made welfare-states in the Nordic countries incredibly resilient to market incursions since the middle-class ferociously protect the benefits they derive from it. Indeed, we can see this clearly in the UK where our socialist Health service is defended with fervour.

Aside from counter-arguments dwelling on the context-specific evolution of Nordic social-democracies, the most likely argument against this in the UK is that we simply don’t want to pay any more taxes. Tony Blair and Gordon Brown were much lauded as shrewd modernisers for promising no increases in taxes in the run up to the 1997 election. Looking at what people really thought, it may be remembered as a missed opportunity. According to the British Values Survey in 1997, more than 60% of the population supported new taxes if it led to increased spending in health, education and social spending. Less than 5% supported lower taxes and spending. Although support for decreasing taxes has remained basically the same, since this time support for increases in taxation and spending has nearly fallen by half. It would appear the rhetoric of public inefficiency and welfare layabouts is working. People seem to be steadily giving up on the notion that taxation and spending is worthwhile. Nonetheless, there has still never been a time- even in austerity- when less than an overwhelming majority (about 90%) of the population has opposed reductions in taxation and spending.

There is clearly limited time though. Policies are needed to show the middle-class that the state can do some things a great deal better than the market. There are many options. Provision of cheap universal childcare will be greatly appreciated in a country with the second highest childcare costs in the OECD. The re-establishment of contributory benefits will allow the middle-class to see unemployment benefit as insurance rather than a hand-out, and feel it something they (and therefore others) are entitled to. Wide ranging Active Labour Market Policies that appeal to the broader population and not just the structurally unemployed would help fill in the gaps in skills needed by employers. The re-nationalisation of natural monopoly industries would not only demonstrate the potential superior efficiency of the public sector in some industries but also pass on savings to customers. This is also incredibly popular among the population at large.

But policies alone are not enough. Labour’s real challenge will be to defeat the neoliberal narrative that has been established over the past decades. In 2015, the Conservatives are presenting an intensely ideological manifesto which will shift British society and welfare further under the dominion of the market than it has been in living memory. Labour should combat ideology with ideology. It should present a positive image of the welfare-state as a powerful stabilizing force in uncertain times, with potential huge efficiency advantages over the private sector. It should present it as being in desperate need of expansion for the sake of not just the poor, but everyone, and especially the electorally vital middle-class.